The volatile nature of cryptocurrency will make it more likely to be impacted by the proposed Division 296 tax if it is held within an SMSF and will create barriers to ownership among a cohort of members who hold it specifically for retirement purposes, according to Wilson Asset Management.
The claim was made in a second paper released by the investment firm outlining how the taxing of unrealised gains and the lack of indexation within the impost would negatively impact investment in innovation and new asset classes by superannuation fund members.
The paper, titled “Taxing Aspiration and Innovation into Oblivion: How the Unrealised Gains Tax and the Failure to Index Will Decimate Australia’s Innovation”, noted that according to ATO data, in 2024, SMSFs held $1.044 billion in cryptocurrency, an increase of 500 per cent on the $200 million figure of five years earlier.
“No other major asset class within the superannuation system has expanded at this rate and all indicators suggest this momentum is accelerating. The trend is particularly pronounced among younger Australians,” the paper said.
It also noted a 2024 Vanguard report found cryptocurrency accounted for 7 per cent of newly formed SMSF portfolios compared to 1 per cent for established funds, and among gen Z investors cryptocurrency ownership specifically for retirement purposes increased 16 per cent year on year.
This shift was part of a new retirement philosophy held by ‘digital-native generations’ who saw cryptocurrency as a core part of their long-term financial planning, but the volatile nature of the assets would clash with elements of the new tax, it said.
“The ATO classifies cryptocurrency and other digital assets as property for tax purposes and not a form of money or legal tender. This means their disposal is subject to capital gains tax and, critically, will also be captured under the proposed tax on unrealised gains,” it stated.
“This presents serious implementation challenges. Bitcoin and other cryptocurrencies are highly volatile, with extreme and frequent price swings.
“Investors could be forced to pay tax on a hypothetical gain one year, only to then suffer a substantial capital loss in the next.
“In practical terms, this could impose tax liabilities that are impossible to fund, making cryptocurrency the most challenged asset class to be subject to the proposed tax.
“The extreme volatility of cryptocurrency calls into question the reliability of Treasury’s tax revenue forecasts that include unrealised capital gains.
“As with the lack of indexation, younger Australians who are most likely to allocate to cryptocurrency within superannuation will be disproportionately impacted over time, particularly as their balances grow.”
