LOST CAPITAL AND TAX

Evening Post, Volume CXV, Issue 124, 29 May 1933, Page 6

LOST CAPITAL AND TAX

What consideration, if any, is due to a payer of income tax for his capital losses? This question is to the fore in the United' States, and, in fact, must arise everywhere during a period of bad trade and depreciation. If all capital losses were to count in abatement of income tax, many big people would pay no tax at all— and the Morgan case lias given that possibility a world-wide advertisement. But small people as well as big are affected, particularly in cases where a small man has regarded a second mortgage as an investment, but has been compelled by the mortgagor's default (default in the payment of both interests) to take over the property, thus finding himself a buffer between first mortgagee and tax-collector. In New Zealand income tax takes no account of what was lost on the second mortgage capital, but falls on any surplus (after expenses and 3 per cent, depreciation) that may be visible' on the rent of the taken-over property for any year. More than that, a man who lives in his own home free of '■ land tax, and who invested his savings in a mortgage, may find, on the collapse of the mortgage, that he is qualifying for land tax also because of his compulsory acquisition of a property that he never wanted, but which he must protect from first-mortgage claims. Capital losses, if admitted in abatement of income tax, are capable of being used both justly and unjustly. The hardship is not only a big man's affair. It can fall on rankers as well as on i bankers.