Edited version of private advice

Authorisation Number: 1052094031815

Date of advice: 20 March 2023

Ruling

Subject: CGT rollover

Question 1

Are you eligible for the capital gains tax (CGT) rollover under paragraph 124-70(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) for the fraudulent sale and subsequent repurchase of your shares?

Answer

Yes.

Your shares were sold without your consent; therefore, the shares were 'lost' to you, which is a situation described in section 104-20 of the ITAA 1997 as CGT event C1.

CGT event A1 also occurred as it was a disposal of a CGT asset, however subsection 102-25(1) of the ITAA 1997 states that if the situation can be defined by more than one CGT event, you should use the event which is most specific to your circumstances, which is CGT event C1 in your case.

As you received replacement shares for the fraudulently sold parcel, you are eligible for the CGT rollover relief for the inadvertent sale and corresponding repurchase of shares, as provided for under paragraph 124-70(1)(b) of the ITAA 1997.

Question 2

Will the first element of the cost base of the shares you received to replace the fraudulently sold shares be equal to the cost base of the original parcel?

Answer

Yes.

Subsection 124-90(3) of the ITAA 1997 confirms that for a replacement asset rollover, the first element of the cost base of the replacement shares will be the cost base of the original shares at the time of the event. Therefore, the first element of the cost base of the shares you received to replace those fraudulently sold will be equal to the cost base of the original shares at the time the fraudulent sale occurred.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You have a share investing account in which you held a parcel of shares.

Your computer was compromised by third party remote access software and a third party fraudulently gained access to your share investing account.

The third party sold your entire holding of shares.

The third party also gained access to your internet banking account and transferred a sum of money to an overseas bank account.

These fraudulent transactions were performed without your knowledge or instruction.

You lodged an incident report with a Police Cybercrime investigation unit.

You informed your sharebroker that you were the victim of digital fraud and the transaction was performed without your knowledge or instruction.

Your sharebroker reviewed your account and stated that they believed that you had been the victim of digital fraud.

X days after your shares were fraudulently sold your sharebroker reimbursed your account with the same number of shares at no cost.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-25

Income Tax Assessment Act 1997 subsection 102-25(1)

Income Tax Assessment Act 1997 section 104-20

Income Tax Assessment Act 1997 section 124-70

Income Tax Assessment Act 1997 subsection 124-70(1)

Income Tax Assessment Act 1997 paragraph 124-70(1)(b)

Income Tax Assessment Act 1997 section 124-90

Income Tax Assessment Act 1997 subsection 124-90(3)