Capital Loss Due to Lost Crypto

One of my relative incurred loss of crypto (he would like to keep the details of loss confidential). The loss is significant and is not recoverable. I would appreciate if no further questions are asked about the details of loss as he is very distressed.

After speaking with a tax agent, my relative is being told that has incurred a capital loss due to this loss of crypto. Link for details below.

https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-c...

He has reported that loss to acorn and police.

As per his understanding, he can only claim the capital loss against future capital gains (as capital loss is carried forward every year). He is full time employee and lives in his own house, which is exempted to capital gain tax when he sells it for profit.

The only thing we can see to compensate that capital loss is to get an investment property, keep it for several years, and then sell it when the market is good, and then offset the CGT against the capital loss (incurred due to crypto).

Is there any other possible way to leverage a capital loss which is sitting in tax records of an individual?

Thank you for reading.

Comments

  • +21 votes

    First thing Sorry for your relative's loss! Secondly after such a huge disaster to finances, i think your best bet is to actually talk to a professional now than asking an online forum where to put the remainder of your money to offset Capital Gains! You dont have to go with a financial planner but they can give you a better idea of what you could do. Crypto was definitely something alot of people just jumped into without fully understanding the risks and this looks like the potential for another situation like that if you try to get advice on this solely from a online forum

  • +18 votes

    Did you trim your neighbour's tree yet

    • +12 votes

      That just reads like a euphemism 😂

  • +23 votes

    yea but like, how much are we talking?

    • +74 votes

      anonymous guy dosent want to tell a bunch of anonymous people on the net details about about an anonymous friend he has because on the very small chance he finds this post will feel exposed and distressed.
      do try keep up crentist….

      • +9 votes

        threefiddy

  • +70 votes

    I read the title "Lost Crypto", fixed myself up some popcorn, came back and read the post and was disappointed that the details of the loss aren't provided. I mean, why the hell did I make this popcorn? Better luck next time in providing details of someone's misfortune.

    • +12 votes

      What flavour popcorn?

      • +252 votes

        I would like to keep the details of the popcorn confidential.

        • +3 votes

          I bet it was acorn and pig flavoured, with an odor of software hacking and regret.

        • +1 vote

          Well that rules out a vegan flavour.

    • +24 votes

      Create a thread asking how you can put the burden of your wasted popcorn loss onto the tax payers. Because it's everyone elses fault you made a poor decision based on poor information but you wanted to follow a catchy online trend with hilarious memes attached, and you now have stale popcorn that tastes terrible and no one wants to touch.

    • +1 vote

      He, sorry his relative, reported the lost crypto to the police. Sounds like someone stole it somehow or scammed him out of it. I don't understand why else you would report it to the police and acorn (I presume the crypto wallet provider).

      • +4 votes

        Yes it can.

        • +10 votes

          I know all that.

          I'm wanting to understand why firestormx states you need to hold for 12 months otherwise it's just income cause that's BS

          • +1 vote

            @chumlee: It's BS for sure.
            It is CG however long you hold them unless you are a share trader.
            I think firestormx meant that you will get 50% discount on CG when you hold the shares at least 12 months which applies on other investments such as investment properties too.

            •  

              @pistachio: If you have a carried forward capital loss, does the 50% CGT rule apply though?

              I thought the full gain is offset against the loss

              •  

                @chumlee: Yes, but only to the net gain after the capital loss carried forward has been applied/offset against the new capital gain.

              •  

                @chumlee: As djkelly69 said CL applied first and you get 50% discount.

          •  

            @chumlee: Sorry it should have been to reply to firestormx's comment.

    • +21 votes

      No need to hold for >12 months for capital gain. As long as you make money then there is a capital gain. Also not classified as income if you are not a trader (i.e. majority of people are classified as investors) (see above)

      The 12 months rule is for 50% CGT discount which only applies after you subtract the losses from the full gains.

