Capital Loss

A capital loss is what a disposal costs you: an asset sold, transferred or gifted for less than its cost base. The cost base is what you paid plus purchase costs - brokerage, stamp duty, legal fees - and capital improvements, so the loss is the cost base minus the capital proceeds. Only realised losses count: a paper loss on a holding you still own is not a tax fact until the disposal happens. Shares, managed funds, investment property and crypto are all CGT assets, and every one of them can produce a loss the ATO will offset.

The offset has hard edges. A realised loss reduces capital gains in the same financial year - and if the gains do not arrive, the net capital loss carries forward indefinitely until they do. It never reduces salary, dividend or rental income, which is the part the dinner-party version gets wrong. The ordering rule matters when both types of gain exist: losses first offset the gains with no discount, then the discounted gains, which is the sequence that preserves the most tax. The ATO records every disposal, and the capital gains tax entry covers the gain side of the same ledger.

The arithmetic starts with the cost base. A parcel of shares bought for $12,000 with $100 of brokerage has a $12,100 cost base; sold two years later for $9,000, the capital loss is $3,100. No discount applies to losses - the 50 percent discount is a gain-side feature only - and the full $3,100 carries into the offset. The same arithmetic runs on property, managed funds and crypto, with each disposal carrying its own date and records.

The offset applies against gains in the same financial year. The ordering rule decides what the loss saves: a $3,100 loss first offsets gains on which no discount applies - assets held under twelve months - where it saves the full marginal rate, then discounted gains, where it saves the discounted rate. Against a full-rate gain at 32 percent, the $3,100 loss saves $992; against a discounted gain it saves $496. Matching losses to the gains they offset is where the tax is won, and the ATO capital gains guide covers the ordering in detail.

The carry-forward closes the loop. A net capital loss that meets no gains this year carries forward indefinitely - the ATO tracks it in myGov year after year, and there is no expiry. The records are the constraint: the ATO requires documentation of acquisitions and disposals for at least five years after the loss is used, because the cost base is the part that builds the loss. Buy-backs are the edge case: disposing of an asset to crystallise a loss and repurchasing it shortly after can trigger the wash-sale guidance, which the tax-loss-harvesting entry covers in full.

For an Australian reader, the capital loss is the other half of every exit decision: the gain gets the headline and the loss gets forgotten, usually until June. The offset is real money: $496 to $992 of tax per $3,100 of loss, depending on the gain it matches. The pairing of gains and losses before 30 June decides whether the offset is used this year or carried forward. The ATO records are in myGov, MoneySmart's guidance on shares treats losses as part of the total return, and neither body reminds you to match the two. The paper trail is yours to keep.

A colleague named Brent (yes, that Brent) sold a winner in June and paid capital gains tax on the gain, while holding a loser on paper that offset nothing. He wanted the loser back to its purchase price before selling; the market disagreed for three years. The unrealised loss waited the whole time while each June's gain went unmatched. The highest-leverage thing most Australians can do is match realised losses against realised gains before 30 June, and run the pairing through the marginal tax rate entry to price it. The loser you keep for pride is the offset you pay for.