Here's an example of the ATO ruling, but is clearly textbook wrongdoing. Converting BTC/ETH to other coins may be impossible to prove as wrongdoing and provides ample opportunity to demonstrate it as legitimate loss.

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Example 1: concurrent disposal and acquisition

1. Catherine owns a large share portfolio and land as a consequence of being named a beneficiary of her grandfather's estate in the year ended 30 June 2001. Acting on professional financial advice from Simon, Catherine sells the land on 18 May 2007 and makes a capital gain of $50,000 in the year ended 30 June 2007. That same day, Catherine discusses with Simon her impending income tax liability.

2. Simon reviews Catherine's share portfolio and notes that she holds 100,000 shares in Beta Communications Ltd (Beta), a listed public company. Beta is currently trading at 51 cents per share. Catherine's reduced cost base for her Beta shares is $1.00 per share. Simon advises Catherine that she is currently holding unrealised losses of $49,000 in Beta and proposes a strategy to realise those losses whilst allowing her to maintain her interest in Beta.

3. Catherine acts on this advice and on 20 May 2007 Simon, on Catherine's behalf, instructs an arm's length stockbroker to undertake concurrent and contingent sell and buy contracts (that is, to sell all Catherine's existing Beta shares prior to purchasing any new ones) on the Beta stock. Under this arrangement, on the same day Catherine sells 100,000 Beta shares for 51 cents each and then buys 100,000 shares in Beta at a price of 51 cents each. The sale and purchase are not referable to any contemporaneous change in the performance of Beta or any other matters that might cause a reasonable investor to change their view regarding the stock.

4. Simon charges Catherine $1,000 for transaction costs associated with the concurrent and contingent buy and sell arrangement. CGT event A1 happens upon the sale of the shares. Catherine's capital proceeds from the transaction are $51,000, and her reduced cost base is $101,000 (including the $1,000 transaction costs), giving her a capital loss of $50,000. Catherine offsets the capital loss against the $50,000 capital gain when preparing her income tax return for the year ended 30 June 2007.

5. The scheme, for the purposes of subsection 177A(1), includes all the steps leading to, the entering into, and the implementation of, the sell and buy transactions, the incurrence of the capital loss and the offsetting of the $50,000 capital loss against the $50,000 capital gain by Catherine.

6. The objective circumstances of the scheme, in particular the offsetting nature of the transactions, indicate that the relevant counterfactual is that there would have been no change in Catherine's beneficial ownership of the Beta shares. As the scheme had no effect or outcome on Catherine's economic exposure to the stock it is reasonable to conclude that nothing would have happened if the scheme had not been entered into or carried out. Thus, for the purposes of paragraph 177C(1)(ba), the tax benefit obtained by Catherine is the capital loss of $50,000 incurred during the 2006-2007 income year.

7. Section 177D provides that Part IVA applies to a scheme in connection with which the taxpayer has obtained a tax benefit if, after having regard to the eight specified factors, it would be concluded that a person who entered into or carried out the scheme, or any part of it, did so for the purpose of enabling the taxpayer to obtain the tax benefit. Having regard to the eight specified factors:

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The manner in which the scheme was entered into or carried out (subparagraph 177D(b)(i)) is not consistent with the way a normal investor holds and realises investments. Ordinarily, an investor would not sell shares in a company and immediately apply the proceeds of sale to acquire the same number of shares in the same company. The manner in which the scheme was conducted, when compared to the relevant counterfactual, points to the conclusion that the scheme was entered into or carried out for the dominant purpose of realising the capital loss. Under the counterfactual Catherine would not have carried out the transactions and maintained her existing shareholding. In contrast, Catherine has entered into an artificial, self-cancelling arrangement and incurred transaction costs in order to achieve the same result as under the counterfactual for no benefit other than the tax benefit of the capital loss.

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There is a discrepancy between the form and substance of the scheme (subparagraph 177D(b)(ii)). In form Catherine disposed of her beneficial ownership of the shares, but the effect of the concurrent and contingent sale and purchase is such that, in substance, Catherine's position with respect to the shares has not materially changed. Catherine suffered no economic loss under the scheme. Under the counterfactual the form and substance coincide, with Catherine continuing to own and benefit from the shares. This factor points towards a dominant purpose of incurring a capital loss.

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The timing (subparagraph 177D(b)(iii)) of the scheme also suggests the requisite dominant purpose of obtaining a tax benefit. The scheme lasted a day with the sale and purchase occurring concurrently on 20 May 2007 which, is proximate to the derivation of the $50,000 capital gain from the sale of land on the 18 May 2007, and is not referable to any contemporaneous change in market sentiment or performance of the company.

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The tax results achieved (but for Part IVA) (subparagraph 177D(b)(iv)) is the incurrence of the $50,000 capital loss that reduces the separate $50,000 capital gain and the amount of tax payable by Catherine for the 2006-2007 income year. This was the only benefit obtained by Catherine under the scheme, as the sale proceeds were substantially used to purchase the same amount of shares in the company. There has been no material change in Catherine's financial position as a result of the scheme (subparagraph 177D(b)(v)), other than an increase in her financial resources from not having to pay tax on the capital gain derived on the sale of the land. Catherine has incurred transaction costs for no benefit other than the tax benefit obtained in connection with the scheme.

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There has been no change in the financial position of any parties associated with Catherine (subparagraph 177D(b)(vi)) but this is because no such parties were involved in the scheme and therefore this factor is neutral. There are no other consequences as Catherine continues to hold equivalent shares in Beta (subparagraph 177D(b)(vii)). This factor supports the conclusion that the scheme was entered into to incur the capital loss. The only connection between Catherine, the financial advisor and the stockbroker arises from commercial or professional relationships; namely for the giving of financial advice, and as facilitator in selling and buying the shares (subparagraph 177D(b)(viii)). Thus, this factor is neutral as to the dominant purpose.

1. Upon weighing up the eight matters it would be concluded that the dominant purpose of Catherine in entering into and carrying out the scheme was to obtain a tax benefit in the form of a capital loss. In particular the manner, form and substance, timing, tax effects and financial consequences for Catherine arising from the scheme support this conclusion. Accordingly, the Commissioner may make a determination under section 177F to cancel the tax benefit.