      E.g. Share Trading - $5000 gain
      Previous losses - $3000
      Net gain - $2000
      If hold <12 months - Add $2000 to your taxable income
      If hold >12 months - 50% discount, Add $1000 to taxable income.

      • -3 votes

        If hold >12 months, shouldnt it be $5000x50% - previous losses $3000 = $500 losses?

        • +1 vote

          Discount only applies on the net gain (i.e. after losses are deducted and does not matter when the losses have occurred especially as capital losses can be carried over indefinitely)

    • +3 votes

      12 month holding period is to get the 50% capital gains discount. It is still considered income but you only pay half the tax.

    • +7 votes

      If he makes a capital gain via shares he must hold them for at least 12 months for it to be a capital gain, otherwise it would just be income

      Just to clarify for those reading along, this is not correct.

      It seems to be conflating two things:

      1) You get a discount on capital gains if you hold an asset for at least 12 months; and
      2) The distinction between income and capital gain. As noted above, the test for whether someone is a trader (income) or investor (capital gain) is a lot more detailed than just looking at how long the asset has been held.

    • +2 votes

      It's probably important here to note that some types of dividends are capital gains and can also be used to steadily make use of this capital loss over the coming years. If you deliberately look for shares (or even better ETFs) that give these out, you can chip away at it in a very very low risk way (when compared to an investment property if a loan is required or more frequent and volatile trading)

    • +2 votes

      You don't have to hold shares for 12 months for it to be a capital gain. The 12 months mark is when only 50% of your capital gains from the sale of that asset is taxed due to the CGT exemption laws. Eg, you profit $100 from a $100 investment - if you sell within 12 months $100 is taxable as income, if you sell it after 12 months, only $50 is taxable.

  • +8 votes

    'Significant and not recoverable' seems to imply loss or theft of the private keys, or the 24-word seed for their wallet. This also implies it's not a drop in value and therefore you probably can't just say "BUY AND HODL!"

    Definitely talk to a professional for investment activities; capital loss offset is a natural part of this. Problem being that any significant capital loss also reduces your ability to re-invest and therefore make any further income from now onwards. But if you're FT and also own a house, that's a better start than I!

    Remember, DON'T invest emotionally. Just because you got burned by crypto (who hasn't?) doesn't mean it's necessarily a bad investment in itself. As with any investment, RESEARCH.

    •  

      Maybe cryptopia or quadriga

    •  

      He probably lost the key lol

  • +12 votes

    wheres is the investment property that will go up for sure to get this profit you speak of?
    No risk there is there…..

    chasing a loss is rarely a good move

    • +11 votes

      Just dig a bigger hole to get out of the first one!

      • +12 votes

        Dig up stupid!

    • +3 votes

      Melbourne property, only way is up they said.

  • +13 votes

    So, let me get this right… since the police are mentioned, I’m guessing the crypto was either stolen or scammed/defrauded/hacked/lost etc. How is this treated as a capital loss? I was reading the post thinking that they invested at the peak and made a huge loss until I read the police part.

    A huge loss on markets I guess could be a capital loss, but stolen/lost things? What am I missing here??

  •  

    Are they near superannuation vesting age?

  • +15 votes

    Goss about the loss plz

    • +11 votes

      Goss about the loss

      Ditto about the crypto

      • +7 votes

        Pwnage caused by loss of coinage.

    • +4 votes

      His bitcoins were purloined

      • +4 votes

        He pumped, she dumped and now he's stumped.

    • +3 votes

      Share about his despair.

      •  

        Blockchain offsets capital gain?

      •  

        he doesn't care to put it all out there. sounds fair

    •  

      red bed ted said

    •  

      His proof of work went poof! due to jerk.

    • +7 votes

      Insert video of Bart touching the electrified muffin.

  •  

    Did he lose it on silk road?

  • -2 votes

    Are they the dumb relative?

  • +3 votes

    Loss as in lost money or lost as in stolen? Why are the police involved?

    I lost money on shares in the past and I don't go to the police.

    I'm lost. Perhaps I should call the police and Acorn.

