Private ruling: Investment losses
Date of advice: 17 March 2026
Published: 11 May 2026
Ruling period: Year ended 30 June 20XX.
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the money you lost as a result of transferring funds to a fraudulent online foreign exchange trading platform deductible as a revenue loss (being a loss of intended income) rather than a capital loss? | A1: No.

Relevant facts and circumstances: You invested with Online Trading Platform A, after seeing an advertisement on Instagram. You had no prior relationship or direct contact with Online Trading Platform A. You were drawn to the investment as a means of generating monthly income to supplement your fixed income. Your investment with Online Trading Platform A was to be passive income for you. The Online Trading Platform A marketed itself as an automated foreign exchange trading platform promising guaranteed monthly returns of X % and generating daily income. Online Trading Platform A purported to be trading 24/7 though their artificial intelligence (AI) platform. Online Trading Platform A claimed to source input from over X foreign exchange traders Online Trading Platform A had an office address in Australia listed on their website along with overseas listed addresses. Online Trading Platform A was not a registered company in Australia. On DD MM 20XX, you transferred $X to Online Trading Platform A. Shortly thereafter you transferred an additional $X. When you invested with Online Trading Platform A, you were provided with access to an online investor account portal. You viewed your investment and transaction activity through their online portal. You were not issued with any formal documentation or statements. You were not given any written confirmation such as a contract or certificate of investment. In MM 20XX, you successfully withdrew approximately $X from your investment with Online Trading Platform A. In MM 20XX, you attempted to withdraw $X, but Online Trading Platform A blocked the transaction, alleging "suspicion of money laundering" because you had nominated a bank account in the Country Z for receipt of funds. Your attempts to nominate an Australian Bank account to deposit the funds into were also unsuccessful. Despite repeated efforts over many months to access your money, Online Trading Platform A restricted and then terminated your access to the online portal. You were subsequently unable to log in or verify the balance or any transaction history associated with the account. In MM 20XX, when you lost access to the online platform. you engaged a professional debt recovery agent, (Company B), in Country B to assist you in recovering your lost funds. Many unsuccessful attempts were made between MM 20XX and MM 20XX to access your funds You have incurred legal expenses and recovery related costs of approximately $ X. To date you have not recovered any additional funds Online Trading Platform A aside from the initial $X you withdrew in MM 20XX. On DD MM 20XX, Online Trading Platform A was listed on moneysmart.gov.au as an imposter entity website.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 25-35 | Income Tax Assessment Act 1997 section 25-45 | Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-5 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 subsection 104-20

Reasons for decision: Summary: No. However, you can claim a capital loss as a result of your investment with Online Trading Platform A. The capital loss cannot be offset against income from other sources but must be offset against capital gains and may be carried forward to offset against future capital gains. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income except to the extent they are losses or outgoings of capital or of a capital, private or domestic nature. A loss due to possible misappropriation is not deductible but is capital in nature is supported by Income Tax Ruling IT 2228 Income tax: futures transactions . In IT 2228 the Commissioner discusses the income tax implications of the various aspects of futures trading. Paragraph 36 deals with losses sustained as a result of fraudulent action of futures brokers or dealers. While your case does not involve a broker or dealer of futures, the same principles apply. The Commissioner states: 36. Furthermore, it seems that there may be a number of cases where taxpayers engaged in futures transactions may have incurred losses not from futures contracts themselves but from futures brokers or dealers acting in a fraudulent manner. In managed accounts, for instance, a taxpayer may have deposited $20,000 with a broker to enter into futures contracts on the taxpayer's behalf. The taxpayer may be advised by the broker at a relevant time that losses amounting to $10,000 have been suffered. In fact, the losses will not have been incurred from genuine futures transactions. They may be incurred from fictitious