Hanover investors were given Allied shares at 20.7c each in a debt-for equity swap when Allied purchased the stricken finance company in December 2009, but the value of the shares plummeted to just 10c on the first day of trading.
This slump in value cost the investor in question more than $50,000 as he sold his shares, which were worth $98,657.57 based on the 20.7c price, for $48,435.73.
Wellington tax adviser Brent Gilchrist appealed to the Inland Revenue's adjudication department on behalf of his client in 2010 after the tax department rejected the investor's claim for a tax deduction on the losses.
Gilchrist said his client should get a deduction on the losses because he would have been liable to pay tax if he made gains due to tax rules around short-term share trading.
However, the IRD said the investor had no "purpose" in acquiring the shares as he had obtained the passively.
In a ruling released this week the adjudicators overturned the IRD's rejection, saying the investor was entitled to claim a $50,221.74 tax deduction on the losses.
Gilchrist said there were probably hundreds of former Hanover investors in a similar situation to his client.
IRD group tax counsel Graham Tubb has advised taxpayers who believe they are entitled to a tax deduction to contact the department.
Allied Farmers shares are currently trading at 3.7c on the NZX.
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