The digital currency landscape continues to be treacherous terrain for self managed superannuation fund (SMSF) trustees, with a growing number of reports indicating significant losses due to a variety of factors, including scams, theft and collapsed trading platforms. The ATO is urging trustees to educate themselves on the potential pitfalls of crypto investing, including the fact that many crypto assets are not classified as financial products. This means that the platforms facilitating their trade often lack regulation, increasing the risk of loss without recourse.
The ATO has identified several causes of crypto investment losses:
- Some trustees are being duped by fraudulent crypto exchanges, which promise high returns but are designed to siphon off investors’ funds.
- Cybercriminals are increasingly targeting crypto accounts, hacking into them to steal valuable cryptocurrencies.
- A number of crypto trading platforms, particularly those based overseas, have collapsed, leaving investors with significant losses.
- Some trustees find themselves permanently locked out of their crypto accounts due to forgotten passwords, losing access to their investments.
- Scammers impersonating ATO officials are tricking some individuals into revealing wallet details under the guise of investigating tax evasion, leading to losses.
The ATO is urging trustees to educate themselves on the potential pitfalls of crypto investing. Resources such as the ACCC’s Scamwatch and ASIC’s MoneySmart provide valuable information on recognising and avoiding scams.
The ATO highlights that many crypto assets are not classified as financial products, meaning that the platforms facilitating their trade often lack regulation. This increases the risk of loss without recourse.
It is important to note that while some may still consider cryptocurrency to be private and anonymous, and may baulk at reporting any gains they’ve made, the reality is quite different. The ATO has the ability to track cryptocurrency transactions through electronic trails, in particular where it intersects with the real world. In addition, through data-matching protocols, the ATO requires cryptocurrency exchanges to furnish them with information on transactions, making it possible to trace and tax crypto trades. Trustees are therefore encouraged to report all transactions. For SMSFs that run businesses and accept cryptocurrency as payment, the approach to accounting is akin to dealing with any other asset: the value of the cryptocurrency needs to be recorded in Australian dollars as a part of the business’ ordinary income. Where business items are purchased using crypto, including trading stock, a deduction is allowed based on the market value of the item acquired. SMSFs that run businesses should also be aware that there may be GST issues when transacting in crypto.