Edited version of private advice

Authorisation Number: 1052036844823

Date of advice: 14 November 2022

Ruling

Subject: CGT event C1 - events giving rise to a roll-over - cryptocurrency

Question 1

Has capital gains tax (CGT) event C1 happened on the sale/swap or exchange of a number of cryptocurrencies into Bitcoin as a result of your account being hacked?

Answer 1

Yes.

CGT event C1 happens if a CGT asset you own is lost or destroyed.

The time of the event is when you first receive compensation for the loss or destruction; or if you receive no compensation, when the loss is discovered or the destruction occurred.

Your cryptocurrencies were lost or destroyed when your account was hacked, and a number of cryptocurrencies were sold/swapped or exchanged for Bitcoin.

In this case you received immediate compensation for the loss of your cryptocurrencies as you received Bitcoin into your trading account.

Question 2

Can you apply the CGT roll-over contained in Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) to the capital gain resulting from the sale/swap or exchange of a number of cryptocurrencies into Bitcoin as a result of your account being hacked?

Answer 2

Yes

Division 124 of the ITAA 1997 allows you to disregard a capital gain from the disposal of a CGT asset ('the original CGT asset') where you acquire a new CGT asset. This is known as a replacement asset roll-over.

You are entitled to apply this replacement asset rollover to the capital gain made when your cryptocurrencies were sold/swapped or exchanged for Bitcoin.

The Bitcoin obtained as a result is considered to be your new capital gains tax asset and takes on the cost base of the original cryptocurrency assets.

Any sale of the Bitcoin will result capital gains tax event A1 and capital gains tax will apply.

This ruling applies for the following period:

Year ended 30 June 20XX.

The scheme commences on:

1 July 20XX.

Relevant facts and circumstances

You purchased a number of Cryptocurrency's.

Your account was hacked (the hackers).

You received an email from your trading platform stating the following:

'This Message is to inform you that ... Your Account was logged in from a very suspicious location with an Ip address ... and we have found that they tried to transfer some Crypto Currency from your Wallet to a new wallet's address. So, ... has restricted your account and also put a 2-factor Authentication Code from our side considering your Security and safety of your Crypto Currency, no money has been deducted from your account.'

The hackers were operating without your authority or consent.

The hackers were stopped from transferring your cryptocurrencies directly out of your account.

The hackers they made a number of other unauthorised transactions.

The hackers sold, swapped, and exchanged a number of cryptocurrencies within your account and consolidated your portfolio into Bitcoin in order to transfer into a foreign wallet held by them.

You tried to restore your Cryptocurrency holdings to your previous portfolio position by selling Cryptocurrency which you had not originally bought.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-20

Income Tax Assessment Act 1997 section 116-20

Income Tax Assessment Act 1997 section 124-70

Income Tax Assessment Act 1997 section 124-75

Income Tax Assessment Act 1997 section 124-80

Income Tax Assessment Act 1997 section 124-85

Income Tax Assessment Act 1997 section 124-90