Mr La Rosa lost A$220,000 in a failed drug deal

The Federal Court ruled on Friday that Francesco Dominico La Rosa, from Perth, was entitled to the money because the Australian Tax Office (ATO) had overestimated his income.

The long-running battle between Mr La Rosa and the ATO began when he was serving a 12-year jail sentence for dealing heroin and amphetamines.

As drug dealers or business people, we should have the same rights as any taxpayer

Francesco Dominico La Rosa

The tax office estimated Mr La Rosa's income for the year 1994-95 as being A$450,000 (US$300,000).

But he insisted that his income was far less than that, because the tax office's figure wrongly included A$220,000 which had been stolen from him during a failed drugs raid in 1995.

He said he was entitled to a deduction because the loss was incurred as part of his business dealings.

He took his claim to the Administrative Appeals Tribunal, which agreed in his favour.

The ATO appealed, arguing that it was against public policy to allow a tax deduction for stolen money, but it was unable to overturn the verdict.

Mr La Rosa welcomed Friday's decision, saying that if the authorities wanted to tax his profits, they should also take account of his losses.

"As drug dealers or business people, we should have the same rights as any taxpayer," he said, according to the French news agency AFP.