Mark Chapman, director of tax communications at H&R Block, told SMSF Adviser that in the countdown towards the 28 February deadline for SARs, he has noticed more funds are investing in cryptocurrencies, especially those recently established or held by younger members.
Although it is relatively easy to obtain the market value certification required for audit purposes for larger, more well-known cryptocurrencies like bitcoin, he said, less well-known cryptocurrencies can present problems.
“Cryptocurrency is a risky investment and trustees should be aware of the risk appetite of members before making such investments.”
“There are serious considerations as to whether the trustee permits investment such as this and that if they do, they cover all the bases that need to be covered in regards to compliance.”
Chapman said there were pros and cons to investment in crypto, especially when dealing with smaller funds.
“Often trustees and members are only seeing the headlines [about crypto] and put money into something like bitcoin without understanding that it all depends on timing,” he said.
“They see the promise of huge windfall gains and the bitcoin price going up but it has to be remembered that depending on the timing, the price of cryptocurrencies go up and down like a yo-yo.”
With the ATO also more heavily scrutinising the market value of assets in a fund, Chapman said it could sometimes be difficult to get an accurate valuation of smaller cryptocurrencies.
“The auditor does need to audit it and determine if it is a reasonable and genuine market valuation and if not, it is potentially a breach of compliance,” he said.
He added that most SMSFs had exposure to property and the share market but smaller funds established by younger trustees were not necessarily taking a longer-term perspective to investment.
“They are chasing profits but that is not what SMSF is designed for – these assets like crypto are short-term investments,” he said.
“It does pay to get professional advice and speak to a financial adviser when you are putting money into a fund – don’t think you can do everything yourself. It’s more common with lower-value super funds for people to do it themselves to save money as the fees for setting up and running a fund can be expensive.”
Chapman said generally the majority of SMSF trustees were aware of their obligations for the lodgment of their annual returns, but smaller and newer funds may potentially miss the deadline.
“If an SMSF is self-lodging they have to have their audit already completed by now and make sure they lodge their annual return by 28 February,” he said.
“If not, they are looking at a late lodgement penalty. If they have an agent, they have a little time left but have to have engaged an auditor at least 45 days before lodgement on May 15.”
