Private ruling: Losses relating to fraud
Published: November 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer: | Are you entitled to a deduction for money you lost in a share scam? | No.

Relevant facts and circumstances: You were pursued by scammers to purchase shares in a number of companies by telephone. You made your first purchase a number of years ago. The scammers followed up with e-mails and you thought it was all above board. You transferred the money into their accounts for the purchase of the shares. A few years ago you saw on the news that the shares were a scam. You did not try and get any money back and you did not notify the authorities that you had been scammed.

Relevant legislative provisions: Income tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: The general deduction provisions of the tax law are contained in section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) which allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, or in carrying on a business to gain or produce assessable income. Deductions are not allowed under section 8-1 of the ITAA 1997 if the outgoing for which a deduction is sought is capital, private or domestic in nature. Taxation Ruling IT 2228 Income tax: Futures Transactions provides guidance on the nature of losses incurred by a taxpayer in circumstances where the loss is caused by a futures broker or dealer acting in a fraudulent manner, or by the misappropriation of the taxpayer's funds. Although IT 2228 is in relation to futures, the principles can be equally applied to shares which have been fraudulently offered for sale. IT 2228 specifies that losses sustained in such cases are capital in nature. In your case, the action of stealing your money amounts to the misappropriation of your funds by those selling the fraudulent shares. As stated above, such losses are capital in nature and not deductible under section 8-1 of the ITAA 1997.