Record keeping is important for a number of reasons, but it’s especially important when it comes to tax losses. When you have a record of your losses, you can use them to offset future taxes owed. When you don’t have records, things can get tricky.
The FTX collapse caused widespread losses directly and indirectly. One little appreciated loss is that many trading histories and records are no longer accessible via API or by CSV export – meaning lots of Australians will not be able to meet their legal obligation to retain records. We all know there were heavy loses, buts the question is – can you prove it?
What are the tax implications of the FTX insolvency?
With the FTX insolvency all users with funds on FTX are unsecured creditors at this time, which usually rank last. There is a special CGT event for when intangible assets are cancelled, surrendered or similar endings. It is called CGT event C2.
It isn’t clear whether CGT event C2 has happened, as the insolvency process in Australia, the US and the Bahamas has only just commenced. There are two options available for users:
- Claim losses from the date that the group entered into insolvency, around 11 November 2022; or
- Users wait until the administration is finalised before determining if they had a loss.
The ATO has released no guidance yet, though may do so before tax returns are due for the year ending 30 June 2023.
The conservative position is to wait for the administration but there is an argument that based on the asset position of FTX, funds have already been lost. This may be reasonable based on FTX holding less than US$1b of assets against US$10b of liabilities.
Before taking any positions, seek individual tax advice from your advisors (which may be us) so you understand the risks – especially if funds are recovered later.