Thanks for the emerging issue that you have raised.

As a broad proposition a non-fungible token or NFT, is similar to investing in crypto currency – with a few key differences, which will be discussed below.

One of the key differences is that it can be very difficult to reliably value an NFT as at 30 June, mindful of the requirements of Regulation 8.02B of SIS Regulations. In contrast, with crypto currency, there are exchanges on which it is capable of being traded, form which a valuation as at a particular date can be obtained.

Crypto currency of the same type is considered to be identical. For example, a single Bitcoin is completely identical to another single Bitcoin. Whereas the whole point of an investment in an NFT, is that it is unique and not capable of being replicated or copied.

There are various issues to consider if a fund is to invest in an NFT. A list of some of these issues (not an exhaustive list) is provided below:

1. Ensure that any investment in NFTs is contemplated by the fund’s investment strategy. Given the volatile nature of NFTs also ensure that due consideration has been given to liquidity when formulating the fund’s investment strategy. It would also be best practice to ensure that the fund’s deed expressly allows for investments in NFPs.

2. Test to see that the NFT was not acquired from a member of the fund or a related party of a member of the fund.

3. Consider if the NFT is held in a wallet or an online account that is the name of the super fund, or in the name of the trustee of the super fund. Where there are technical limitations preventing this from occurring, is there a declaration of trust over the NFT provided by the stated legal owner in favour of the trustee of the fund?

4. Consider if the NFT is a personal use asset or a collectable. The significance of this is that if the NFT is considered to be a” personal use asset or collectable” there are various requirements that need to be satisfied (which could be practically challenging) such as obtaining insurance, storing the asset appropriately – and not at the residence of a fund member, documenting decisions in relation to storage, and ensuring that the asset is not used by or leased to a related party.

There is some debate as to whether an NFT is capable of being an interest in “personal use asset or collectable” for the purposes of Regulation 13.18AA of the SIS Regulations. There are various rulings on the ATO’s Register of Private Binding Rulings (which only ever bind the Commissioner to the taxpayer to which they were issued) which indicate that NFTs are not collectables or personal use assets for the purposes of section 108-20 of the Income Tax Assessment Act 1997 (ITAA 1997).

Please note that the defined term “personal use asset” as used in the ITAA 1997 is defined in a slightly different way as it is used in the SIS Regulations.

From our research, this appears to be an area in which as of yet there is no specific ATO guidance in the context of SMSFs investing in NFTs. Presumably this will eventually change as more funds invest in NFTs.

As listed above, the biggest challenge for a fund auditor will be testing the market value of a fund’s investment in an NFT.


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