transactions and, in some case, from misappropriation of the taxpayer's funds. It is difficult to say the losses incurred in these circumstances are losses incurred in carrying on a business or in carrying out a profit-making undertaking or scheme. They have more the character of losses of capital. Claims for deductions for losses incurred in these circumstances should be disallowed. Relevant case law has established that losses due to misappropriation, is not deductible under section 8-1 of the ITAA 1997 but is capital in nature. In AAT Case 4069 (1988) 19 ATR 3117; 88 ATC 244 the taxpayer company, at the suggestion of its solicitor, entrusted moneys to that solicitor as its agent for the purposes of acquiring gold bullion and its immediate pre-arranged re-sale at a profit. However, the solicitor misappropriated the money in advance of the proposed scheme. The company claimed as a deduction the loss incurred as a result of its dealings with the solicitor. Senior Member, determined that a deduction was not allowed because the taxpayer proposed to embark on a course of action intended to produce a profit and the sum of money to be invested in that project was capital as it was to provide the profit-making structure. The act of misappropriation by the solicitor occasioned the loss, not any dealing in bullion. | Detailed Reasoning - Section 25-35 Bad debts and deduction: Section 25-35 of the ITAA 1997 allows a deduction for bad debts in certain circumstances. To qualify for a bad debt deduction under section 25-35, the written off bad debt must be: • included in your assessable income for the income year or for an earlier income year, or • in respect of money that you lent in the ordinary course of your business of lending money. A taxpayer who properly lodges returns on a cash rather than an accruals basis cannot claim a deduction under section 25-35 of the ITAA 1997 because the amount would not have been included in assessable income. ATO ID 2001/301 providers the following: To qualify for a deduction under section 8-1 of the ITAA 1997, the loan must be incurred in gaining or producing assessable income, or in carrying on a business for the purpose of gaining or producing assessable income. In addition, the loss must not be of a capital, private or domestic nature. If the loss is an ordinary incident of the taxpayer's income earning activities then the loss will be on revenue account. For example, a bad debt loss incurred by a financial institution would generally be expected to be a revenue loss (Taxation Ruling TR 92/18). If the loan has been made in a private capacity (i.e., not business), the bad debt will not be deductible under section 8-1 of the ITAA 1997. The loan will not be regarded as an ordinary incident of the taxpayer's income earning activities, and will also be excluded from deductibility under the capital exclusion under paragraph 8-1(2)(a) of the ITAA 1997. Whilst not deductible as a bad debt, a capital loss may arise under subsection 104-25(3) of the ITAA 1997 if the taxpayer releases the trust from the debt owed (CGT event C2). | Detailed Reasoning - Section 25-45: Under section 25-45 of the ITAA 1997 a deduction is available for certain losses in respect of money. Each of the following conditions must be satisfied for the deduction to be allowed under this section: • the loss must have been discovered by the taxpayer in the income year and • the loss must have been caused by theft, stealing, embezzlement, larceny, defalcation or misappropriation by the taxpayer's employee or agent (other than an individual employed solely for private purposes) and • the money lost must have been included in the taxpayer's assessable income for the income year or an earlier income year. In the matter of Lean v FC of T [2010] 75 ATR 213, no deduction was allowed for funds which were misappropriated by a securities trader. The taxpayer had provided money to the trader for a wide range of possible investment activities. In making their decision, the Full Federal Court only considered whether a deduction was allowable under section 25-45 of the ITAA 1997. However, the AAT had previously considered whether, in the alternative, the deduction was allowable under section 8-1 of the ITAA 1997. The deduction claim was disallowed on the basis that the misappropriated money was capital and could not, therefore, qualify as a deductible loss necessarily incurred in carrying on a business. In Lean, Edmonds J observed Equally, where, as here, a taxpayer makes a capital gain from the disposal of an asset (CGT Event A1), it is not money that is included in his assessable income but an amount calculated by reference to the provisions of Part 3-1 of the 1997 Act starting with the capital proceeds from the disposal and the cost base of the asset. Money equal in amount to the amount of the capital proceeds may well be received by the taxpayer; indeed, in