Navigating complexities of crypto investments: SMSFs

Grahame Allen • May 03, 2024

The digital currency landscape continues to be treacherous terrain for Self-Managed Super Fund (SMSF) trustees, with a growing number of reports indicating significant losses due to a variety of factors, including scams, theft, and collapsed trading platforms. As the allure of high returns from crypto investments tempts many, the ATO is emphasizing the need for increased vigilance and education to safeguard superannuation benefits. The ATO has identified several causes of crypto investment losses: Trustees are being duped by fraudulent crypto exchanges, which promise high returns but are designed to siphon off investors' funds. Cybercriminals are increasingly targeting crypto accounts, hacking into them to steal valuable cryptocurrencies. A number of crypto trading platforms, particularly those based overseas, have collapsed, leaving investors with significant losses. Some trustees find themselves permanently locked out of their crypto accounts due to forgotten passwords, losing access to their investments. Scammers impersonating ATO officials are tricking individuals into revealing wallet details under the guise of investigating tax evasion, leading to losses. The ATO is urging trustees to educate themselves on the potential pitfalls of crypto investing. Resources such as the ACCC's Scamwatch and ASIC's MoneySmart provide valuable information on recognising and avoiding scams. Moreover, the ATO highlights that many crypto assets are not classified as financial products, meaning that the platforms facilitating their trade often lack regulation. This increases the risk of loss without recourse. For those SMSF trustees faced with the loss of a digital wallet, the first step is to determine whether the loss is simply one of lost access or if there is loss of evidence of ownership. In either case, meticulous record-keeping is the key to navigating the situation. The ATO allows for the claim of a capital loss if trustees lose their crypto private key or if their cryptocurrency is stolen. However, to substantiate such a claim, trustees must provide comprehensive evidence, including the date of acquisition and loss of the private key, the associated wallet address, the cost to acquire the lost or stolen cryptocurrency, and the amount present in the wallet at the time of loss. Additionally, proof that the wallet was under the trustee’s control, such as transactions linked to their identity or hardware that stores the wallet, is essential. It is important to note that while some may still consider cryptocurrency to be private and anonymous, and may baulk at reporting gains made, the reality is much different. The ATO has the ability to track cryptocurrency transactions through electronic trails, in particular where it intersects with the real word. In addition, through data matching protocols, the ATO requires cryptocurrency exchanges to furnish them with information on transactions, making it possible to trace and tax crypto trades. Trustees are therefore encouraged to report all transactions. For SMSFs that run businesses and accept cryptocurrency as payment, the approach to accounting is akin to dealing with any other asset, the value of the cryptocurrency needs to be recorded in Australian dollars as a part of the business’ ordinary income. In addition, where business items are purchased using crypto, including trading stock, a deduction is allowed based on the market value of the item acquired. SMSFs that run businesses should also be aware that there may be GST issues with transacting in crypto.

