According to the Australian Securities and Investments Commission (ASIC), there has recently been a surge of promoters encouraging individuals to set up self managed superannuation funds (SMSFs) in order to invest in crypto-assets. ASIC warns people to be aware that while crypto-asset investments are allowed for SMSFs, they are high risk and speculative, as well as being an attractive area for scammers targeting uninformed investors.
Current record low deposit rates and volatility in stock markets around the world have motivated many retirees to seek alternative asset classes to either protect their investments or get higher returns. In conjunction, there has been a noticeable increase in spruikers encouraging individuals to invest in crypto-assets through SMSFs, with many promotions recommending switching from retail or industry super funds in order to do so.
For example, late last year ASIC moved to shut down an unlicensed financial services business based on the Gold Coast that promised annual investment returns of over 20% by investing in crypto-assets through SMSFs. The money obtained was not invested, but instead allegedly used by the directors of the business for their own personal benefit, including acquiring real property and luxury vehicles in their personal names.
Professional advice should always be sought before deciding on whether an SMSF is appropriate for your circumstances, as there are risks involved in being the trustee of an SMSF, and any SMSF established must meet the “sole-purpose” test. Remember, SMSF trustees bear all the responsibility for the fund and its investment decisions complying with the law, and breaches may lead to administrative or civil and criminal penalties. This is the case even if you (as the trustee) rely on the advice of other people, licensed or otherwise.
SMSFs are not generally prohibited from investing in crypto-assets – if you do decide, after receiving appropriate advice, that investing in crypto-assets through an SMSF is right for your situation, you can do so. Careful consideration must also be given to the following factors:
Other considerations include restrictions on related-party transactions (that is, if you currently own crypto-assets and want to transfer them to the SMSF for various purposes, you will be unable to do so), and potential CGT consequences when an in specie lump sum payment of crypto-assets occurs upon a condition of release.
If you do decide to invest in crypto-assets, whether through an SMSF or as an individual investor, it’s also important to keep accurate records and ensure you report any related income to the ATO.
Each time you transact in crypto, the ATO requires you to keep a record of:
You must keep these records for at least five years after lodging the relevant return or form.
The ATO started its first crypto data-matching program in April 2019, comparing taxpayer self-reported income to cryptocurrency transaction data for the 2015–2020 financial years. This program was expanded mid-last year to cover the 2021–2023 financial years, and the ATO will no doubt continue to gather and compare data into the future under subsequent programs. Records relating to between 400,000 and 600,000 individuals will be obtained each financial year under the current program.
The ATO sources its data from designated service providers (DSPs) or entities providing a designated service under Australia’s anti-money laundering/counterterrorism legislation. It may also obtain data from other sources.
A designated service is any service that exchanges, issues, transacts or deals in digital currency. This includes centralised cryptocurrency exchanges, exchanges that convert fiat currency to cryptocurrency (or vice versa) or other designated or regulated entities.
The ATO’s legal power to gather information is extensive and includes the power to physically enter any place and inspect any document, good or other property – this extends to a physical cryptocurrency wallet. The ATO is also permitted by law to amend a taxpayer's tax return for an unlimited period where it considers that fraud or evasion has occurred – and deliberate non-reporting of gains made from disposals of crypto-assets would meet this description. Possible penalties and interest are also a consideration.
Source: https://asic.gov.au/about-asic/news-centre/articles/warning-self-managed-super-funds-and-crypto-investments/
https://moneysmart.gov.au/investment-warnings/cryptocurrencies
www.ato.gov.au/super/self-managed-super-funds/in-detail/smsf-investing/smsf-investing-in-cryptocurrencies/
www.ato.gov.au/general/gen/tax-treatment-of-crypto-currencies-in-australia---specifically-bitcoin/