Private ruling: Entitlement to a tax deduction as a result of fraud
Date of advice: 23 March 2022
Published: June 2022
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to claim a tax deduction for funds transferred as a result of fraud under section 40-880(2) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. In your case, at the time you incurred the outgoing, the expectation was that the outgoing would result in capital expenditure in relation to expanding your business of share trading. As none of the exclusions in section 40-880 of the ITAA 1997 apply, the capital expenditure is deductible under section 40-880(2) of the ITAA 1997. Subsection 40-880(1) of the ITAA 1997 allows the business capital expenditure to be deductible over 5 years.

Relevant facts and circumstances: You conduct a share trading business. In the 20XX year you invested into a foreign trading platform to diversify your share trading activities. You made deposits totalling $XXX,XXX. You chose what to buy and when to sell. You monitored trades daily and checked that the real time charts in Australia were correct. The trading platform did not follow instructions on certain buys/sells. You instructed the trading platform to sell a number of trades and transfer your investments back to you however at this point the trading platform ceased contact with you. You could not get recourse through your financial institution and you pursued legal action. Through the legal action you discovered that trading platform was fraudulent. There is no prospect of recovery from the fraud.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 40-880