Edited version of private advice

Authorisation Number: 1052203484059

Date of advice: 12 January 2024

Ruling

Subject: High yield investment scheme - capital loss

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 into the arrangement.

Question 2

Did a CGT event subsequently happen to that contractual right so that you made a capital loss?

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 reduce the capital gain you made on the sale of your investment property by the capital loss that arose in respect of your investment with the Organisation?

Answer

Yes.

CGT event A1 happened when your investment property was disposed of. You are entitled to a 50% discount on your capital gain pursuant to Section 115-100 of the ITAA 1997 as you owned the asset for over 12 months and you were both Australian residents at the time of its disposal.

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. The next step is to apply any previously unapplied capital losses from earlier years and then apply any applicable CGT discount against any remaining capital gain.

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 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 after applying the 50% discount, either include the net capital gain in your assessable income or carry any net capital loss forward to future income years.

This private ruling applies for the following period:

Income Year ended 30 June 202X

The scheme commenced on:

1 July 202X

Relevant facts and circumstances

In XX 202X, you entered a contract to sell your investment property. You had owned the property as joint tenants. You were both Australian residents at the time you entered the contract to sell and you had owned the investment property for over 12 months.

At some time after you received the funds from the sale of your investment property, you came across a Facebook advertisement for the Organisation. You contacted the Organisation. The Organisation held themselves out to be a legitimate trading platform and led you to believe that they would invest in shares on your behalf.

You transferred monetary amounts to the platform.

When your account with the Organisation was in a positive position, you requested the Organisation withdraw all your original deposits. You were advised by the Organisation that you could withdraw your funds over time, increasing the withdrawal amounts on a weekly basis. You attempted to do this and were unsuccessful. The Organisation blamed this on a system error.

Shortly thereafter, you lodged a report with the police. You were advised that the Organisation was running a scam and it is unlikely you would ever retrieve the funds you invested. The Police have since closed their investigation.

You sent the Organisation a letter of demand requesting that the funds you invested be refunded to you. The Organisation ignored your letter of demand.

You contacted your bank in an attempt to recover the funds. Your bank was able to retrieve a nominal amount. They were unsuccessful in recovering any further funds and closed your claim.

You have received no further compensation from the Organisation.

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

Income Tax Assessment Act 1997 Section 115-100