Edited version of private advice

Authorisation Number: 1052106855425

Date of advice: 14 April 2023

Ruling

Subject: CGT events

Question

Has a capital gains tax (CGT) event occurred during the income year ended 30 June 20XX in relation to your deposits into the relevant bank accounts?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You co-owned a block of land with your spouse.

In May 20XX, you sold your block of land and you and your spouse experienced a capital gain from the sale in the income year ended 30 June 20XX.

You both had a combined capital gain of $XXXX.

You included your share of the capital gain in your income tax return for the income year ended 30 June 20XX.

As you held the asset for more than twelve months, you were eligible for the 50% CGT discount.

In June 20XX, after being contacted by an individual claiming to be a representative from Bank A, your spouse decided to invest money into treasury bonds and did this by transferring money to different bank accounts in separate instalments.

Your spouse then referred you to the representative from Bank A.

You transferred money for the treasury bonds to different bank accounts in separate instalments.

You transferred the money on separate dates.

You invested a total amount of $XXXX.

Your spouse was provided with login details for a website resembling Bank A which they would access every few days to view the money that had been transferred.

In August 20XX, your spouse was unable to access this website.

In August 20XX, your spouse attempted to contact the representative via email and did not receive a response.

Your spouse then attempted to phone the representative using their landline number and received a message that the mobile service was unavailable.

After your spouse was unable to contact the representative, they began to suspect fraud.

Your spouse undertook some research online and located some information on the Bank A website outlining the potential scam.

After your spouse located this information, you and your spouse lodged a complaint with Bank B.

You and your spouse then filed a police report.

You and your spouse recovered $XXXX.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 104-20

Income Tax Assessment Act 1997 Section 104-25

Reasons for decision

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 CGT event happens. The gain or loss is made at the time of the CGT event.

Section 104-20 of the ITAA 1997 provides that CGT event C1 happens when a CGT asset you own is lost or destroyed.

The time of a CGT event C1 is when you first receive compensation for the loss or destruction; or if you receive no compensation- when the loss is discovered.

In your case, you paid $XXXX to purchase treasury bonds with the profits you received from the sale of your block of land which you co-owed with your spouse. Your spouse suspected that you had both been victims of a scam when they were unable to access the website which was provided to them and after they were unable to contact the Bank A representative after several attempts.

As you did not receive compensation for the money that you had invested in the income year ended 30 June 20XX, but in a later year, CGT event C1 would not occur in the income year ended 30 June 20XX.

Section 104-25 of the ITAA 1997 provides that CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset being abandoned, surrendered, or forfeited or being released, discharged, or satisfied.

The time of a CGT event C2 is when you enter into the contract that results in the asset ending or, if there is no contract, when the asset ends.

As a result of you entering into an arrangement with the representative claiming that they were from Bank A, it is considered that you acquired contractual rights. These contractual rights are CGT assets (section 108-5 of the ITAA 1997).

You make a capital loss from CGT event C2 happening if your capital proceeds from the event are less than the asset's reduced cost base.

The Commissioner takes the view that in certain circumstances, contractual rights can be discharged or come to an end merely by being treated as being at an end by the parties. That is, CGT event C2 will happen when the contractual rights are abandoned.

In your case, you never received confirmation that you owned the treasury bonds. The representative received the amounts of money that you transferred and did not purchase a product on your behalf which an agreement required them to.

Since you were only aware that the transactions could potentially be a part of a scam in a later income year, there is no capacity for CGT event C2 to occur in the income year ended 30 June 20XX.

Therefore, as a CGT event in relation to your deposits into the potential Bank A impersonation scam did not occur in the income year ended 30 June 20XX when the capital gain from the sale of your block of land occurred, there is no discretion available to reduce the capital gain.