Mark Tonkovich, “Theft by Owners or Senior Employees: Deductibility of Losses” (Feb 2016) 6:1 Canadian Tax Focus, analyzes employee theft as discussed in Income Tax Folio S3-F9-C1, “Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime”. The Folio sets out criteria for deciding when an employer can deduct an amount stolen by its employee. According to Mr Tonkovich, the Folio focuses too much on the place of an employee in the employer’s management hierarchy. Mr Tonkovich suggests that
If one extrapolates from the jurisprudence, considerations such as the following should be taken into account:
- whether the stolen assets were actively used in the business’s operations, or whether they are better seen as proceeds of completed business activity;
- whether the thief committed the theft in the way that a lower-level employee or a customer might have done, or whether his actions specifically reflected his role as a business owner or executive; and
- the extent to which the thief actually exercised control over the activities that led to the fraud as a principal of the business, rather than merely whether he had the capacity to exercise such control.
