Edited version of private advice

Authorisation Number: 1052323947079

Date of advice: 5 November 2024

Ruling

Subject: CGT - fraud

Question 1

Has capital gains tax (CGT) event C1 in section 104-20 of the Income Tax Assessment Act 1997 (ITAA 1997) happened on the unauthorised, fraudulent sale 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.

Question 2

Are you eligible for the CGT rollover under paragraph 124-70(1)(b) of theITAA 1997 for the fraudulent sale and subsequent replacement of your shares?

Answer

Yes.

As you will receive replacement shares for the fraudulently sold parcel, you are eligible for the CGT rollover relief for the inadvertent sale and corresponding reacquisition of shares, as provided for under paragraph 124-70(1)(b) of the ITAA 1997. This will allow you to disregard any capital gain you make from the disposal of the original shares as the result of the fraudulent sale by the unauthorised third party.

If the original shares were acquired post-CGT, the cost base and reduced cost base of the replacement shares will be the same as that of the original shares at the time of their disposal (subsection 124-90(3) of the ITAA 1997). If the original shares were acquired pre-CGT, you are taken to have acquired the replacement shares also pre-CGT (subsection 124-90(4) of the ITAA 1997).

This ruling applies for the following period:

30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.      You owned X number of shares.

2.      A third party fraudulently gained online access to your share investing account.

3.      As a result of the unauthorised access to your account your shares were fraudulently sold through the platform by the unauthorised third party using fraudulent identification documents that passed the online identity check.

4.      The net proceeds of the share sale were paid to an account created by the fraudulent third party.

5.      These fraudulent transactions were performed without your knowledge or instruction.

6.      The police have been notified and have commenced an investigation that remains ongoing.

7.      The trading platform has been able to recover a total of $XXX,XXX with efforts continuing to recover the remaining funds of $XX,XXX.

8.      An authorised representative of the trading platform has acquired the same number of shares and proposes to reimburse your account with those shares at no cost.

9.      You intend to hold the replacement shares as a capital asset and not as trading stock or a depreciable asset.

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)