Private ruling: Investment scam - capital loss
Date of advice: 15 January 2024
Published: 26 February 2024
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 2020

Ruling: Q1: Did you acquire a CGT asset (as defined in section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997)) as a result of entering into financial investments? | A1: Yes. You acquired contractual rights from the outset of the arrangement. | Q2: Did a CGT event subsequently happen to those contractual rights such that a capital gain or capital loss may be made? | A2: Yes. CGT event C1 happened in respect of the contractual right when you discovered your loss and repudiated the contract.

Relevant facts and circumstances: You started currency trading on a small scale with trading platform approximately three years ago. You made enquiries of the legitimacy of the entity with your workplace colleagues and conducted extensive online research before deciding to proceed with the investment. You were led to believe that your initial deposit had increased by a total of A$X at the end of the three year period. In early 20XX, you were approached to invest in a financial product, suggesting that you could earn a high return for the investment. Your initial trading activity earned a reasonable return. At this point, you made a check on withdrawing funds back to the trading platform and from there to your bank account. These transactions proceeded smoothly. You had confidence that the entity was legitimate and you had a belief in the authenticity of the investment. At this point, you were contacted by the company and told that there was a special offer on a particular investment which would yield you a high return and it would be available only for a short time. You took up this investment offer and initially the returns were very high. You considered that the total wealth you had accumulated in this investment platform was considerable and so you decided to withdraw some money from the fund. The company then demanded a 'US tax' of USD $X and if you did not pay, they would close your account. This made you nervous and you wanted to save your earnings, so you transferred this amount. After you had paid considerable amounts to satisfy their demands, you finally came to a point where you just wanted to get your initial deposits back. You were further threatened, and they demanded another fee for them to unlock your account for withdrawal. You subsequently lodged complaints with various institutions and authorities, and it was confirmed that this was not a genuine investment product after an investigation of your complaint.

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