The Australian Tax office (ATO) has started to send warning letters to almost 18,000 Self Managed Super Funds (SMSFs), cautioning against hedging 90% of retirement funds in a single asset class, reported The Australian. SMSFs give an individual the power to choose how they want to invest his/her retirement funds and it currently boasts a market of $700 billion. Given the hype and popularity around cryptocurrencies recently, a majority of Australians use these SMSFs funds to invest in cryptocurrencies.
Australia’s tax authorities took notice after it found that many individuals had invested a significant potion of their retirement funds into a single asset class like cryptocurrency and real estate. Investing in a single asset class is considered highly risky, given that if a particular asset class tanks, the investor is set to lose all his savings.
The letter sent out by the ATO warns SMSFs about the potential risks, as well as the laws they are violating by hedging 90% of the retirement funds in a single asset class. The letter reads, “it is a duty to comply with legal requirements to adopt investment strategies avoiding risky investments.”
Those who fail to comply with the regulations set by the tax authorities might face fines up to $4,200. The concern of ATO is understandable, given that there have been several cases of fraud related to people investing a major portion of their savings in cryptocurrencies. In July, one couple lost a whopping $900,000 of their retirement savings in a crypto scam.
The decision to send warning letters to SMSFs came after an alarming increase in Limited Recourse Borrowing Arrangements (LRBAs), which grew 10 folds. ATO noticed that more than 40% of all SMSFs with LBRAs have 90% or more of their funds concentrated in just one asset class.
Dana Fleming, Assistant Commissioner of the ATO, said that the letter was just to remind SMSFs about their legal obligations. Fleming said,
“We will also be writing to the auditors of these SMSFs to let them know of our concerns in relation to concentration risk,”
Australian regulations are largely crypto-friendly, making it one of the most favorable destinations for crypto-operations. However, its tax authorities recently have been very pro-active about weeding out scams related to cryptocurrencies.