    • +1 vote

      stolen. police was involved to notify the theft.

      •  

        How much was stolen?

        • +2 votes

          He'd like to keep that a secret.

          •  

            @lostn: It’s a secret either because it’s very little amount or too much of an amount!

            How about a guessing game?!

            …if I were to garner a guess…,it’s as little as….1000 dollars! That’s it, isn’t it?

            •  

              @YoursTruly: I'd guess it's over $300k.

    • +8 votes

      Interesting definition of "smart"

  • +3 votes

    I will invest when there's a good opportunity. Not because of how much capital lost i have accumulated. Might just ended up with more losses.

  •  

    I wouldn't worry about doubling down on investments to make back their loss. The capital losses can be offset by capital gains at any point in their life. Tell them to put away a small portion of their pay check every week into a managed fund and burn through it slowly.

  • +1 vote

    You could argue that it was held for the purpose of quick sale and speculation, and therefore it's a revenue loss (to be offset against normal income). Depending on your recurrence, regularity, trading patterns etc, this may stack.

    You would probably need to consider non-commercial loss rules to work out whether you can apply the loss against other income

    •  

      Good idea - From the vague details provided I assume the loss would be a large proportion of his employment income and generate a significant tax refund. However I'd be getting a private binding ruling before lodging the tax return on that basis.

  • +1 vote

    Was it biiittttcooooneeect?

  •  

    It sounds like his crypto was stolen. If this is the case I don’t think this counts as a capital loss for tax purposes. A capital loss is when the market value of an asset is lower than what you paid for it, not when it gets stolen and therefore the value remaining in your pocket is nil.

    • +1 vote

      ATO takes a different view.

      •  

        You may well be correct. Do you have a source for this? I’d be curious to read it!

        • +2 votes

          See my post from yesterday, you did read it didn't you?

          •  

            @Baysew: Obviously not - I wouldn’t be asking you for your source if I had seen your post!

  •  

    Avoid high dividend paying stocks.

    Good luck

  •  

    Why police? If it was stolen as you said, thats not not deductable as capital loss in tax returns. That would be a civil/criminal matter.

    If he invested/speculated and liquidated his position to realize his losses only then would he be able to claim capital loss.

    •  

      I stand corrected, can be counted as income loss instead:

      INCOME TAX ASSESSMENT ACT 1997 - SECT 25.45
      Loss by theft etc.
      You can deduct a loss in respect of money if:

                       (a)  you discover the loss in the income year; and
      
                       (b)  the loss was caused by theft, stealing, embezzlement, larceny, defalcation or misappropriation by your employee or * agent (other than an individual you employ solely for private purposes); and
      
                       (c)  the money was included in your assessable income for the income year, or for an earlier income year.
      

      Note: If you receive an amount as recoupment of the loss, the amount may be included in your assessable income: see Subdivision 20-A.

      •  

        Does crypto count as “money”?

        •  

          ATO 'see' it as asset.

        • +1 vote

          Can be argued that money was stolen in asset form.

  •  

    L

  • +4 votes

    I hope you didn't honestly come on here expecting real help did you?

    •  

      I have got really good advice from here in the past, so am hopeful if someone can suggest another good option/direction.

  • -1 vote

    So let me get this straight…
    If I buy Bitcoin (or similar) and make money, then great, but if I lose money, then I should claim it as a tax deduction, which is basically making everyone else pay for my bad investment.

    Is there any better example of "the rich get richer"?

    Also while I think of it, do you need to prove how much crypto you had, or just make up a number?

    • +3 votes

      You have not got it straight.

      If I buy Bitcoin (or similar) and make money, then great

      And you will owe taxes on that…

      •  

        Spot on

        Losses can be carried over too
        Which is fair

      •  

        If you declare it.

        • +3 votes

          of course if you declare it. Tax fraud is always an option regardless of the assets you are trading in, and given how tracible crypto is that is a brave piece of fraud unless you are very very careful.