The ATO has cautioned SMSF trustees about the risks of investing in cryptocurrencies and digital assets after noting ongoing losses among funds holding these investments.
The regulator identified multiple areas where trustees were losing their cryptocurrency investments, including exposure to scams such as counterfeit exchanges and hacking attacks leading to fund theft.
These risks extend to the collapse of foreign trading platforms and the loss of passwords, alongside schemes where scammers pose as tax authorities to extract sensitive investor information under false pretences.
“We continue to see SMSF trustees reporting losses with crypto investments due to scams and other reasons,” the ATO stated.
“Many crypto assets are not considered to be financial products. This means the platform where you buy and sell crypto is usually not regulated so you may not be protected if the platform fails or is hacked and you could lose all of your crypto.
“Investing in crypto can be complex and risky so we recommend trustees seek financial advice before investing.”
The ATO directed trustees to the Moneysmart website and its SMSF investing in crypto assets webpages for additional guidance and advice on navigating the complexities of investing in digital assets.
Additionally, trustees should regularly monitor the Scamwatch service operated by the Australian Competition and Consumer Commission and consult the resources available on the Australian Securities and Investments Commission (ASIC) website.
The warning comes after an auditing specialist noted SMSF practitioners can be held liable in court for losses if cryptocurrency investments fail and they are prohibited under a fund’s investment strategy.
ASIC also recently brought legal proceedings against three blockchain mining companies for allegedly encouraging investors to convert their SMSF funds into cryptocurrencies.
The latest ATO SMSF quarterly statistical report covering the December quarter revealed cryptocurrencies and digital assets currently make up over $1.02 billion of the total $878.4 billion of assets held by SMSFs.
A significant portion (23 per cent) of those assets were held by SMSFs with $200,000 or less in the fund.