Capital Losses Explained: How To Offset And Carry Them Forward In Australia

Updated for the 2025/26 financial year

What Is a Capital Loss?

A capital loss occurs when you sell (or otherwise dispose of) a capital asset for less than its cost base. The cost base includes the original purchase price plus incidental costs such as brokerage, stamp duty, and legal fees.

For a loss to be relevant for tax purposes, the asset must have been acquired for investment or business purposes. Common capital assets include shares, investment properties, cryptocurrency, and units in managed funds. If the asset was held purely for personal use, different rules apply (covered below).

Examples of Capital Losses

A capital loss can arise from a range of asset types. Here are some common scenarios:

• Selling shares for $8,000 that were originally purchased for $10,000 results in a $2,000 capital loss.
• Selling an investment property for less than the purchase price, after including associated costs such as stamp duty, legal fees, and agent commissions.
• Disposing of cryptocurrency for less than what you paid to acquire it.
• Redeeming units in a managed fund at a value below the original investment.

Which Assets Do Not Qualify

Not every asset that falls in value will give rise to a capital loss you can use. Australian tax law excludes several categories.

Personal Use Assets

Assets acquired for personal use, such as a car, furniture, or household appliances, do not generate a claimable capital loss. A capital loss from a personal use asset must be disregarded for tax purposes, regardless of the amount involved.

Your Main Residence

If you sell your main residence at a loss, that loss is disregarded. The main residence exemption that shields capital gains from tax also means that any capital loss on that property has no tax effect. The exception is if part of the property was used for income-producing purposes, in which case a partial capital loss may arise on that portion.

Collectables

Collectables include items such as artwork, jewellery, antiques, coins, and rare books. Capital losses from collectables receive special treatment: they can only be offset against capital gains from other collectables. If you do not have a collectable gain in the same year, you can carry the collectable loss forward to use against a future collectable gain. A collectable loss cannot reduce a gain from shares, property, or any other non-collectable asset.

How Capital Losses Offset Capital Gains

You can only use a capital loss to reduce a capital gain. If you sold one investment at a profit (a capital gain) and another at a loss in the same financial year, the loss reduces the total taxable gain.

You have the choice of which capital gains to apply your losses against. This flexibility can be useful for tax planning. For example, if you have both a discountable gain (on an asset held for more than 12 months) and a non-discountable gain, you may choose to apply the loss against the non-discountable gain first to maximise the benefit of the 50% CGT discount on the other.

What Capital Losses Cannot Offset

Capital losses cannot reduce any of the following types of income:

• Salary and wages
• Business income
• Rental income
• Interest and dividends

This is one of the most commonly misunderstood rules. A capital loss exists within the capital gains tax system only. It does not flow through to your broader assessable income.

This is different from negative gearing, where ongoing investment expenses (such as interest on a loan to buy a rental property) that exceed the income from that investment can be deducted against your salary or other income in the year they are incurred. Negative gearing applies to investment running costs, not to the capital loss that arises when you eventually sell the asset.

Capital Losses and the 50% CGT Discount

If you are an individual or trust and you held a capital asset for more than 12 months before selling it, you may be eligible for the 50% CGT discount. However, capital losses must be applied to the full capital gain first, before the discount is calculated.

Applying the loss before the discount means the loss reduces the gain dollar for dollar, and only the net amount benefits from the 50% discount. This ordering is set by the ATO and is not optional.

Carrying Forward Capital Losses

If your capital losses exceed your capital gains for the financial year, the leftover amount becomes a net capital loss. You can carry this net capital loss forward to later income years and use it to reduce capital gains in those future years.

There is no time limit on how long a net capital loss can be carried forward. It remains available to you indefinitely, provided you record it correctly in your tax return each year.

When you have carried-forward losses from more than one year, you apply them in the order you made them. The oldest losses are used first.

How to Report Capital Losses in Your Tax Return

Recording your capital losses accurately is critical. The ATO expects detailed records, and failing to report a loss correctly could mean losing the ability to use it later.

For each asset sold at a loss, you should record:

• The date of purchase and the date of sale
• The purchase price and sale price, including all incidental costs (brokerage, stamp duty, legal fees)
• The capital proceeds received
• The cost base of the asset (purchase price plus all costs incurred in acquiring, holding, and disposing of it)

You should also keep supporting documents such as contract notes for shares, sale and purchase contracts for property, and receipts and valuations for other assets.

Most accountants or tax software will generate a capital gains tax (CGT) schedule as part of your return. If you are lodging through myTax, you complete the capital gains or losses section under “Australian income or losses from investments or property.” Any net capital loss that you carry forward will appear in the “Net capital loss carried forward to later income years” field.

Capital Losses in Companies and Trusts

Individuals

For individuals, capital losses work as outlined above. Losses are offset against gains in the current year, and any excess is carried forward indefinitely.

Companies

Companies can also carry forward capital losses, but they must satisfy the continuity of ownership test or the similar business test before they can apply those losses against future gains. These tests are designed to prevent a company from being acquired solely for the purpose of accessing its accumulated losses.

Trusts

Trusts can carry forward capital losses, but the rules are stricter. A trust cannot distribute a capital loss to its beneficiaries. The loss stays within the trust and can only be used to offset future capital gains made by that same trust. Discretionary trusts face additional complexity due to rules around income injection, family trust elections, and patterns of distribution. If you operate through a trust, professional advice is recommended to ensure the loss rules are followed correctly.

Capital Losses on Death

If a person passes away with unused capital losses, those losses cannot be transferred to their beneficiaries or estate. The unused losses are extinguished. Beneficiaries who inherit the assets receive a new cost base for those assets, but the deceased person’s accumulated capital losses do not carry across.

This means it is important to use capital losses where possible during your lifetime, particularly if you hold assets with large unrealised gains that could be offset.

What Happens If You Do Not Report a Capital Loss

Failing to record a capital loss in the year it occurs can put your future claim at risk. The ATO expects capital losses to be reported in the income year they arise, even if there are no capital gains to offset in that year.

If you discover that a capital loss was not reported in a prior year, you may be able to request an amendment to that return, but this is subject to the ATO’s amendment time limits. The safest approach is to report every loss in the year it happens.

Common Misunderstandings