Private ruling: CGT - capital loss
Date of advice: 7 October 2025
Published: 24 November 2025
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Did you acquire a Capital gains tax (CGT) asset (as defined in section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997)) because of making the transfer to your financial advisor for the investment in the proposed term deposit account? | A1: Yes. You acquired a CGT asset being a contractual right at the time of entering into the arrangement. A CGT asset is any kind of property or a legal or equitable right that is not property. An example of a CGT asset is a right to enforce a contractual obligation. Therefore, you acquired a CGT asset in the form of a contractual right when you transferred the various amounts to your financial advisor for the proposed investment. | Q2: Did CGT event C1 subsequently happen to the contractual right so that you made a capital loss? | A2: Yes. CGT event C1 happened in respect of the contractual right when you first received compensation for the loss. CGT event C1 happens if a CGT asset you own is lost or destroyed. The time of CGT event C1 is when compensation is first received for the loss. If no compensation is received, the time of the event is when the loss is discovered (section 104-20 of the ITAA 1997). A gain or loss from CGT event C1 is determined by calculating the difference between the capital proceeds received on the happening of the CGT event and the cost base/reduced cost base of the CGT asset. The capital proceeds from a CGT event include the total of the money you have received, or are entitled to receive, in respect of the CGT event happening. Further, your contractual right entitled you to receive the total value of the amounts you transferred to your financial advisor for the proposed investment. CGT reduced cost base In your case, the reduced cost base of your contractual right includes the amount of the transfers to your financial advisor for the proposed investment, along with the legal expenses you incurred in pursuing the amount owed to you. Capital proceeds received following the Australian Financial Complaints Authority (AFCA) determination and Compensation Scheme of Last Resort (CSLR) claim Clause X of the AFCA determination states that if you accept the AFCA determination within 30 days, the firm who your financial advisor was a representative of (the Firm) must, within 28 days of being notified of that acceptance, pay you the specified amounts listed in this clause. However, Clause X of the AFCA determination states that there is no prospect of recovering the funds. In early to mid 20XX you accepted the AFCA determination. However, you have been advised by the AFCA that the Firm would not be paying any of the specified amounts listed in Clause X of the AFCA determination, due to the Firm being placed into voluntary administration. The AFCA advised you that the Firm directly informed them of this. After this, in mid-20XX, upon the recommendation of the AFCA, you made a claim with the CSLR to receive the amounts awarded to you under the AFCA determination. In mid-20XX, you received a letter of offer from the CSLR in relation to your claim (the CSLR offer), for $X in compensation. You intend on accepting this offer of compensation from the CSLR, meaning that the capital proceeds will be the $X in compensation from the CSLR. Value of CGT asset (contractual right) after accepting CSLR offer By accepting the CSLR offer, you will no longer be entitled to any further compensation in relation to the matter, given that the Firm are now in voluntary administration. Due to this, it is now considered that your contractual right is not worth anything. Conclusion Therefore, your capital proceeds from CGT event C1 happening are $X, resulting in a capital loss for you (when factoring in the CGT reduced cost base).

Relevant facts and circumstances: In mid-to-late 20XX, on the advice of your financial advisor, who at the time was working for the Firm, you transferred a total of $X for them to invest in a short-term high return investment, with an entity (the Entity - a corporate authorised representative of the Firm). The breakdown of the amounts transferred include funds transferred from your bank account along with borrowed funds from a line of credit account. You have incurred a total of $X in loan interest due to the above borrowed funds for the proposed short-term high return investment (the proposed investment), as detailed in a printout from your financial institution. You later discovered that the proposed investment didn't exist and that your financial planner had defrauded you. Between early 20XX and mid 20XX, you incurred $X in legal fees resulting from you pursuing the matter, with the aim of recovering the amounts you paid to your financial advisor. In late 20XX you lodged a complaint with the Firm via your lawyer regarding the matter, which was then referred to the AFCA. AFCA determination In early-to-mid 20XX the AFCA made a determination on the matter, and you have supplied a copy of the AFCA determination. The AFCA determination forms part of your private ruling application. The AFCA determination confirms the extent of the investment loss suffered through the Firm and the Entity. Clause X of the AFCA determination states that your financial advisor was a representative of the Firm from late 20XX to mid-to-late 20XX. Clause X of the AFCA states that the Firm informed you that your financial advisor misused its documents to procure funds for their private use. Further, Clause X of the AFCA determination states that the Firm advised that they were not responsible for your financial advisor's conduct because the short-term high return investment was not a financial product, and that you were not a client of the Firm. Clause X of the AFCA determination confirms that of the $X you transferred for the proposed short-term high return investment, part of this was obtained via borrowed funds. Clause X of the AFCA determination states that your financial advisor subsequently pleaded guilty to fraud. Clause X of the AFCA determination states that the total loss assessed by the AFCA is $X, which comprised of the abovementioned amounts transferred plus $X of interest you incurred from funds withdrawn from the line of credit from mid-to-late 20XX to early 20XX. Clause X of the AFCA determination states that you had 30 days to accept the determination, and that if you did accept the determination, the Firm must, within 28 days of being notified of that acceptance, pay you $X as compensation with interest. However, Clause X of the AFCA determination also states that there is no prospect of recovering the funds. In early to mid 20XX you accepted the AFCA determination. Following this, you have been advised by the AFCA that the Firm would not be paying any of the specified amounts listed in Clause X of the AFCA determination due to the Firm being placed into voluntary administration. The AFCA advised you that the Firm directly informed them of this. CSLR claim In mid 20XX, upon the recommendation of the AFCA, you made a claim with the CSLR to receive the amounts awarded to you under the AFCA determination. In mid 20XX, you received a letter of offer from the CSLR in relation to your claim (the CSLR letter of offer), for $X in compensation. The CSLR letter of offer also forms part of your private ruling application. By accepting the CSLR offer, you will no longer be entitled to any further compensation in relation to the matter, given that the Firm is now in voluntary administration. The CSLR offer also states the following: • You have 90 days from the date of the letter to accept the offer. • The CSLR operates in line with Australian Government Legislation. Part of this legislation requires that compensation paid from the CSLR does not exceed $X. So, where an AFCA determination amount outstanding exceeds this amount, the corresponding compensation payment will be subject to capping. You intend on accepting the offer of compensation from the CSLR in the 20XX-XX income year.

Relevant legislative provisions: Income Tax Assessment Act section 104-20 | Income Tax Assessment Act section 108-5 | Income Tax Assessment Act section 110-25 | Income Tax Assessment Act subsection 110-25(3) | Income Tax Assessment Act subsection 110-55(2) | Income Tax Assessment Act subsection 110-55(5) | Income Tax Assessment Act section 116-20