Tax season is here! As a victim of FTX, can losses be deducted when filing income taxes?

If you are a victim of the FTX incident, do not rush to report your income tax! According to the Ministry of Finance's explanation, the bankruptcy of FTX will affect the part of overseas property trading income when ordinary people file comprehensive income tax returns, with the Ministry of Finance explaining it in two parts: "profit-seeking enterprise income tax" and "individual comprehensive income tax".

FTX Recognizes Income Losses: Corporate Income Tax

The Ministry of Finance stated that if a corporate entity holds virtual assets in an account with FTX and is unable to recover part or all of its claims due to FTX filing for bankruptcy protection, it shall be considered as a realized loss in accordance with Article 94, paragraph 5 of the Income Tax Audit Guidelines for Corporate Income Tax. It may recognize bad debt losses with relevant proof such as bankruptcy court rulings as stipulated in the same paragraph, item 7, paragraph 2.

Definition of Corporate Entity: According to Article 11, paragraph 2 of the Income Tax Act, a corporate entity refers to a sole proprietorship, partnership, company, or other organizational form engaged in profit-making activities in industries such as industry, commerce, agriculture, forestry, fisheries, animal husbandry, mining, metallurgy, etc., with a business license or premises.

Furthermore, if domestic corporate entities sell or exchange virtual assets they purchased, they should calculate their profits and losses by deducting related costs from the income received in accordance with Article 24, paragraph 1 of the Income Tax Act, and corporate income tax shall be levied on the net income in accordance with the law.

FTX Recognizes Income Losses: Individual Income Tax

Regarding the part of individual comprehensive income tax that affects the most people, the Ministry of Finance explained that since our country's individual comprehensive income tax adopts the principle of territoriality, only income earned within the territory of our country is subject to income tax.

Individuals who earn income from non-regular trading of virtual assets within the territory should calculate their income by subtracting the original acquisition cost and related expenses from the transaction price at the time of the trade. This income shall be included in the total comprehensive income and subject to income tax. If there are losses from property transactions, a special deduction for property transaction losses can be reported and deducted from the income from property transactions.

However, as FTX is an overseas exchange, the above regulations do not apply. If there are property transaction losses due to FTX, they can only be deducted from the overseas property transaction income of the same year after providing relevant transaction proof documents such as the FTX creditor confirmation letter, and the deduction amount shall not exceed the income from the property transaction.

Definition of Overseas Property Transaction Income/Loss: Refers to gains/losses from various overseas properties held by individuals for non-regular buying and selling activities.

It is important to note that individuals with annual overseas income exceeding NT$1 million are required to include it in their basic income amount for calculating the basic tax amount under the Basic Tax Amount Act. Those with a basic income amount of less than NT$6.7 million are exempt from taxation under that Act.

In other words, if a victim of FTX has overseas property transaction income of 10 million NT dollars, after preparing the relevant proof documents, they can use the assets in FTX to offset it, but not exceeding 10 million NT dollars.