Private ruling: Investment loss - scam
Date of advice: 28 September 2022
Published: December 2022
Ruling period: 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Are you entitled to claim a capital loss for the amount of money you transferred to GMP Solutions? | A1: Yes.

Relevant facts and circumstances: 1. On MM YYYY, you received a phone call from someone who offered you an opportunity to trade gold options on their trading platform. The person provided you with a link to their website, which took you to the website for a company with an address in Country B. 2. Before investing you checked with the Australian Competition and Consumer Commission (ACCC) website, moneysmart.gov.au and the Country B equivalent government websites. 3. You also checked www.iosco.org/investor_protection to confirm it wasn't listed as a suspicious company and did a google search to find any bad reviews of the company. 4. After finding nothing on all of the searches you decided to open a trading account with them, 5. You provided a copy of your driver's licence, passport and tax file number. Once they received this information, they confirmed your trading account and issued you a log in name and password. 6. You were advised to begin trading you would need to transfer funds to your assigned regional account. You were provided 2 different bank details and transferred amounts totalling $X. 7. Shortly after starting trading, your trading advisor changed to another advisor. The advisor would call you daily with market information and trade suggestions, which if you agreed to, were confirmed by a company investment controller, followed by an email trade confirmation. 8. As soon as the company received your money, you were emailed a confirmation and immediately the money was used to purchase gold options. All trades were confirmed in writing via email and phone confirmation by the investment controller. 9. From the online trading account, you could also see all deposits, trades and their current values. 10. You had a high degree of confidence in your investments due to the steps and procedures followed by the company for each trade. 11. On DD MM YYYY, the value of your trading account had a balance of USD$X and you requested a transfer of USD$X from your trading account into your private bank account. 12. The transfer was confirmed by the company via email and your online account was debited by the same amount, however the funds did not arrive in your account. 13. Your attempts to find out why the transfer was not received led to the company stopping communicating with you shortly after and blocking access to your trading account. 14. On DD MM YYYY, your bank advised you in a letter that it had done its best to recover your funds, but unfortunately it was not able to do so, and it had 'good reason to believe the people who asked you for money were scammers.' 15. You reported the scam to Scam Watch on DD MM YYYY where you advised you reported the scam to the local police, who informed the matter was referred to the Federal Police. You also advised that you reported the scam to your bank, who tried but were unable to recover any of the funds transferred to the company. In the Scam Watch report you provided all the contact details you had for the company including email, website and mailing addresses and telephone number. 16. You also did a police report in Australia, registered the scam on the ACCC website and to the XXXX in Country B. However, these agencies were not able to take further action on these reports Information provided You have provided information in a number of documents in relation to your private ruling request.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 104 | Income Tax Assessment Act 1997 subsection 104-20(1) | Income Tax Assessment Act 1997 paragraph 104-20(2)(b) | Income Tax Assessment Act 1997 subsection 104-20(3) | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 subsection 116-20(1)

Reasons for decision: Summary: You can claim a capital loss for the amount of money you transferred to the company. | Detailed Reasoning - Detailed reasoning: 1. Whilst you had an intention to trade in gold options, and the company was supposedly trading gold options on your behalf, such supposed trades do not seem to be real and the amount sitting in your trading account was not recovered by yourself, including the money deposited by yourself. 2. As the arrangement entered into is considered a scam, the amount deposited with the company is considered to be a debt or obligation owed by them. 3. A debt owed to you falls within the definition of a CGT asset in section 108-5. 4. A capital loss can only arise if a CGT event happens. Most CGT events involve a CGT asset. The gain or loss is made at the time of the CGT event. Division 104 lists all the CGT events that can happen. 5. From the information provided, the most relevant CGT event is considered to be CGT event C1. CGT event C2 is not considered appropriate as the debt was not redeemed, cancelled, released, discharged, satisfied, expiring, abandoned, surrendered or forfeited. 6. CGT event C1 happens if a CGT asset owned by a taxpayer is lost or destroyed. [1] The words 'lost' and 'destroyed' are not defined in with of the Income Tax Assessment Acts and they take their ordinary meaning. As the debt was not destroyed, it has to be determined if the debt was lost. 7. Taxation Determination TD 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? relevantly states: 2. 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. 6. Neither of the words 'lost' or 'destroyed', in the context of CGT event C1, contemplates damage to an asset that does not amount to the asset being lost or destroyed. A CGT asset must be wholly lost - not just damaged - or wholly destroyed - not just damaged - for the circumstances to be covered by CGT event C1. ... 7. CGT event C1 does not distinguish between tangible and intangible assets. Section 104-20 refers to 'CGT asset' and this includes intangible CGT assets. 8. The loss of an asset includes the happening of an involuntary event which deprives the owner of the asset, for example theft. 9. As you did not receive any compensation or amount, the time CGT event C1 happens is when the loss was discovered. [2] 10. You make a capital loss if the capital proceeds from the loss are less than the asset's reduced cost base. [3] 11. The capital proceeds from a CGT event are the total of the money you have received, or are entitled to receive, in respect of the event happening, or the market value of any other property you have received or are entitled to receive. [4] 12. As you did not receive any money when the debt was lost, the amount of capital proceeds will be zero. 13. The reduced cost base for the debt is considered to be the amount you deposited to the company. 14. Therefore, the capital loss you made from CGT event C1 happening is $X. The time this event happened is in the income year ending 30 June 20YY, and that is the income year in which the capital loss is made. 15. A 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. [1] Subsection 104-20(1) [2] Paragraph 104-20(2)(b) [3] Subsection 104-20(3) [4] Subsection 116-20(1)

Reasons for decision: All legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated. | Question: Are you entitled to claim a capital loss for the amount of money you transferred to the company?