Private ruling: Capital gains tax – capital loss
Date of advice: 16 May 2018
Published: July 2018
Ruling period: Income year ended 30 June 201X.
Date scheme commenced: 1 July 201X.

Ruling: Q1: Does the unauthorised withdrawal of funds from your bank account, constitute a capital gains tax (CGT) event? | A1: No. | Q2: Can you claim a capital loss on unauthorised funds withdrawn from your account? | A2: No.

Relevant facts and circumstances: You received an unsolicited phone call from a business offering you an investment opportunity, by investing with that business and receiving future returns on your investment. The business appeared to be a legitimate and had a website and contact details. You conducted some superficial checks and decided to invest an amount of funds with that business. Shortly after, you received correspondence which advised you were entitled to a substantial return on your initial investment. The business requested that you sign up as their client and provide your account details so they could electronically transfer the funds to your nominated bank account. You completed the sign up forms. After completing the sign up forms, the business began withdrawing funds from your account without your authority on a number of occasions. The funds withdrawn from accounts you held either solely or jointly. On one occasion, the business tried to withdraw funds from your account; however this was stopped by your bank. You later contacted the bank on a number of occasions to notify the bank of the unauthorised withdrawal, prior to some further withdrawals occurring. The bank’s fraud department advised that they had traced the transfers to another country. You lodged a complaint with the Ombudsman. The Ombudsman’s recommendation was not in your favour. You subsequently entered into a settlement agreement with the bank. Under the settlement agreement, the bank paid a settlement amount into an account you held jointly. You have spent a substantial period of time in dispute with the bank over the transactions that occurred after you notified your bank of the unauthorised withdrawals.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-10 | Income Tax Assessment Act 1997 section 104-25 | Income Tax Assessment Act 1997 section 104-150 | Income Tax Assessment Act 1997 section 108-5

Reasons for decision: Summary: A capital gain or capital loss can only be made if and only if a CGT event happens. The capital gain or capital loss is made at the time of the CGT event. In your case, the CGT assets are your bank accounts (held solely or jointly), each of which are considered a chose in action. A chose in action is the ability to require payment of the account balance, or part of it, on demand. | Detailed Reasoning - CGT event H1: CGT event H1 happens if a deposit paid to you is forfeited because a prospective sale or other transaction does not proceed. In this situation, CGT event H1 has not occurred and is not applicable. | Detailed Reasoning - CGT event C2: CGT event C2 in section 104-25 of the ITAA 1997 happens if a taxpayer's ownership of an intangible CGT asset ends in certain ways, including because the asset expires or is redeemed, cancelled, released, discharged, satisfied, abandoned, surrendered or forfeited. The time of the event is when a taxpayer enters into the contract that results in the asset ending. If there is no contract, the time of the event is when the asset ends. In this situation, your ownership of the assets has not ended by the asset being cancelled, surrendered, released, discharged, satisfied or abandoned. As you are unable to establish that any of these actions have occurred, CGT event C2 has not occurred at this time. You therefore have not made a capital loss at this time.