SMSF members considering investing in non-fungible tokens (NFT) should look past the current trend to buy these digital assets and concentrate on ensuring they meet the criteria of their fund’s investment strategy and superannuation law.
BT Technical Services technical consultant Tim Howard said while NFTs, as online contracts that gave ownership over digital or physical assets, were a unique asset class and their value had increased rapidly, the key considerations around investing via an SMSF had not changed.
“NFTs have exploded in value, which is partially driven by mainstream auction houses getting on board and marketing these types of assets. As a result of that, we are getting questions around whether an SMSF can invest in NFTs,” Howard said in a recent online briefing.
“These are similar to the questions we got three years ago around whether an SMSF can hold cryptocurrency.
“The bottom line is as simple as looking at what the investment actually is, whether the fund member is getting a present benefit and is there any prohibition under super law to investing in these things.”
He added the rules around purchasing the asset from a fund member also applied and noted the generation of NFTs may cause confusion.
“A lot of these assets have come through online gaming and the ability to create them and trade them outside of online games has created a marketplace for NFTs,” he said.
“Yet, a member can’t use their SMSF’s investment assets to buy these investments that they might use while gaming.”
He noted any acquisition of an NFT had to provide a retirement benefit for the members and the current high prices of more sought-after assets may lead people to believe there was a retirement benefit.
However, the unique nature of NFT assets added more areas of compliance for SMSFs even where they could show a retirement benefit, he said.
“The nature of the underlying asset – that is, whether it is a real asset or a digital asset – needs to be considered as does whether it is a collectible or personal-use asset and falls under the Superannuation Industry (Supervision) Regulations on holding and insuring collectibles or personal-use assets,” he said.
“Also, similar to cryptocurrency, do the NFTs sit on a platform or a blockchain and can we identify the SMSF as the actual owner of that asset?
“We also need to consider the actual market value of the assets and whether the fund is valuing the token itself or the tangible underlying value if it is attached or giving ownership rights to a real asset that might be out there.
“And, of course, the SMSF trustee needs to actually accommodate this particular type of investment and anything in this new space has a high level of volatility and its liquidity can be questionable.”
