Private ruling: Capital loss as a result of CGT event C2
Date of advice: 15 July 2022
Published: November 2022
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Did you make a capital loss as a result of capital gains tax (CGT) event C2 in section 104-25 of the Income Tax Assessment Act 1997 (ITAA 1997) for the amount advanced to a fraudulent fund manager? | A1: Yes.CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset being cancelled, surrendered, abandoned or similar endings. In your case you invested a sum of money however it was a fraudulent scheme and the proceeds have since been deemed irrecoverable. Given there are no capital proceeds in relation to the event you will make a capital loss.

Relevant facts and circumstances: Between 20XX and 20XX, Person A (you) entered an arrangement with company XYZ Pty Ltd (XYZ). XYZ operates overseas and claims to invest funds on a person's behalf, increasing the value of the person's initial investment. During the 20XX income year, you advanced Australian funds totalling under $500,000 to XYZ. During the 20XX income year, you advanced Australian funds totalling under $500,000 to XYZ. The purpose of the advance was for XYZ to invest into various listed entities trading on stock exchanges. You believed the funds were being used in accordance with your understanding of the agreement as XYZ acknowledged through receipts and other documentation throughout the term of the engagement. XYZ did not operate under any service regulator. You have attempted to recover your principal from XZY, financial institutions and third-party services. You have also engaged several professionals who confirm XYZ acted fraudulently. You deem the principal amount irrecoverable.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 104-20 | Income Tax Assessment Act 1997 section 104-25 | Income Tax Assessment Act 1997 section 108-5