Federal Budget 2024: Business Measures

By Grahame Allen • 17 May, 2024
On Tuesday 14 May 2024, Treasurer Jim Chalmers handed down the 2024-25 Federal Budget, his 3rd Budget. The major SME business tax-related measures announced in the Budget include the following. Instant asset write-off for small businesses extended The Government will extend the instant asset write-off concession for another 12 months. This will allow small businesses with turnovers capped at $10 million to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use for a taxable purpose between 1 July 2024 and 30 June 2025. Depreciating assets that are first used or installed ready for use for a taxable purpose on or after 1 July 2023 will be subject to the $20,000 threshold. The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter. In terms of black letter law, the increased instant asset write-off concession ceased on 30 June 2023. However, the Government announced in the 2023-24 Federal Budget (ie last year's) that it would be extended by one year, ie to finish on 30 June 2024. That measure was contained in a Bill which is currently before Parliament (ie it is not yet law). It passed the Senate with one amendment (which extended the coverage to businesses above $50m and increased the threshold from $20,000 to $30,000) which was subsequently voted down in the House. The Bill has now returned to the Senate for further consideration. Changes to foreign resident CGT rules The Government will amend the following areas of CGT as it applies to foreign residents, ie it will: clarify and broaden the types of assets that foreign residents will be liable for; amend the point-in-time principal asset test to a 365-day testing period; and require foreign residents disposing of shares and other membership interests exceeding $20m in value to notify the ATO, prior to the transaction being executed. Energy relief payments extended The Government will provide $3.5 billion over 3 years from 2023-24 to extend and expand the Energy Bill Relief Fund to provide a $300 rebate to all Australian households and a $325 rebate to eligible small businesses on 2024-25 energy bills. Future Made in Australia incentives The Government will provide 2 tax-related incentives relating to its Future Made in Australia program: the Critical Minerals Production tax incentive and the Hydrogen Production tax incentive. There are no specific details in the Budget Papers as to how these incentives will be implemented. BAS notification period extended The Government will extend the time the ATO has to notify a taxpayer if it intends to retain a BAS refund for further investigation. The ATO's mandatory notification period for BAS refund retention will be increased from 14 days to 30 days to align with time limits for non-BAS refunds. More ATO funding; compliance programs extended The Government will provide $187.0m over 4 years from 1 July 2024 to the ATO to strengthen its ability to detect, prevent and mitigate fraud against the tax and superannuation systems. Funding includes: $78.7m for upgrades to information and communications technologies to enable the ATO to identify and block suspicious activity in real time; $83.5m for a new compliance taskforce to recover lost revenue and intervene when attempts to obtain fraudulent refunds are made; $24.8m to improve the ATO's management and governance of its counter-fraud activities, including improving how the ATO assists individuals harmed by fraud. In addition, the government will extend both the ATO Shadow Economy Compliance Program for 2 years from 1 July 2026 and the ATO Tax Avoidance Taskforce for 2 years, also from 1 July 2026. These measures are expected to increase receipts by $1.9 bn and $2.4bn respectively. Funding for new Administration Review Tribunal The Government will provide $1.0bn over 5 years from 2023-24 (with $210.8m per year ongoing from 2028-29 and an additional $194.2m from 2028-29 to 2035-36) to establish and support the sustainable operation of the new Administrative Review Tribunal (ART), replacing the AAT. Some of the funding will be used to clear court backlogs associated with high numbers of applications for judicial review of migration decisions.

ASIC warns consumers to beware of cold callers

By Grahame Allen • 10 May, 2024
ASIC has issued a warning to consumers to remain vigilant against high-pressure sales tactics and deceptive online advertisements used by certain cold calling operations offering unsuitable superannuation switching advice. This type of high-pressure sale tactics has been a blight on the superannuation/financial services landscape since 2020 when ASIC first started taking action against various AFS licensees. Following an extensive review, ASIC has uncovered a worrying trend where cold callers, after procuring personal details from third-party data brokers or through online baiting techniques (eg running competitions for prizes such as phones or gift cards or using certain online comparison websites), have been aggressively pushing consumers to switch their superannuation funds. These callers often have ties to a minority of financial advisers who then suggest moving the consumers' funds into superannuation products that carry hefty fees. ASIC has expressed particular concern about these practices, noting that individuals aged between 25 to 50 - the primary targets of these operations - are at risk of significant retirement savings depletion. This may be due to either reduced super value owing to unsuitable investments, excessive fees and/or other charges. In addition, ASIC has also observed a substantial flow of super savings into high-risk property managed investment schemes. These schemes are either channelled through super products offered by APRA-regulated funds or SMSFs, with subsequent kickbacks going to the cold calling entities. ASIC has reiterated its commitment to safeguarding consumers and urged financial advice licensees and superannuation trustees to intensify their efforts in rooting out the nefarious elements causing consumer detriment. It notes that it will continue to take appropriate action, including enforcement action, to deter cold calling. For financial advice licensees, ASIC suggests that they improve their monitoring and supervisory systems to identify and address any concerning behaviours, ensuring their advisers are prioritising their clients' best interests. It also expects super trustees to be proactive in preventing the erosion of superannuation balances and mandating the implementation of stringent systems to oversee the deduction of financial advice fees from member accounts. In its ongoing efforts to combat these unscrupulous practices, ASIC has reviewed how trustees oversee advice fee charges and plans to publish a report detailing its key findings. In addition, to raise public awareness, it has launched a campaign advising consumers to hang up on cold callers and scroll past social media click bait offers to compare and switch super funds. ASIC notes that a typical super cold calling experience does involve receiving a statement of advice (SOA) prepared by a financial advice firm – often one that the cold caller has an existing arrangement with – it is usually “cookie cutter” advice that is expensive, unnecessary and does not consider a consumer’s individual needs, and may eventually leave individuals in a worse financial position. It reminds consumers that quality financial advice takes weeks, not days to prepare. Consumers who believe they have received financial advice that was not appropriate for their circumstances are able to initiate a complaints process, which includes contacting the business before contacting AFCA (an independent complaints body). Consumers who believe they have been a part of a scam should report it to their super fund at the first instance, and also to Scamwatch and ASIC.

