SMSFs investing in NFT’s

By May 3, 2022 Blogs

At My SMSF, we have seen many different types of crypto investing activities from, crypto, staking, mining, bot trading and conventional investing in bitcoin. The latest crazy in SMSF Crypto is NFT’s and its hardly surprising given the growth and phenomenal interest in NFT’s.

So, what are NFT’s, well an NFT is a Non Fungible Token. The easiest way to explain what an NFT is, is to compare it with a coin or cryptocurrency like bitcoin. Bitcoin is fungible, meaning is can be exchanged for any good or service based on the price or value of one bitcoin. NFT’s are not fungible meaning they are not divisible and generally cannot be exchanged for a good or service.  NFT’s are great instrument for collectables, art, music and there is a raft of other applications for NFTs that are being explored.  NFT’s can be purchased via a mint on promoters sites; just like an IPO; primary market; where people can buy pre-listing shares before they hit the stock exchange which is a secondary market; and then purchase and resell via marketplace sites likes opensea.io  which are secondary markets.

Some Example of NFTs:

  • Bored Ape Yacht Club NFT, the most famous in the NFT world
  • Beeple’s – Art
  • Topshots – NBA memorabilia

What problems do NFT’s solve? Well, if you think about the Art market or the sporting tradable cards market, there are three major issues.

  1. Authenticity b) Determining value, for purchases and resales c) distribution and royalties

Most art buyers spend money on experts to authenticate a painting or a sports card, before purchasing it. With an NFT Art work or sports card, by block chaining it, we can verify the creator, the number on issue and thereby solve the issue of Authenticity.  When an art work is listed on a secondary market like opensea, buyers and sellers determine the price or value which makes it easier for all parties to transact. On secondary market sites like opensea, there are many users, which makes it easier for the artist or promoter to distribute their creations. If you compare these improvements to the current world problem of collectables and Art, where the artist is beholden to the gallery owner to come back with a value, where the authenticity of the work will still be questioned by a buyer and where there is little future reward for an artists great work, which a baked in royalty in an NFT provides.

Given the dramatic growth in NFT’s, SMSFs are now jumping on the bandwagon to acquire these assets for retirement investment purposes and its hard to fault their logic. The great leveler, when it comes to any crypto activity within in an SMSF is, the prevailing super laws and to a lesser extent the tax laws, which class crypto as property like assets.

So, lets take a look at three pertinent sections of the super laws, that SMSF member, trustees must be aware of when acquiring NFTs for their retirement in an SMSF

The sole purpose test – section 62

  • Is the asset suitable to provide income and capital for all members of the fund ?

Separation of assets – section 4.09

  • Are the assets ( NFTs) acquire by the SMSF using SMSF funds, not personal or company funds? And is there proof that the ownership and control of the NFT lies with the SMSF?

Arms length and commercial – section  109

  • Is it acquired at market rates, not at a discount; which is hard to do with crypto given it’s a public 24/7 and transparent market. Is it acquired from an unrelated party to the SMSF

Now, provided that these tests or sections of the super law are observed, NFTs are quite permissible in an SMSF. One final point to make is that, you cannot transfer an NFT you acquired with personal monies to your SMSF unless it is less than 5% of the value( in house asset test) of your funds total value. Just like with other assets; with only shares and commercial property that are allowed to be moved to an SMSF, although potentially still subject to gst and stamp duty and brokerage. It must be noted, that NFT’s cannot be transferred from personal ownership to an SMSF.

One final hurdle is the all important place of acquisition. As it stands, most promoters or creators of NFTs do not accept fiat currency to purchase NFTs and most market places, only accept crypto and credit cards, which would restrict an SMSF from owning an NFT. Unless an exchange offers this facility. Well the good news is Australian exchanges are offering this service and we can highlight three exchanges that will allow SMSFs to acquire NFTs

  • Coinspot – https://www.coinspot.com.au/nft
  • Digital Surge ( coming soon)

So, currently there are only a very few options to legally and compliantly acquire NFTs via an SMSF. Watch this space, as we at My SMSF are sure that many other exchanges will start to offer this option as more SMSF members seek exposure to NFTs via their SMSFs.

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