The rules in brief
- A capital loss arises when the reduced cost base of an asset is more than the capital proceeds.
- Capital losses reduce capital gains in the same year, and any net capital loss carries forward to later years.
- Losses are subtracted before the 50% discount.
- The ATO says you can choose which gains to subtract losses from; subtracting them from gains not eligible for the discount first gives the lowest result.
- A net capital loss cannot be deducted from other income.
A three-year example
| Year | Events | Net capital gain | Loss carried forward |
|---|---|---|---|
| 2022–23 | Sell shares at a $5,000 loss | $0 | $5,000 |
| 2023–24 | $3,000 gain on shares held over 12 months | $0 ($3,000 − $3,000) | $2,000 |
| 2024–25 | $6,000 gain on shares held over 12 months | $2,000 (($6,000 − $2,000) × 50%) | $0 |
Notice that in 2023–24 the loss wipes out the whole gain before any discount, so the $5,000 loss is used up faster than you might expect: $3,000 of it absorbed a gain that would only have been taxed at $1,500 after the discount. That is how the law works, and the calculator applies it the same way.
Order matters when gains differ
If one gain qualifies for the discount and another does not, applying losses to the non-discountable gain first saves tax. Example: a $3,000 short-term gain, a $10,000 long-term gain, and a $3,000 loss. Applied to the short-term gain, the net capital gain is $10,000 × 50% = $5,000. Applied to the long-term gain instead, it would be $3,000 + $7,000 × 50% = $6,500. The calculator always chooses the lower result.
Collectables and personal use assets
Losses on collectables (art, jewellery, antiques, coins, stamps and the like) can only reduce gains on collectables, and carry forward separately. Losses on personal use assets (a boat, furniture, a car) are ignored altogether.
Keeping track
The tax return asks for net capital losses carried forward each year. Keep a running record: the calculator's year-by-year view shows the brought-forward and carried-forward amounts, and you can enter losses from years before your first transaction as an opening balance.
Selling losers to offset winners
Some investors sell shares with unrealised losses before 30 June to offset gains made earlier in the year ("tax-loss selling"). Selling and immediately buying back the same shares mainly to create a loss is a "wash sale", which the ATO can treat as tax avoidance under Part IVA. Get advice before doing it.
Losses in your tax return
At question 18 of the individual tax return, you report total current year capital gains (label H), the net capital gain (label A), and net capital losses carried forward to later income years (label V). If you only made losses in a year, label A is zero and the loss goes at label V. Next year, the label V figure is applied against that year's gains before the discount. myTax works this out if you enter each sale through its CGT schedule; the calculator's year-by-year view shows the same figures so you can check.
Losses you cannot use
Some losses are disregarded entirely: losses on personal use assets, losses on most assets acquired before 20 September 1985, and losses on assets used solely to produce exempt income. Companies and trusts face extra tests before carrying losses forward; individuals do not. If you die with unused capital losses, they cannot be passed to your estate or beneficiaries, so in later life it can make sense to realise gains to use them.
Records
Keep the records that support a carried-forward loss until the loss has been fully used and the period for the ATO to amend that later return has passed. A loss from 2015 used in 2025 still needs its 2015 contract notes.