Trust reporting changes from 1 July 2024

By Grahame Allen • 26 Apr, 2024
Changes to simplify reporting for trustees and beneficiaries are commencing from 1 July 2024 as a part of the Modernisation of Trust Administration Systems (MTAS) project. From that date, labels in the statement of distribution, which is a part of the trust tax return, will be modified, a new schedule will be introduced for all trust beneficiary types, and new data validations will be added. Looking at each of these changes in depth, from the 2023-24 income year and onward, four new capital gains tax (CGT) labels have been added into the trust tax return statement of distribution. These changes will enhance the ability of trustees to appropriately notify beneficiaries of their entitlement to income and support the calculation of the CGT amount in individual tax returns. The ATO recommends that all beneficiaries obtain copies of the trust statement of distribution as it relates to their individual entitlements. This will allow beneficiaries to include the correct information in the new trust income schedule. The trust income schedule instructions will demonstrate how the information on the tax statement provided should be reported on the trust income schedule. This also includes trust income from a managed fund. It should be noted that beneficiaries will still need to complete existing trust income labels in beneficiary income tax returns as this new trust income schedule will not replace any existing trust income labels. Individual beneficiaries who lodge via MyTax will receive prompts about the additional reporting of trust income. In addition to these reporting changes, the ATO has reminded trustees that where beneficiaries’ entitlements reflected in trust resolutions are subsequently changed by either arguing the resolution as invalid, defective or made at a different time, it should be notified as an affected party where the change triggers tax consequences. For context, to ensure that beneficiaries are presently entitled to trust income, discretionary trusts are usually required to make a resolution by 30 June of any specific income year. For those specifically entitled to a capital gain, trustees of discretionary trusts must make a resolution in respect of that capital gain by 31 August following the income year in which the capital gain is made. According to the ATO, high-risk behaviours by trustees can include altering trust resolutions after tax returns are lodged, failing to inform the ATO of errors in trust deeds or their administration, and making decisions that affect the tax liabilities of a trust, such as early vesting, without notifying the ATO. These actions can lead to disputes over entitlements, amended assessments, and the potential for tax fraud or evasion charges if the issues are not promptly and transparently addressed with the ATO. The ATO notes that it is critical for trustees of trusts to maintain open and honest communication with the ATO, as failure to do so may lead to serious consequences, including the possibility of amended tax assessments for fraud or evasion (which are not limited by the standard four-year review period) and the imposition of significant penalties. The need for trustees to promptly advise the ATO of any mistakes in the trust deed or in the administration of the trust to prevent legal and financial complications cannot be overstated.
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