Crypto Assets

NFT status adds to complexity


There is an increased amount of complexity to a situation where an SMSF holds an NFT due to the ATO’s classification of these types of assets.

A technical manager has warned the categorisation the ATO has currently assigned to non-fungible tokens (NFT) brings about greater compliance complexity for SMSFs that hold these types of digital assets.

SuperGuardian education manager Tim Miller confirmed the regulator has determined NFTs do not fit the definition of a collectable or personal-use asset and that effectively increases the actions available to SMSF trustees regarding these items and in turn increases the compliance risks with them.

“[The fact] these investments are not collectables or personal-use assets make them quite a thought-provoking investment. [If we forget] all the sole purpose test and valuation issues associated with them, the complexities that this creates from a fund audit point of view [are numerous],” Miller told attendees of a technical webinar he hosted last week.

More specifically, he noted if the concept of an investment in an NFT gives the owner, in this case the SMSF, the right to access an asset, for example, a piece of artwork, but not actually the capacity to display it, as is the case with a collectable, strategies like having the fund lease an NFT to a related party can be considered.

“[With] collectable and personal-use assets, we can’t lease [them] to related parties at all. But if this [type of] asset is not a collectable asset, then in theory could we lease out the capacity to display [the associated artwork] to a related party under the stock-standard in-house assets rules?” he said.

According to Miller, the SMSF sector cannot determine exactly how an NFT can be treated until the ATO investigates the nature of these assets further.

“I’m sceptical about [whether an NFT can be leased to a related party], but … there all these things that we would need to contemplate as [part of the] broader picture,” he said.

“I think [the current NFT asset classification] certainly has us scratching our heads as to where self-managed super funds are at with regard to investing n NFTs.”

During the same webinar, he questioned whether an NFT investment made by an SMSF can actually satisfy the sole purpose test.

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