Deductibility: Embezzlement by Employee

Whether a loss incurred by a company through embezzlement by its former employee is deductible under section 25-45 ( Income Tax Assessment Act 1997 (ITAA 1997)).

Yes. The loss is deductible under section 25-45 (ITAA 1997).

A former employee of the taxpayer worked on a part time basis as a bookkeeper/administrator for a period of 18 months. The employee was responsible for entering financial transactions into the company's software system and for day to day handling of mail and cheques. During the 18-month period a number of cheques were applied for the employee's benefit without authorisation of the taxpayer.

Section 25-45 (ITAA 1997) specifically provides a deduction for a loss caused by the theft, stealing, embezzlement, larceny, defalcation or misappropriation by an employee or agent of the taxpayer.

In the present case, the taxpayer's loss was the result of embezzlement by an employee. The loss was discovered in the income year and the money embezzled was also included in the taxpayer's assessable income for the income year. The taxpayer is, therefore, entitled to a deduction for the loss.