Income Tax Interpretation Bulletin

Gains from Theft, Defalcation or Embezzlement

NO: IT-256R

DATE: August 27, 1979

SUBJECT: INCOME TAX ACT
Gains from Theft, Defalcation or Embezzlement

REFERENCE: Paragraph 3(a) (also section 4, paragraph 15(1)(b) and subsection 163(2) of the Act).

This bulletin cancels and replaces Interpretation Bulletin IT-256 dated October 14, 1975. Current revisions are designated by vertical lines.

1. The treatment of losses from theft, defalcation or embezzlement are dealt with in IT-185. This bulletin deals with the treatment of those amounts in the hands of the recipient, and also covers cash or property received as a result of extortion, blackmail, bribery or other similar acts.

2. These funds or property are income from a source and as such are taxable in the hands of the recipient. The cash or fair market value of property received will be added into the recipient's income in the year of receipt.

3. Taxpayers who receive such funds or property may be subject to a penalty under subsection 163(2) for each year that they were taken and not reported.

4. It is the Department's practice that when amounts that were added to a taxpayer's income under 2 above are repaid, there will normally be a deduction allowed in respect of such repaid amounts for the taxation year in which the repayments are made unless the taxpayer was a major shareholder or senior official of the injured party at the time of the theft or other act to which the comments herein apply.