Capital Loss
A loss made when you dispose of a CGT asset for less than its cost base — can offset capital gains but not other income.
A capital loss occurs when the capital proceeds from disposing of a CGT asset are less than its reduced cost base. Capital losses can only be used to offset capital gains — they cannot be deducted against other types of income such as salary, interest, or rental income. If your capital losses exceed your capital gains in a financial year, the excess is carried forward indefinitely to offset future capital gains.
When applying capital losses, you must first offset them against capital gains before applying any CGT discount. This maximises the benefit of the losses. For example, if you have a $20,000 capital gain (held >12 months) and a $10,000 capital loss, you first apply the loss ($20,000 - $10,000 = $10,000 net gain), then apply the 50% discount ($10,000 × 50% = $5,000 assessable). Don't apply the discount first. For CGT events from 1 July 2027 the general 50% discount is abolished, so this ordering matters only for the legacy portion of a transitional gain — losses still come off the gross gain first.
Capital losses on personal-use assets (items costing $10,000 or less, such as household items, boats, or furniture) and collectables cannot be offset against gains from other types of assets. Losses on shares in companies that have become worthless can also be claimed, but you need to be able to demonstrate the shares have genuinely become worthless (e.g., the company has been wound up).
How it works
A capital loss arises when the proceeds from disposing of a CGT asset come in below its reduced cost base, and unlike most other kinds of loss in the tax system, it can only be used against capital gains — never against salary, interest, rental income, or any other type of assessable income. If your total capital losses for a year exceed your total capital gains, the excess doesn't vanish; it carries forward indefinitely into future years, waiting to be offset against gains whenever they eventually arise, with no expiry date attached.
When you're preparing the capital gains section of a tax return, the order of operations matters: capital losses are applied against gross capital gains first, and only the net gain that remains after that offset is eligible for any CGT discount — the 50% discount for a CGT event before 1 July 2027, and cost-base indexation only from that date on. Getting the order wrong — applying the discount before the loss — understates the benefit of the loss and can lead to an incorrect, too-high taxable amount. For anyone holding a portfolio of gains and losses across a year, this makes deliberately realising a loss before 30 June a common piece of end-of-financial-year planning to offset a gain already locked in.
Not every capital loss can be used freely: losses on personal-use assets costing $10,000 or less — household items, boats, furniture — and losses on collectables can only be offset against gains from the same category of asset, not against gains on shares or property. Shares in a company that has genuinely become worthless (for example the company has been wound up) can also generate a claimable capital loss, but the ATO expects evidence the shares are truly worthless, not just that the price has fallen — a large unrealised paper loss on a still-trading company doesn't qualify until the asset is actually disposed of or the company is deregistered.
Example: offsetting a loss against a discounted gain
You realise a $20,000 capital gain on shares held for 18 months, and separately crystallise a $10,000 capital loss on a different parcel of shares in the same year.
The loss is applied first: $20,000 − $10,000 = $10,000 net gain. On a sale before 1 July 2027 the 50% discount is then applied to that net figure, so only $5,000 is added to your assessable income — applying the discount before the loss would have incorrectly produced a smaller offset.
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Capital Gains Tax (CGT)
Tax on the profit made from selling or disposing of an asset, such as property, shares, or cryptocurrency.
Cost Base
The total cost of acquiring and holding an asset, used to calculate the capital gain or loss on disposal.
50% CGT Discount
A 50% reduction in capital gains for individuals and trusts who held the asset for at least 12 months before disposal.
CGT Event
A specific event that triggers a capital gains tax obligation, such as selling, gifting, or losing a CGT asset.