This guidance may apply when
- you are an Individual; and
- you are an Australian Tax Resident; and
- you hold crypto for Investment
ATO guidance on unrecoverable crypto
If you have lost crypto or had your crypto stolen, or suffered the effects of a rug-pull or insolvency, then you are probably wondering, can I at least claim the crypto tax loss?
Current ATO guidance provides that if your crypto asset is lost or stolen, you can claim a capital loss if you can provide evidence of ownership.
To claim the unrecoverable crypto as a capital loss, you will need to be able to provide the following evidence to prove your ownership:
- the date you acquired the crypto assets or private key
- the date you lost access to the crypto assets or the private key
- the digital wallet address for the private key the cost to acquire the crypto assets
- the value of the crypto assets at the time the private key was lost or access was lost
- that the digital wallet was in your control (for example, you can link transactions to your identity)
- that the hardware that stores the digital wallet is in your possession
- the transactions from a digital currency exchange where you have a verified account or is linked to your identity.
Tax technical breakdown
A capital loss can be claimed under section 104-20 of the ITAA 1997, CGT event C1 Loss or destruction of a CGT asset. The terms lost or destroyed are not defined in the legislation so they take their ordinary meaning.
TD 1999/79 provides some guidance on the ordinary meaning of lost and highlights it to be in involuntary action for the purpose of CGT event C1. The loss cannot be intentional, it may include confiscation, however, it does not include forfeiture or economic loss.
The ATO guidance on CGT events states the timing depends on whether compensation is received or, if none, then when the loss is discovered or destruction occurred. For most crypto cases, the difficulty of tracing to an appropriate party, may mean compensation is not going to be received. The CGT event would happen when the loss is discovered or destruction has occurred.
From the CGT loss perspective, and operation of section 116-25(1) and section 116-10 of the ITAA 1997, the market value substitution rule for capital proceeds does not apply and the reduced cost base will be the capital loss. As such, the capital loss will reflect the original acquisition cost.
Record keeping for scammed crypto
When you have lost crypto due to a scam, then you may not have all the records that you would typically expect to have from a normal investment. Despite this, you will still be able to claim the loss, provided you can collect sufficient records to substantiate what has occurred.
You should keep any of the following records of your scammed crypto:
- record of the advertisement or promotion outlining the scam
- contact details of the scammer that were provided, such as their name, address, email, social media profiles or other identifying information
- confirmation that the promotion was a scam such as independent news articles, screenshot of the scam website or other documentation
- record of the transfer to the scammer, such as a copy of a bank statement showing the cash transfer, or a copy of the transaction hash if crypto was sent directly
- communications with the scammer, such as text messages, emails or messages through social media platforms
- complete history of transactions, up until the scam occurred
- Statutory Declaration outlining the facts and circumstances of what occurred
Many investors in crypto and in the traditional financial world have fallen victim to scams or misrepresented investment opportunities. Don’t be embarrassed when it does happen, just do your best to avoid the situation in the future and make sure you claim the tax loss that you are entitled to when it does.
How to report a crypto scam
If you lost crypto in a scam, then you were likely subject to a crime both in Australia, and also in the jurisdiction the scam was operated from. It is recommended that you do report the crime because:
- there is a small chance that it may still be recovered
- the report can be used to document the loss for tax purposes
- you may help other Australians to avoid falling for the same scam
You can report a crypto scam to the following government organisations:
- you can report a cyber crime to Australian Cyber Security Centre
- you can report a scam to the ACCC
- if the scam is related to a financial product, then you can lodge a compliant with ASIC
- you can also report the scam to your state police
When reporting a crypto scam, ensure you keep a copy of any report you make and the case number or confirmation that you receive back, as this will be part of your documentation for tax purposes.
Crypto that is unrecoverable is generally eligible to claim as a capital loss for investors, provided you are able to provide appropriate evidence.
Claiming unrecoverable crypto in Syla
Syla’s Tax Engine intelligently applies tax classifications and claims unrecoverable crypto to ensure you pay the lowest crypto tax.
- Import your transactions and classify them as unrecoverable in Syla.
- Syla’s tax engine will automatically apply the correct tax treatment to ensure the unrecoverable amounts will result in a capital loss.
- Your capital losses can be offset against your other sources of capital gains, or carried forward to future years, ensuring you pay the lowest crypto tax.
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