Tax losses aren’t dirty laundry – so don’t wash them

The current economic trend has seen a spate of messages encouraging ‘opportunities’ for taxpayers to realises losses on their CGT assets prior to 30 June.

You should certainly be wary!

Realising a loss on a CGT asset does not, on its own, ordinarily present a tax risk. However, doing so in combination with a repurchase of a same or substantially the same asset risks falling foul of the Part IVA general anti avoidance provisions. This type of scheme is commonly referred to as a ‘wash sale’ and, since 2008, the Commissioner of Taxation has held the view that the general anti avoidance provisions can apply to wash sales (and variations of it).

Wash sale arrangements can involve any type of CGT asset, but for practical reasons will often involve assets that are fungible and interchangeable such as shares and, more recently, cryptocurrency.

Cryptocurrency investors should be particularly cautious. Given the fungibility and relatively low transaction costs, the opportunities to enter into a ‘wash sale’ can be particularly attractive. This is compounded by the fact that there are some protocols, such as Defi lending platforms, which may inadvertently lead to a disposal and repurchase for CGT purposes.

If it seems too good to be true, it probably is, and taxpayers should always be wary of basing their year-end tax planning on news articles. Your tax losses aren’t dirty laundry, and if the sole or dominant purpose for a series of transactions is to realise a tax loss then you may fall foul of the general anti avoidance provisions.