How to deal with losses from crypto scams, rug pulls and hacks
We’ve all been through at least one rug pull before and it sucks! But on the plus side, in some countries we can use these losses to offset our capital gains for that year and in some cases even future years. Please speak with a tax professional to see if you are eligible to write off these losses, this article is just an example of what to do if you can!
Below are some of the common situations that can occur, and how to deal with them:
Situation 1: “The rugpull”
Let’s say I buy 2000 of the crypto RUGZ worth at the time $100. Two days later I hear the news that the team has sold all of the liquidity that they said was locked up until a future date, this then sends the price plummeting toward zero. Unfortunately, I have just been rug-pulled!
There are two things ways that this can play out and would impact how you would report depending whether the asset can still be traded or not:
If the asset can still be traded, you can dispose of the asset and then import your transactions normally into our system. This will then realise the loss against this new greatly deflated price, representing a large loss.
If the asset is no longer tradable and CTC still shows it in my portfolio but I want to write its cost base off, I will need to create a manual transaction to show that disposal. See how to do this below.
Creating a manual transaction to represent a loss
To do this I will need to know the date/time the rug pull happened and the amount of the crypto that I am disposing of.
Once I have this information I will need to head to the Transactions page, where I can use the “+ Add Transaction” button to add transactions (top right of the page).
Choose “other” as the Transaction Category then press next. Here I will need to fill in some information such as when I want the transaction to occur, what asset and how much we are claiming a loss on and the category. For the category, I can either choose ‘stolen’ or ‘lost’ as they both apply the same tax rules.
Once I’ve chosen one of those categories I will press next and add in the source and destination where the transaction took place. This would be the wallet or account where I was storing the RUGZ crypto in.
Then I will press next and finally the “add transaction” button.
This has then created the transaction above showing the tax disposal of this asset due to it being stolen/lost. This transaction will be showing a 100% capital loss on its cost base.
Situation 2: Hacked wallet and crypto drained
In this example, I have some Ethereum (ETH) in a wallet that I used to sign and approve a contract with. That next day I discover that my wallet has been drained of all of the ETH as that approval that I signed was malicious and allowed the hacker to send my ETH to their wallet.
The first this I would do here if I haven’t already would be to send anything that is left (if any) to a new wallet and never use this wallet ever again.
Then to write off the stolen ETH as a loss would be extremely easy, I would just need to re-sync the hacked wallet and it would bring in the withdrawal (send) from my wallet to theirs.
Then I would just need to categorise that outgoing transaction as “stolen” and Its cost base will be written off as a loss.
Assume this screenshot below indicates this situation described above, where the wallet has been synced and the theft is represented as a 'send' to an address you do not control. Simply click on the word 'send' and change it to 'stolen'.
CTC will then calculate this as a loss and this will be shown under the right side under 'Gain':
The information provided in this article is for informational purposes only and is not intended to provide tax advice or to substitute for the advice of a tax professional. The content of this article is designed to provide a how-to guide for using the app, and should not be relied upon as tax advice.
The reader is solely responsible for determining the applicability and suitability of the information contained in this article for their own particular circumstances. We strongly recommend that the reader conduct their own research and seek the advice of a qualified tax professional before making any decisions based on the information provided in this article.
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