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New Zealand law explained for everyone

Income Tax Act 2007

Deductions - Specific rules for expenditure types

DB 42: Property misappropriated by employees or service providers

You could also call this:

“What happens when employees or contractors steal from your business”

If you run a business, this part of the law is about what happens when someone takes something that doesn’t belong to them.

If an employee or someone who works for your business takes property without permission, you might be able to claim a deduction for the loss. This means you can reduce the amount of tax you need to pay because of what was taken.

You can only use this deduction if there’s no other part of the tax law that lets you claim for this loss. Also, you can’t use this rule if the person who took the property is connected to you or your business in some way.

If you’re allowed to claim this deduction, you can do it in the year you find out about the loss. Sometimes, if it’s fair, you might be able to claim it for earlier years too.

This rule adds to the general permission for deductions and overrides the capital limitation, but other general limitations in the tax law still apply.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513689.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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DB 41: Charitable or other public benefit gifts by company, or

“Companies can reduce their tax by donating to approved charities”

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DB 43: Making good loss from misappropriation by partners, or

“Claiming tax deductions for losses caused by a partner's theft”

Part D Deductions
Specific rules for expenditure types

DB 42Property misappropriated by employees or service providers

  1. This section applies when—

  2. a person carries on a business; and
    1. an employee of the business, or a person who provides services to the business, misappropriates property; and
      1. no other provision of this Act allows the person who carries on the business a deduction for the loss resulting from the misappropriation.

        1. This section does not apply when a person who misappropriates property is associated with the person who carries on the business.

        2. The person is allowed a deduction for the loss that they incur in the course of the business as a result of the misappropriation of the property.

        3. The deduction is allocated to the income year in which the loss is ascertained, or in 1 or more earlier years if, in the circumstances, the Commissioner considers it would be fair.

        4. This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

        Compare
        Notes
        • Section DB 42(2): substituted, on (applying for the 2010–11 and later income years), by section 75(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).