Page 684 - SAIT Compendium 2016 Volume2

IN 80 Income Tax acT: InTeRPReTaTIon noTes IN 80
4. The victim
4.1 Deduction for stolen money
4.1.1 The positive test [section 11(a)] (a) Expenditure and losses
(b) Actually incurred
(c) In the production of the income (d) Not of a capital nature
(e) During the year of assessment
4.1.2 The negative test [section 23(g)]
4.2 Losses of a capital nature
4.3 Expenditure on legal and forensic services
4.4 Amounts recoverable under a contract of insurance [section 23(c)]
4.5 Inclusion in income of amounts recovered or recouped
4.6 Proof of embezzlement, fraud and theft of money
5. The thief
5.1 Taxation of stolen money
5.1.1 Received by or accrued to
5.1.2 Not of a capital nature
5.1.3 Timing and determination of the amount received
5.2 Deductibility of repayments of stolen money
6. Conclusion
Annexure – The law
Preamble
In this Note unless the context indicates otherwise –
• ‘embezzlement’ means the misappropriation of funds entrusted to a person (for example, an employee or trustee) for
care or management;
• ’fraud’ is the unlawful and intentional making of a misrepresentation which causes actual prejudice or which is
potentially prejudicial to another;*
• ‘section’ means a section of the Act;
• ‘stolen money’ means money obtained from embezzlement, fraud or theft;
• ‘TA Act’ means the Tax Administration Act 28 of 2011;
• ‘the Act’ means the Income Tax Act 58 of 1962;
• ‘theft’ means the act or crime of stealing money;
• ‘thief’ refers to the person perpetrating the embezzlement, fraud or theft; and
• any word or expression bears the meaning ascribed to it in the Act.
1. Purpose
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.
2. Background
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.
3. The law
The relevant sections of the Act are quoted in the Annexure.
* W A Joubert, J A Faris & A Kanjan ‘Fraud/De nition’ 6 (Second edition Replacement Volume) LAWSA [online] (My LexisNexis: 31 August 2010) in paragraph 306.
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