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Authorisation Number: 1012268292019

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Ruling

Subject: Investment in a Carbon Credit Scheme

Question 1

Did CGT event C1 in section 104-20 of the Income Tax Assessment Act 1997 (ITAA 1997) or CCT event C2 in section 104-25 of the ITAA 1997 happen in relation to your purchase of carbon credits certificates from an overseas entity?

Answer

Yes, event C2 in section 104-25 of the ITAA 1997 applies.

This ruling applies for the following periods:

Financial year ended 30 June 2011.

The scheme commences on:

Financial year ended 30 June 2010.

Relevant facts and circumstances

You received an unsolicited call in 2009 in relation to carbon credits. A few days later you received another call and an email detailing the project and explaining the credit scheme. The email provided links to information concerning the overseas entity's involvement in sustainable forestry.

You and another taxpayer received an invoice from the overseas entity for an amount of money. In 2009 you and the other taxpayer opened an account with the overseas entity. In 2009 you transferred a sum of money via overseas telegraphic transfer to the overseas entity. You have provided a statement which provides certificate details of your holdings.

In late 2009, you transferred a sum of money via overseas telegraphic transfer to the overseas entity. The overseas entity in a letter dated late 2009 acknowledged receipt of the funds.

You and the other taxpayer received an invoice dated after 1 January 2010 from the overseas entity for a sum of money. In 2010 you transferred a sum of money via overseas telegraphic transfer to another overseas entity.

You received a letter from the Australian Competition & Consumer Commission (ACCC) stating that they had received information a government agency that you have made one or more international transfers to an overseas entity. ACCC advised that they believe the overseas entity is operating an investment scam and has issued an alert to warn consumers about this scam.

You received a letter in 2010 from the overseas entity stating that they had 'been the victim of numerous slanderous websites and press materials that have operated in a defamatory manner regarding our customers and services worldwide, mainly stemming from the Australian marketplace'.

The letter also stated that 'the combination of these accusations and current shifting market conditions, have caused the overseas entity to lose its abilities to function in any manner, and we are talking massive losses. And as such, we have regrettably been forced into receivership. Be advised that your current holdings in our projects are in good standing. We are currently trying to find a suitable party for your representation and to transfer all outstanding and ongoing projects'. Letter states that the overseas entity had contacted the registry and they will send all credits to all bearers of record within the next 30 days.

The 'Terms of Agreement' state that the account holder/co-account holder's trading account can be terminated at any time by the account holder/co-account holder. The overseas entity is obligated to deliver to the account holder/co-account holders the applicable certificates upon closure of the account. The other taxpayer and you are the account holder and co-account holder respectively.

You and the other taxpayer did not receive the certificates.

Following the receipt of the letter from the ACCC you and the other taxpayer have ceased all payments to the overseas entity based on this information and you have not received any further communication from the overseas entity. An attempt was made to reclaim/cancel the money through an Australian Bank but this was unsuccessful.

Relevant legislative provisions

Section 104-20 of the ITAA 1997

Section 104-25 of the ITAA 1997

Paragraph 104-25(1)(b) of the ITAA 1997

Subsection 104- 25(2) of the ITAA 1997

Section 108-5 of the ITAA 1997

Paragraph 108-5(1)(b) of the ITAA 1997.

Reasons for decision

Generally you make a capital gain or capital loss if a CGT event happens to a CGT asset that you own.

Under section 108-5 of the ITAA 1997 a CGT asset is any kind of property or a legal or equitable right that is not property. 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 may happen if your ownership of an intangible asset ends including by the asset being released, discharged or satisfied: paragraph 104-25(1)(b) of the ITAA 1997.

In DTR Nominees Pty Ltd. Mona Homes Pty Ltd (1978) 138 CLR 423 it was held 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:

Where an 'inordinate' length of time has been allowed to elapse, during which neither party has attempted to perform, or called on the other to perform, it may be inferred that the contact has been abandoned... What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contact on both sides that (in the words of Rowlatt J.) "the matter is off altogether".

In your situation, a substantial period of time has elapsed since you last made a payment to the overseas entity to purchase an interest in a carbon credit scheme. The last payment you made was in 2010. The Australian Competition & Consumer Commissioner in a letter advised you that the overseas entity is operating a scam. The last contact you had was a letter from the overseas entity which advised that due to adverse publicity the overseas entity has been forced into receivership. You have had no further contact with this party and they have made no attempt to perform their part of the contractual arrangement. 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.

CGT event C2 happens at the time when you entered into the contract that results in the asset ending or if there is no contract when the asset ends: subsection 104-25(2) of the ITAA 1997. In this case it is considered that CGT event C2 happened when the contract was abandoned with the effect that your rights under the contract were discharged. The timing of the event would be evidenced by your actions subsequent to your last correspondence from the other party to the arrangement. From the information you have provided the Australian Taxation Office is unable to determine a precise time of the event however, it is accepted that CGT event C2 happened some time prior to 30 June 2011.