Edited version of private advice

Authorisation Number: 1052353567330

Date of advice: 22 January 2025

Ruling

Subject: Cryptocurrency

Question 1

Does the theft of your cryptocurrency give rise to a CGT C1 event under section 104-20 of the Income Tax Assessment Act 1997 (ITAA 1997) resulting in a capital loss for the amount stolen?

Answer 1

Yes.

This ruling applies for the following period:

Income tax year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

In XXX 20XX, your cryptocurrency wallet was hacked by an unauthorised third party.

As a result of the hack, you lost cryptocurrency which included various holdings.

You discovered the breach through unusual transaction activity in your wallet and immediately took action to secure the remaining funds.

You have contacted XXX.com, the cryptocurrency exchange where your wallet is managed to report the incident.

You have filed a report with ReportCyber.

The cryptocurrency has not been recovered.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104

Income Tax Assessment Act 1997 section 104-20

Income Tax Assessment Act 1997 subsection 108-5

Reasons for decision

Issue 1

Question 1

Summary

The unauthorised access to your cryptocurrency wallet and resulting theft is a CGT C1 event under section 104-20 of the ITAA 1997 and gives rise to a capital loss for the amount stolen. You are allowed to claim the capital loss to reduce any capital gains made in the 20XX income year and to the extent it exceeds those capital gains it may be carried forward to reduce a future capital gain.

Detailed reasoning

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens.

Section 108-5 of the ITAA 1997 provides that a CGT asset is any kind of property, or a legal or equitable right that is not property.

Taxation Determination TD 2014/26 Income tax: is bitcoin a 'CGT asset' for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997 explains that Bitcoin, and by extension, cryptocurrency in general is a CGT asset.

Under section 104-20 of the ITAA 1997 CGT event C1 happens if a CGT asset (or part of a CGT asset) is stolen, lost or destroyed. When an asset is stolen, lost or destroyed and you receive compensation, the time of the CGT event is when you first receive the compensation. If no compensation is received, the event occurs when the loss is discovered or the destruction occurred.

Application to your circumstances

In your case, your wallet was accessed by an unauthorised third party. This resulted in a loss of your cryptocurrency to the value of AUD $XXXX. Under TD 2014/26, the tax treatment of cryptocurrency is that of a CGT asset meaning that there may be capital gains or capital loss treatment required. In your case, the stolen cryptocurrency gives rise to CGT event C1 under section 104-20 of the ITAA 1997 for the amount stolen and the CGT event occurs when the loss was discovered, being XXX 20XX. The capital loss therefore arises in the 20XX income year.

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