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Edited version of private ruling
Authorisation Number: 1011605932120
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Ruling
Subject: Assessability of income derived from illegal activities
1. Is the income you derived from selling stolen goods assessable income?
Yes.
2. Are you entitled to a deduction for the compensation you paid in relation to the stolen goods?
No.
This ruling applies for the following period:
Year ended 30 June 2008
The scheme commenced on:
1 July 2007
Relevant facts and circumstances
You stole goods from your employers and sold the goods.
You have provided a copy of a spreadsheet showing the total sales you made each month.
You have provided a copy of court documents listing the items that were stolen by you but not yet sold. This list shows the types of goods that you typically sold, which included small electrical devices.
You were charged with and found guilty of theft, and as a result of this you were ordered to pay your employers compensation for the stolen goods.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 26-54
Reasons for decision
Assessability of income derived from illegal activities
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Taxation Ruling TR 93/25 considers the assessability of proceeds from illegal activities.
TR 93/25 states that the tests as to whether an amount is assessable income under subsection 6-5(2) of the ITAA 1997 are the same for amounts received from legal and illegal activities.
Therefore, we need to determine whether the income you made from selling stolen goods is income according to ordinary concepts.
We do not have enough information regarding your activities in order to determine whether you were carrying on a business. Therefore, we will not be considering this issue. However, it is not necessary for you to be in business in order for the income to be assessable, as discussed in Taxation Ruling TR 92/3.
TR 92/3 considers when profits from isolated transactions are income. TR 92/3 states that a profit will be income where the intention of the taxpayer in entering into the transaction was to make a profit or gain and the transaction was entered into in the course of carrying on a business or commercial transaction.
TR 92/3 goes on to explain that the taxpayer's intention is discerned from an objective consideration of the facts and circumstances of the case, and it is not necessary that the intention is the sole or dominant intention, it is sufficient if profit-making is a significant purpose.
In your case, an objective consideration of the facts shows that profit-making was a significant purpose of your activities as you systematically acquired and then sold a range of goods via an online trading website and made a profit on those sales.
Therefore, the income you derived from the selling of stolen goods is assessable as ordinary income and should be included in your income tax returns.
Deductibility of expenses related to illegal activities
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
Section 26-54 of the ITAA 1997, however, limits the operation of section 8-1 of the ITAA 1997 in the following way:
You cannot deduct under this Act a loss or outgoing to the extent that it was incurred in the furtherance of, or directly in relation to, a physical element of an offence against an Australian law of which you have been convicted if the offence was, or could have been, prosecuted on indictment.
This section applies to you because:
· you incurred an expense when you were ordered to pay compensation
· the compensation relates directly to the theft of goods from your employers, and
· you were convicted of the theft.
Therefore, you cannot claim a deduction for the compensation you paid to your employers.
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