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Edited version of private advice
Authorisation Number: 1052528148907
Date of advice: 10 April 2026
Ruling
Subject: Deductions - misappropriated funds
Question 1
Can the Company claim a deduction for the misappropriated funds under section 25-45 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer 1
Yes, to the extent they represent amounts previously included in assessable income.
Question 2
Can the Company claim a deduction for the misappropriated funds under section 8-1 of the ITAA 1997?
Answer 2
Yes, to the extent they represent amounts not previously included in assessable income.
Question 3
If they are not deductible under section 25-45 or section 8-1 of the ITAA 1997, can they be claimed as a capital loss under the CGT provisions or a tax deduction under section 40-880 of the ITAA 1997?
Answer 3
Not necessary to answer.
Question 4
Please also advise the financial year(s) when the Company can claim the deduction or capital loss. Can the Company claim them in the relevant year(s) when the funds were taken?
Answer 4
Where deductible under section 25-45 of the ITAA 1997, the misappropriated funds will be deductible in the year the misappropriation was discovered. Where deductible under section 8-1 of the ITAA 1997, the misappropriated funds will be deductible in the year of misappropriation.
This ruling applies for the following periods:
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
The Company operates a business.
Prior to March 20XX, the company had X directors.
Person X managed the day-to-day operations of the Company as director and employee.
Person Y and Person Z were involved in an advisory capacity.
Person X misappropriated significant cash funds from the Company's bank accounts and additional amounts were withdrawn from the company's loan facility over X or more years which would have otherwise been retained as Company profits.
The Company discovered these misappropriations in the year ended 30 June 20XX and has since identified numerous unauthorised withdrawals dating back to the year ended 30 June 20XX.
The continuing directors and the Company reported Person X to the State Police for misappropriating Company funds.
The State Police have charged Person X in relation to these offences.
Person X was removed as director from in the year ended 30 June 20XX.
Person X has applied for bankruptcy, and a trustee has been appointed over their bankrupt estate.
None of the misappropriated funds have been recovered and it is unlikely any will be.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 25-45
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 8-10
Income Tax Assessment Act 1997 section 40-880
Income Tax Assessment Act 1997 Part 3-1
Income Tax Assessment Act 1997 subdivision 20-A
Income Tax Assessment Act 1997 section 20-20
Income Tax Assessment Act 1936 section 71
Income Tax Assessment Act 1936 subsection 51(1)
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