SMSFs holding crypto-assets will not be able to use a capital gains tax (CGT) exemption applied to other tradable assets under a recommendation made by the Board of Taxation.
In February, after having been first asked in December 2021 to conduct a review of the tax treatment of digital assets and transactions in Australia, the board released its final report where it stated it did not find compelling reasons why crypto-assets should be taxed in SMSFs under the CGT provisions in the same way as shares, units in unit trusts or land.
The SMSF Association made the request as part of a submission in 2022 and requested crypto-assets be included in the application of the trading stock exemption under section 295‑85(4) of the Income Tax Assessment Act (ITAA) 1997.
The board noted that in regards to that exemption, section 295‑85(2) of the ITAA indicated the CGT framework was the primary code for assessing complying superannuation funds on CGT events, but an exception was made for trading stock, which was assessed under trading stock provisions in Division 70 of the act.
That division in turn states trading stock for a complying superannuation fund does not include an asset covered by ITAA section 275‑105, such as shares, other equity interests in a company, units in a unit trust and land.
“It follows that a complying superannuation fund transacting in the section 275‑105 ‘covered assets’ will be assessed under the CGT regime and therefore eligible for the CGT discount on gains,” the report stated.
“There appears to be a clear policy underpinning the taxation of superannuation assets that, while [the CGT regime] is to be the primary code, items of trading stock are generally not given that exclusive treatment. While an exception is made for land, shares and units, other asset classes do fall within the exception.
“Accordingly, the board is of the view that adding a further exception to the treatment of superannuation fund held trading stock is not compelling.”
Commenting on the recommendation, Sladen Legal principal Phil Broderick and special counsel Philippa Briglia noted the recommendation would create a different CGT discount for crypto-assets inside an SMSF.
“Under the trading stock exemption, most CGT assets of super funds, like listed shares and land, are taxed under the CGT regime, even if they would otherwise be treated as trading stock,” they said.
“This means the super funds, including SMSFs, are eligible for the one-third CGT discount if they have held those assets for 12 months or more.
“Assuming the recommendation is accepted, this means that crypto-assets can be treated as trading stock for SMSFs and the corresponding loss of the CGT discount. However, it does not stop crypto-assets from being on capital account, and eligible for the CGT discount if, for example, the SMSF has a long-term buy and hold strategy.”
