Are Investment Losses Deductible for Tax Purposes?
Investment markets can be unpredictable, and losses are an unfortunate reality for many Australians. Whether you invest in shares, property, managed funds or cryptocurrency, understanding how investment losses are treated under Financial Service and Tax Law is essential for effective tax planning. The good news is that, in certain circumstances, investment losses may be deductible or offset against future gains — but the rules are strict and depend on the type of investment and income involved.
This article explains how investment losses work under Australian tax law, what can and cannot be claimed, and how professional financial services can help you stay compliant while minimising tax liabilities.
Understanding Investment Losses in Australia
An investment loss occurs when you sell an asset for less than its purchase price or incur expenses that exceed investment income. From a Financial Service and Tax Law perspective, losses are generally categorised as:
Capital losses
Revenue (income) losses
Each category is treated differently under Australian tax legislation, and confusing the two is a common mistake made by investors.
Capital Losses and Capital Gains Tax (CGT)
Most investment losses fall under the Capital Gains Tax (CGT) regime. Capital losses arise when you dispose of a capital asset — such as shares, property or units in a trust — for less than its cost base.
Can capital losses be deducted?Capital losses cannot be deducted against your regular income, such as salary or business earnings. However, under Australian Financial Service and Tax Law, capital losses can be:
Offset against capital gains in the same financial year
Carried forward indefinitely to offset future capital gains
For example, if you sell shares at a loss this year but make a capital gain in a future year, the carried-forward loss can reduce the tax payable on that gain.
Important CGT rules to note
Capital losses must be offset before applying CGT discounts
Losses from personal-use assets are generally not deductible
Records must be kept for at least five years
Revenue Losses from Income-Producing Investments
Some investments generate regular income, such as rental properties or interest-earning assets. If the expenses of maintaining the investment exceed the income earned, a revenue loss may occur.
In certain cases, these losses may be deductible against other income — subject to Financial Service and Tax Law rules.
Negative gearingNegative gearing is a common example in Australia. It occurs when rental property expenses (interest, maintenance, depreciation) exceed rental income. In many cases, these losses can be deducted against salary or business income.
However, deductions must meet strict criteria:
The investment must be genuinely income-producing
Expenses must be directly related to earning assessable income
Investors: Losses are treated as capital losses and fall under CGT rules
Traders: Losses may be considered revenue losses and potentially deductible against income
Determining your status depends on factors such as trading frequency, intention, and business-like behaviour. This is an area where expert financial services advice is highly recommended.
Cryptocurrency Investment Losses
Cryptocurrency investments are increasingly common, and the ATO treats most crypto assets as subject to CGT. This means:
Crypto losses are usually capital losses
They can only offset capital gains
Losses from personal transactions may not be claimable
Given the complexity and evolving nature of crypto regulation, professional guidance in Financial Service and Tax Law is crucial.
What Investment Losses Are Not Deductible?
Under Australian tax law, you generally cannot claim:
Losses from gambling or speculation
Personal-use asset losses
Unrealised losses (assets not yet sold)
Losses related to private or domestic expenses
Understanding these exclusions can prevent costly compliance errors and ATO penalties.
Why Financial Service and Tax Law Advice Matters
Investment loss claims are closely monitored by the ATO. Incorrect claims — even unintentional ones — can trigger audits or penalties. Engaging qualified financial services professionals ensures:
Accurate classification of losses
Proper record-keeping
Compliance with current tax legislation
Strategic planning to maximise future tax benefits
Professional advice can also help structure investments more tax-effectively from the outset.
Unsure whether your investment losses are tax deductible?
Speak with a qualified Financial Service and Tax Law professional.
Contact New South Lawyers today to ensure compliance, reduce risk, and optimise your tax position. Get expert guidance before lodging your next return.
