Slasher: I don't think we do allow capital losses against income. We allow capital losses to be offset against capital gains, and we add capital gains to income. The fact that we add gains to income might be one rationale for allowing losses as a deduction, but while we do the former, I don't think we do the latter.

If you are talking about negative gearing, that is a deduction of a cost of obtaining income (in this case the interest on the borrowings) against income, not a capital deduction.

spog,

if I am receiving a salary of $60 000 a year and decide to borrow $350 000 for an investment property which is rented at $300/pw ($15600/yr ) and pay interest of approximately $21 000/yr why should this reduce my taxable income. I have no problem with interest on the investment property being offset against the income derived from the investment property so no tax is paid on the rent received but why should it be offset against my total income, if there is no link between my salary and the investment property why should losses on one asset be allowed to carry over to my income derived from a totally different source. If I decide to make an investment that will not make a profit then why should I pay less tax than another salary earner making the same money.

In effect my wealth accumulation is being subsidised by other taxpayers and I would be bludging on my fellow aussies.

We are in effect encouraging capital investment that has very little prospect of generating a positive return, this is inefficient use of capital. The gain comes from the cycle of speculative investment to reduce taxes being paid, as more and more enter the market all that is occurring is asset inflation in the residential property market making it harder for first home buyers to enter the market.

Hello slasher

I'm not necessarily disagreeing with your sentiment. I just wanted to clarify how the tax thing works (at least, as I understand it - I could be wrong).

I'm not sure that any but the deluded invest in a loss making activity. The investors you're talking about are after a profit too - but as capital growth.

The tax thingy works this way.If you have an investment property the tax office lets you write the interest off as a deduction against your income for the last financial year.Rather than waiting for you to sell the property and then subtract the interest against capital gain ,the tax office has decided the is is simpler to do it on an annual basis.

If you were allowed to deduct the interest in total after 10yrs upon selling your property we, have the complexity of inflation and you not being able to afford to keep the property in the interium.When you sell the property you still pay capital gains tax and council rates.Don't forget you have also paid stamp duty upon purchase.You also have the have the additional costs of repairs and maintenance.Very few of these costs are incurred in owning shares for instance.Owning property is a very marginal investment at the best of times and that is why negative gearing is necessary.

As I said ,the socialist Labor Govt got rid of negative gearing years ago and a shortage of housing resulted.If we get Govt to build all our housing,it will cost twice as much and you as an individual will still own nothing and take no pride in the house in which you live.

You cant negatively gear the house you live in Arjay. Or is that what youve been doing?

Negative gearing is a way of getting out of paying tax and would dissappear anyway under a flat tax system with no deductions

Jellyback,I said investment property.You seem to have a comprehension problem with negative gearing.See your accountant.