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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012568326409

Ruling

Subject: capital gains tax and shares

Question and answer:

Has there been a CGT event with regards to money paid for the acquisition of shares that was misappropriated which would give rise to a capital loss?

Yes.

This ruling applies for the following periods:

Year ending 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You were pursued by scammers to purchase shares by phone.

You purchased a number of shares.

The scammers followed up with e-mails and you thought it was all above board.

You transferred the money into their accounts for the purchase of the shares.

You saw on the news where the shares were a scam.

You did not try and get any money back and you did not notify the authorities that you had been scammed.

The e-mil address for the companies no longer works.

You believe the people who pursued you are in jail.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 102-10(2)

Income Tax Assessment Act 1997 Section 104-25

Income Tax Assessment Act 1997 Paragraph 104-25(1)(b)

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Paragraph 108-5(1)(b)

Reasons for decision

Capital Gains Tax

You had entered into a contract to buy and sell shares. Payments were made based on information provided to you.

As a result of entering into this arrangement, it is considered that you acquired contractual rights. These contractual rights are CGT assets (paragraph 108-5(1)(b) of the ITAA 1997).

CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset being released, discharged or satisfied (paragraph 104-25(1)(b) of the ITAA 1997).

In DTR Nominees Pty Ltd v. Mona Homes Pty Ltd (1978) 138 CLR 423 it was recognised that a contract can come to an end merely by being treated as being at an end by the parties. It was held in Fitzgerald v. Masters (1956) 95 CLR 420 at 432 that:

You received a call asking you if you would like to invest in shares.

You transferred money and purchased shares.

You were alerted by a TV news broadcast that the shares were a scam.

You did not contact the authorities in relation to this matter.

All e-mail addresses used by the scammers are no longer working.

Based on these facts, it is considered that the contract has been abandoned with the effect that your rights under the contract have been discharged. Accordingly, it is considered that CGT event C2 in section 104-25 of the ITAA 1997 has happened.

Accordingly, you will make a capital loss as the capital proceeds are less than the asset's reduced cost base (subsection 104-25(3) of the ITAA 1997).

Subsection 102-10(2) of the ITAA 1997 provides that you cannot deduct from your assessable income a net capital loss for any income year. However, it can be applied against your capital gains for a later income year.

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