Can you claim losses from ACX?
Australian investors with their funds frozen inside ACX have been left wondering about what will happen to their crypto investments. With ongoing court proceedings already 2 years down the track, Australian investors are wanting to know if they can claim a tax loss on their crypto during voluntary administration?
Who is ACX?
Blockchain Global Ltd (BGL), the parent company of the now redundant Australian crypto exchange ACX, originally launched the exchange platform ACX back in 2016.
BGL, a Bitcoin mining and management consulting company which is headquartered in Melbourne, Australia, is known as the developer, operator and owner of ACX.
Back in 2016, the ACX exchange promoted itself as Australia’s largest and most liquid digital exchange, provided crypto trading services for customers to deposit their fiat currency and trade crypto.
According to the terms of service, ACX was holding customer money on trust (ownership of user crypto balances would not transfer to ACX) whilst they traded with the exchange.
What happened to ACX?
Whilst the world is currently waiting to see the legal outcomes pending the collapse of some major crypto exchanges such as Celsius or FTX, ACX also joined the same ranks, when it officially collapsed in 2021.
ACX is currently in ongoing legal proceedings in the Supreme Court of Victoria.
Ongoing investigations at the Supreme Court has revealed that ACX took funds deposited by customers and pooled them into a single account, failing to keep adequate records of each users’ crypto holdings.
The company is also alleged to have intermingled user funds with the company funds, using customer funds for personal use and for running business endeavours without the knowledge of its users.
In early 2020, ACX suddenly shut down operations and froze user accounts.
On 19 October 2021, BGL filed for voluntary administration, where it had around $20 million owing to its creditors, including hundreds of Australian account holders (now unsecured creditors) who lost large sums of money after the group blocked withdrawals.
The unusual trading activities and subsequent legal proceedings have left ACX users in a tough situation, worried if they will be able to recoup any of their funds from the exchange, or if they will at least be able to claim lost crypto funds as a tax loss.
Tax implications for ACX users
Generally, under Australian tax law, investors are allowed to claim a capital loss when a CGT asset you own is lost or destroyed. However, where there are ongoing liquidation proceedings, the amount that is lost, if any, is not yet known.
The ATO has guidelines on what requirements need to be met in order to claim crypto assets as a capital loss, and the ATO requires reasonable certainty on what amounts can be recovered, if any.
Due to the ongoing liquidation of ACX, there is uncertainty around the future viability of the company, and the likelihood of creditors to be able to recover, at least partially, their crypto assets from the exchange. The liquidators are working to piece together the flow of money around the business and transactions within the group as ACX did not keep proper records of customer funds.
Currently, we are not at the point of having reasonable certainty around the lost amounts. That means the majority of Australian crypto investors will not be in a position to claim a capital loss for their crypto trapped in ACX at this stage.
Our team dug deep into the tax law when considering the tax implications of the FTX administration proceedings. If you would like further understanding of our tax analysis, see Can I claim my FTX loss?
You cannot claim a capital loss until you know with reasonable certainty what amounts can be recovered.
Due to the current status of the company being in liquidation, you cannot know with reasonable certainty until the proceedings have concluded and a decision is made on the future of the company or until an official declaration is made by the liquidators. Until and unless such decision is taken, a capital loss cannot be claimed by Australian investors.