This Note provides guidance on –
• the deductibility of expenditure and losses incurred in a taxpayer’s trade when money is stolen through embezzlement, fraud or theft, including expenditure incurred on legal and forensic services to investigate such losses;
• the inclusion in income of amounts recovered or recouped in respect of such expenditure and losses previously allowed as a deduction; and
• the taxation of stolen money in the hands of the thief and the non-deductibility of such amounts when repaid.
Taxpayers may incur expenditure and losses during the course of their business activities as a result of money stolen through embezzlement, fraud or theft by, for example, employees, directors, independent contractors, shareholders, partners, burglars or armed robbers. As a consequence, these taxpayers may also incur expenditure pertaining to legal and forensic services to investigate such losses.
The manner in which the embezzlement, fraud or theft is perpetrated will vary from case to case, for example, it could result from a physical break-in to the taxpayer’s premises, cheques could be manually altered or there could be an unauthorised use of electronic systems to make payments. The identity of the person perpetrating the embezzlement, fraud or theft may be known or unknown to the taxpayer.
The stealing of money through embezzlement, fraud or theft has income tax implications for both the victim and the thief.
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