Private ruling: Deduction for misappropriated funds
Date of advice: 11 October 2019
Published: December 2019
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to claim a tax deduction for funds misappropriated as a result of fraud? | A1: Yes The outgoing is deductible under section 25-45 of the ITAA 1997 as the loss was caused by an employee stealing, embezzling or misappropriating the funds which were to be included in your taxable income for their own use, and you discovered the loss in the income year.

Relevant facts and circumstances: It was discovered that a company employee had amended certain statements for the financial year down to hide amounts that were not being paid to the ATO, but were being transferred to their own personal bank account. The Police are progressing with investigations and recent findings support that fraud of the company funds did occur, and the company has now engaged a solicitor to take civil action to recover the company stolen funds.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 25-45