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Edited version of private advice

Authorisation Number: 1051829318404

Date of advice: 20 April 2021

Ruling

Subject: Capital loss - cryptocurrency

Question

Are you entitled to claim a capital loss for the loss of the cryptocurrency you transferred to website X with the intention of purchasing another type of cryptocurrency?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You became aware of a newly introduced digital coin, cryptocurrency X, available through website X.

The website looked normal and you were able to create an account with a username and password.

You decided to invest in cryptocurrency X and made several transactions to website X.

To effect the transactions, you had to purchase cryptocurrency Y which you then transferred to website X.

The website indicated that the amounts had been received; however, you soon noticed that you were unable to make any transactions from the account. You reported the website to 'Scamwatch.gov.au' and 'Cyber.gov.au'. Sometime later you noticed that the website had disappeared from the internet.

You have provided documents showing the chain of transfers as summarised above.

You intended to purchase cryptocurrency X as an investment from which you hoped to make a capital gain.

Relevant legislative provisions

Income Tax Assessment Act 1997section 104-10

Income Tax Assessment Act 1997section 116-20

Income Tax Assessment Act 1997 section 116-60

Reasons for decision

Capital gains tax (CGT) event A1 happens if you dispose of a CGT asset.

The capital proceeds from a CGT event are the total of the money you have received, or are entitled to receive, in respect of the event happening, or the market value of any other property you have received or are entitled to receive.

Section 116-60 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the capital proceeds from a CGT event are reduced if your employee or agent misappropriates (whether by theft, embezzlement, larceny or otherwise) all or part of those proceeds. The capital proceeds are reduced by the amount misappropriated.

An agent can be described as someone who acts on behalf of another.

Based on the information provided, it is accepted that you did not acquire cryptocurrency X from website X as you could not deal with the coin and the website later disappeared. Therefore, the cryptocurrency Y you transferred to website X has been lost.

Further, it is appropriate to consider that the persons running website X to have been your agent in facilitating the transactions made to acquire cryptocurrency X.

Consequently, CGT event A1 happened to you when you transferred cryptocurrency Y to website X and the capital proceeds you were entitled to receive from the event, cryptocurrency X, are reduced to zero by the operation of section 116-60 of the ITAA 1997.

Therefore, you entitled to claim a capital loss for the disposal of the cryptocurrency you transferred to your account at website X.

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