“Right now we’ve only got one reference from the ATO which is private binding ruling (PBR) 1051694175099, which addresses the question of whether a specific type of NFT is a collectable or a personal use asset.”

Mr Miller noted that this particular PBR was requested for income tax purposes.

“The ATO stated that the [NFT] was neither a collectable nor a personal use asset,” he continued.

“[However] the fact that this document exists in the public forum is risky from an SMSF industry point of view.”

Mr Miller noted that the scenario in the private ruling related to a very specific circumstances.

“This specific asset was linked to online gaming. If you passed a certain level, you’d get a reward and that reward was an NFT that gives you additional benefits within the gaming world.”

The ATO explained in the PBR that what the taxpayer had acquired was NFT holding rights or the right to access the non-fungible tokens.

“The ATO said in the private binding ruling that what they had acquired was a right to to the ownership of that piece of the blockchain [which proved] they had access to a smart contract.”

“An NFT is driven by a smart contract and it’s what that smart contract provides that can create problems from an SMSF point of view.”

Mr Miller explained that the NFT in the private binding ruling, for example, provided access to more tokens that could be used inside the gaming environment.

“The smart contracts associated with a lot of NFTs give access to go and view the original piece of art or provide access to do some other type of event. If we’re getting some benefit out of that right that we’ve acquired then there may be some link to personal use,” he warned.

“That might be the factor behind why we bought that investment which means it’s in breach of the sole purpose test. This means we’ve got all these things that we need to drill down on when dealing in NFTs.”

Mr Miller said the PBR raises a number of questions around what can be done with these assets.

“If it’s not a collectable or personal use asset and we’re talking about a right to an asset, then what’s to suggest that we can’t display it?” he questioned.

“What’s to suggest that we can’t take the USB and shove it in a TV screen or digital frame in our office and display it? I think this is why we need to get a clearer definition of what we’re actually talking about from a regulatory point of view.”

Mr Miller noted that an SMSF member may want to display the art in a digital gallery as a way of generating income, particularly as the technology in this area advances further. 

“So I think the ATO still has a number of hurdles to jump through in terms of determining where exactly NFTs sit within the SMSF space.”