Treatment of Capital Losses

The calculation of a capital loss is quite straightforward, but the treatment that follows can be quite tricky. Let’s focus on the general concept.

1. Capital Loss – Basically, if you dispose of an asset for less than you paid for it, you incur a capital loss. This can be used to  offset current year capital gains. This is a tax incentive that may appeal to investors as it can reduce overall tax payable.
2. Capital Losses Carried Forward – In our example, after offsetting our current year capital gains we are still left with a capital loss of $1,030. This can be carried forward indefinitely to offset future capital gains. The value of the future tax benefit is equal to $1,030 x 47% (or your marginal tax rate) being $484.
3. 50% CGT Discount –  It should be noted, capital losses  are netted against your gross gain before applying the CGT discount.

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