most cases, will be received, but that money is not included in the assessable income of the taxpayer. If that be right, then the money misappropriated on the facts of the present case, could never give rise to an allowable deduction under s 25-45. The point of these observations is that, in my view, s 25-45 has an extremely limited field of operation; it is limited to income derived by cash basis taxpayers by the receipt, actual or constructive, of money where the same money is lost in and through circumstances which trigger the application of the section. You are not entitled to a deduction under section 25-45 of the ITAA 1997 for funds misappropriated by Online Trading Platform A, as the amount lost was not included in your assessable income in this or any earlier income year. We also do not accept that Online Trading Platform A acted as your agent. Your dealings with Online Trading Platform A were private and unrelated to any income-producing activities in the course of business. | Detailed Reasoning - Capital Loss: Section 102-20 of Income Tax Assessment Act 1997 (ITAA 1997) states that you make a capital gain or capital loss if and only if a CGT event happens. Section 104-5 of ITAA 1997 lists the CGT events that can happen. Subsection 104-20(1) of ITAA 1997 states that CGT event C1 happens if a CGT asset you own is lost or destroyed. Subsection 104-20(2) ITAA 1997 relevantly adds that the time of the event is when you first receive compensation for the loss, or if you receive no compensation - when the loss is discovered. The words 'lost' and 'destroyed' are not defined in the Income Tax Assessment Acts and they take their ordinary meaning. Paragraph 2 of Taxation DeterminationTD 1999/79 : Income Tax: capital gains: does the expression 'lost or destroyed' for the purposes of CGT event C1 in subsection 104-20(1) of the Income Tax Assessment Act 1997 apply to:(a) a voluntary 'loss' or 'destruction'? (b) intangible assets? states: The word 'lost' in its context in subsection 104-20(1) does not contemplate voluntary actions. The Macquarie Dictionary , 3rd ed, defines 'lost' as '1. past tense and past participle of lose' and defines 'lose' as '1. to come to be without, by some chance, and not know the whereabouts of: to lose a ring '. The word in its context in CGT event C1 suggests an involuntary rather than a voluntary act. Paragraph 7 of TD 1999/79 confirms that CGT event C1 does not distinguish between tangible and intangible CGT assets. A debt owed to you falls within the definition of a CGT asset in section 108-5 of the ITAA 1997. | Detailed Reasoning - Application to your circumstances: In your case, we accept that you deposited the funds in good faith and intended the investment to produce assessable income. However, there is no indication that any genuine income-earning activity ever commenced with Online Trading Platform A. Although you intended to invest through Online Trading Platform A, your funds do not appear to have been placed into a legitimate investment scheme. This is supported by the Australian Government website moneysmart.gov.au , which listed Online Trading Platform A as an imposter entity in MM 20XX. We have also considered that this was a passive investment for you, requiring no ongoing trading activity beyond your initial deposits. While you made one successful withdrawal, this occurred within the context of a fraudulent scheme, and there is no evidence it resulted from genuine investment gains. You did not have a formal investment plan, and you undertook only limited research before transferring your funds. We consider the funds you transferred to Online Trading Platform A to be capital in nature rather than revenue in nature. As a result, no deduction is available under section 8-1 of the ITAA 1997. You invested your own money with Online Trading Platform A. It was not money owed to you, nor can it be included in your assessable income in the current or any earlier income year, the requirements of section 25-35 of the ITAA 1997 are not satisfied, and no deduction for a bad debt is available. Similarly, you are not entitled to a deduction under section 25-45 of the ITAA 1997 for funds misappropriated by Online Trading Platform A., as the amount lost was not included in your assessable income in this or any earlier income year. Your dealings with Online Trading Platform A. were unrelated to any income-producing activities in the course of business. You may claim a capital loss for the income year ended 30 June 2024 arising from your investment with Online Trading Platform A. This capital loss cannot be applied against other income; it must be offset against capital gains and may be carried forward to offset future capital gains. If you subsequently recover any money or property related to the loss, your capital proceeds may need to be adjusted, and you may need to amend your tax assessments.