Tax deduction on cash loss?
Embezzlement is the act of someone wrongfully appropriating funds that have been entrusted to their care but which are owned by someone else. Many small businesses are victims of thefts perpetrated by employees.
From a tax perspective, can the cash loss eligible for tax deduction?
Let’s illustrate with a simple real case:
GGG Sdn Bhd (actual name of the company is conceived to protect confidentiality) has entrusted their account executive on the usage of company’s fund to smoothen the daily operation. However, they have recently found out he has been transferred funds to his accounts over the past 6 months.
The account executive had run away and no way to be found. The total losses are approximately around RM100,000. Without hesitation, GGG had reported to the police.
Can the cash loss eligible for tax deduction?
Is a police report sufficient?
Yes, the cash loss is tax-deductible. However, sufficient documentation must be kept. A mere police report is arguably insufficient, as it was only proof that the incident happened.
To avoid further disputes from IRB officer, KTP has advised GGG to prepare more documents as below: -
Bank receipts of cash transfer to the account executive current account, letter of employment termination, and bank statement as proof of the person involved.
Police report and minutes of the board of directors’ meeting as proof of the action taken.
Public Ruling NO. 4/2012 - Deduction for Loss of Cash and Treatment of Recoveries
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Published : 18-Mar-2021