Q&A Friday is published every Friday while there is demand. Email your questions to vern@vov.co.nz. We won’t publish your name.

Today’s Q&A is a very brief one due to the short week. Please keep your questions coming and I will add them to the list.

Tax and finance company losses

Question: I want to know in what circumstances (if any) investors can claim losses on finance company debentures as a tax deduction.

Vern says: This question was answered by James Usmar on 28 May. He said…

I am not qualified to give tax advice so please check with your accountant regarding your individual circumstances. My generic understanding is that you could claim losses if you held your investments on revenue account but not capital account, i.e. if you were a share trader rather than a buy and hold investor. Most buy and hold investors seeking [non-trading] income would hold the investment on capital account. So to add insult to injury no losses can be claimed sadly.

Patrick Jackson left a series of comments disputing James’ answer, which may have left readers wondering what to believe.

This prompted me to double check with a chartered accountant who pretty much confirmed what James said. If investors are investing in shares or bonds or anything, and are paying tax on the income but not the capital gains, then they are not able to claim any losses on capital either.

If however you are classified as a trader rather than an investor, and therefore are paying tax on the capital gains as well as the income, then you can claim capital losses.

The bottom line as I understand it is that if you are an investor you do not pay tax on capital gains and therefore cannot claim a tax deduction on capital losses. Makes sense – you can’t have it both ways.

I have to qualify this by saying that I am not an accountant and you should check with your accountant regarding your particular situation.

About James Usmar

James was a qualified financial planner in the UK working for a tax consultancy firm. He specialised in investments through financial centres such as Jersey and the Isle of Man. James joined Saturn Portfolio as an investment adviser after immigrating to New Zealand in 2006.

About Saturn Portfolio

Saturn Portfolio is an investment advisory firm built on a history of trusted advice since 1988. They invest $160 million on behalf of clients. Four experienced client advisers work in the business. Saturn Portfolio is not aligned to any investment manager or product provider. This means they can freely select and recommend the most appropriate investments for you.

Their process is to discover and discuss your current situation, goals and investment knowledge. Once they assess your needs they give you a written plan, which they discuss with you and clarify any queries. They do not implement the recommendations until you give approval to proceed.

Importantly, Saturn Portfolio’s sole source of income is the fee you pay to them. They do not take any commission or brokerage from product providers. www.SaturnPortfolio.co.nz

Tags: James Usmar, tax losses, taxation

This entry was posted on Friday 11th June 2010 and is filed under Q&A Friday. Both comments and pings are currently closed.