When Crypto Goes Missing

It’s every investor’s nightmare – a lost wallet, a hacked exchange, or a missing private key. But when crypto truly disappears, the Australian Taxation Office (ATO) may still recognise the loss – if you can prove it.

Here’s what you need to know before you try to claim a capital loss for lost or stolen crypto.

First, decide if your crypto is really ‘lost’

The ATO makes a clear distinction between temporary loss of access and permanent loss.

You’ll need to show that:

• The crypto asset is genuinely lost or stolen
• You had verifiable ownership
• You can no longer access or recover it

If there’s any realistic way to recover the asset – for example, by retrieving data from a damaged hard drive – the ATO won’t treat it as lost. But if your private key is gone for good, that’s a different story.

Claiming a capital loss

If your crypto asset can’t be recovered, you can claim a capital loss in your tax return.
This loss can offset other capital gains, reducing your overall tax liability.

However, if you receive any insurance payout or compensation, your capital loss must be reduced by that amount.

If the compensation you receive is worth more than what you originally paid, you’ll actually make a capital gain instead.

Reinvesting after a loss (the rollover option)

If you receive compensation for lost or stolen crypto and purchase another crypto asset within 12 months, you may be eligible for a rollover.

This means you can defer any capital gain arising from the loss of the original asset – giving you time to reinvest and recover your position.

Evidence the ATO expects

To claim a loss, you must show that the crypto was yours – and that it’s gone for good. The ATO generally looks for evidence such as:

• Your public key and corresponding wallet address
• The date you acquired and lost access
• The cost of acquisition and the value at the time of loss
• Proof that the wallet was under your control or identity (for example, linked exchange transactions)
• Records showing the hardware or software wallet was in your possession

The more complete your paper trail, the smoother your claim will be.

Security Check

• Back up your seed phrases securely – offline and in duplicate
• Keep records of every wallet and transaction (exchange exports help)
• Consider crypto insurance if you hold significant value

The Final Buzz

Losing access to crypto is painful – financially and emotionally. But if you can prove ownership and permanent loss, the ATO may recognise it as a capital loss, helping to soften the blow come tax time. All the more reason to practice good record keeping.

Source: Australian Taxation Office

Note: This article is for education, not advice. For personal tax matters, speak with a qualified accountant.

Keep building your crypto knowledge. Up next: Crypto and the ATO: What Every Investor Needs to Know →

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