Private ruling: Entitlement to a tax deduction as a result of fraud
Date of advice: 22 April 2022
Published: July 2022
Ruling period: Income year ended 30 June 20XX | Income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the taxpayer entitled to claim a tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for fraudulent transactions on their company credit card in the 20XX-XX and 20XX-XX income years? | A1: Yes. The facts and circumstances of this case satisfy the following conditions of section 8-1 of the ITAA 1997 for the amount to be deductible: • the loss or outgoing is incurred; and • there is a relevant nexus between the loss or outgoing and the carrying on of a business for the purpose of gaining or producing assessable income; and • the loss or outgoing is not of a capital or private or domestic nature. However, the relevant deduction should be claimed for an amount that was incurred in that income year.

Relevant facts and circumstances: The taxpayer has a company credit card with XX financial institution which is used for business transactions including purchases and sales. During the 20XX-XX and 20XX-XX income years, the taxpayer's company credit card was fraudulently accessed by a person who was not an employee of the company - it is believed to have been accessed by someone (the unknown entity). The unknown entity accrued fraudulent transactions totalling XX on the taxpayer's company credit card. The taxpayer only became aware of the fraudulent transactions on their company credit card XX months after they had already occurred. Upon becoming aware of the fraudulent transactions on their company credit card, the taxpayer contacted both XX financial institution and XX to investigate but unfortunately, nothing was achieved. The taxpayer then opened a new account. The taxpayer has not received a reimbursement or refund for any of the fraudulent transactions on their company credit card and they will not receive any insurance claim payments in respect of these. The taxpayer has not previously claimed a tax deduction in respect of the fraudulent transactions on their company credit card.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1