The Australian Tax Office has begun writing stern letters of warning to 18,000 Self Managed Super Funds (SMSFs) who have invested more than 90% of their retirement funds in a single asset class, such as property or cryptocurrency.
SMSFs are where individuals take control of their retirement fund investment decisions, rather than outsource the management to professionals.
Given combined assets of around $700 billion, SMSFs are a major growth area for cryptocurrency businesses in Australia.
The letters from the ATO warns SMSFs they have a ‘duty to comply with legal requirements to adopt investment strategies avoiding risky investments’.
Retirees can face fines of up to $4200 for breaching the regulation.
“We have already seen two instances of SMSFs losing significant amounts of their retirement savings through investment in cryptocurrency,” said an ATO spokesperson.
In late July, Micky reported on an Australian couple who lost more than $900,000 of the retirement savings to cryptocurrency scammers.
The crackdown was sparked by concerns over a ten-fold increase in the number of Limited Recourse Borrowing Arrangements (LRBAs).
More than 40 percent of SMSFs with LRBAs have 90% or more of their wealth concentrated in a single asset class.
Most invest the money into a single property investment, but some SMSFs are betting the farm on crypto.
ATO assistant commissioner Dana Fleming told The Australian that the letters were to remind SMSF owners “of their legal obligations” and “alert them to potential exposure to concentration risk and regulatory breaches”.
“We will also be writing to the auditors of these SMSFs to let them know of our concerns in relation to concentration risk,” Fleming said
One in five SMSFs are now run by people aged under 45 and established exchanges such as CoinSpot and Independent Reserve directly market their services to SMSFs.
The Australian Financial Review this week reported that Indian exchange Zebpay had been partly attracted to rehome itself in Australia due to favorable laws surrounding the investment of retirement funds in crypto.
“Australia happens to be the only developed country where retirement money, superannuation money, can very easily be invested into cryptocurrencies,” Zebpay crypto exchange CEO Ajeet Khurana said.
The AFT noted that the Bitcoin Australia website tells SMSF owners: “You can decide how much you would like to invest in crypto. This can be as little 1% or as much as 100% of your super – it’s completely up to you.”
This is both terrible investment advice and factually incorrect.
ASIC specifically warns SMSF holders of the dangers of investing in crypto.
“Be wary of services offering to establish an SMSF for you in order to gain exposure to cryptocurrencies. Not only does operating an SMSF involve significant time, skills and responsibility, you may also be putting your retirement savings at risk.”
The ATO has also warned SMSFs that cryptocurrency can be a high-risk, volatile investment.
“We strongly recommend all trustees undertake their own investigation and appropriate due diligence before investing with any organisation investing super assets into cryptocurrency holdings.”
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