Edited version of private advice

Authorisation Number: 1052158227037

Date of advice: 15 January 2024

Ruling

Subject: High yield investment scheme - cryptocurrency scam

Question 1

Did you acquire a CGT asset (as defined in section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997)) as a result of entering into a high yield investment scheme?

Answer

Yes. You acquired a CGT asset being a contractual right at the time of entering the arrangement.

Question 2

Did a CGT event subsequently happen to that contractual right?

Answer

Yes. CGT event C1 happened in respect of the contractual right when the contractual right came to an end. Section 104-20 of the ITAA 1997 outlines the rules for CGT event C1.

Question 3

Are you entitled to a CGT exemption relating to the sale of your investment property?

No. CGT event A 1 happened when your investment property was disposed of. You are not entitled to a CGT exemption relating to the sale of your investment property. However, section 102-5 of the ITAA 1997 provides the method for working out your net capital gains for an income year. The first step of this process is to reduce your capital gains by the capital losses made during the income year.

In your case, the capital gain that arose on the sale of your investment property and the capital loss that arose on the ending of the contractual right in respect of your high yield investment occurred in the same income year. You should reduce your capital gain by the amount of the capital loss and, to the extent there is an excess, either include the net capital gain in your assessable income or carry any net capital loss forward to future income years.

This ruling applies for the following period:

Year ended 30 June 2022

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

You had spare funds from the sale of an investment property that you were seeking to invest. You sought out a high yield investment to derive interest on these funds.

After researching online, you contacted a number of investment entities by phone.

One of those entities held themselves out to be a representative of a legitimate commercial bank. The entity provided you with details of potential investment products via email.

You transferred funds to a bank account specified by the entity, to be invested in a term deposit. The entity advised they had opened an account for you over the phone.

Following the transfer, you contacted the commercial bank and were advised that no account had been opened in your name. You immediately contacted the bank from which you had transferred your funds but all their efforts to recover your funds that day or subsequently were unsuccessful.

The next business day you reported the matter to police. Police identified that your funds had been transferred to a legitimate company that provides intermediary services, transferring fiat currencies to cryptocurrencies. That entity later informed you verbally that there was no way for it to recover your money.

Police wrote to you to confirm that your case had been closed until such time that any further information becomes available. They confirmed their finding that your money had been taken by deception by fraudulent means.

The contract for sale of your investment property, your intended investment, and all efforts to recover it including the police investigation all occurred in the same income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 104-20

Income Tax Assessment Act 1997 Section 108-5