ATO ID 2001/318: Deductibility: Theft by a person other than an employee
Date of decision: 8 August 2001
Business line: Private Groups and High Wealth Individuals

Issue
Whether a loss of cash takings by a taxpayer carrying on a business through theft by a person who is not an employee is deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Decision
Yes. The loss is deductible under section 8-1 of the ITAA 1997.

Facts
Prior to banking, the cash takings of a business were held in a safe at the taxpayer's business premises. The cash was stolen from the safe during business hours. The cash takings were included in the assessable income of the business as part of sales. It is unlikely that an employee stole the money.

Reasons for decision
Summary: Section 8-1 of the ITAA 1997 allows a deduction for any loss or outgoing necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. In this case the loss arose as a direct result of the taxpayer's income earning activities. The loss is not of a capital nature because it was incurred in an operation of the business concerned with the regular inflow of revenue. The loss was not associated with the 'profit yielding structure' of the business. See Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379. The loss is not of a private or domestic nature because the money had not yet been appropriated for private purposes. The taxpayer is, therefore, entitled to a deduction for the loss.

Legislative references: Income Tax Assessment Act 1997 section 8-1
Case references: Charles Moore & Co (WA) Pty Ltd v FC of T (1956) 95 CLR 344 (1956) 11 ATD 147 (1956) 6 AITR 379
Subject references: Losses from fraud, theft & embezzlement