Capital gains tax and prior year income tax losses

[#1]

Hello and thanks in advance for your responses.

I have some prior year individual non-primary income tax losses and prior year CGT losses. 

I'm looking at a future CGT event which will result in a capital gain.  So at this point this is hypothetical and I will use some random numbers to help me understand under two different scenaries;  one with underlying taxable income and the other without.  

I'm trying to determine:

(a) At what point in the capital gain calculation are the prior year CGT losses expunged; (before or after discount?).

(b) When the calculated capital gain is added to taxable income, can prior year income tax losses be used to reduce the "combined" taxable income and potentially a lower marginal rate tax band.  

(c) After the net capital gain is added to taxable income does it also attract medicare levy?

Prior years CGT losses: $30,000

Prior years income tax losses: $80,000

Notional capital Gain: $400,000

Net Capital Gain (50% disc) $200,000

Scenaro 1:  Taxable income for the year: $200,000

Scenaro 2:  Taxable income for the year: $ Zero.  

Thanks for your assistance.

[#2 · Accepted solution]

(a) At what point in the capital gain calculation are the prior year CGT losses expunged; (before or after discount?).

Brought forward capital losses (ie. capital losses from prior years) are treated in a similar manner to current year capital losses. Capital losses reduce the gross capital gain prior to discounting. If you have non-discounted capital gains, you can allocate the loss to these first.

(b) When the calculated capital gain is added to taxable income, can prior year income tax losses be used to reduce the "combined" taxable income and potentially a lower marginal rate tax band.  

Yes, tax losses from prior years can reduce the net capital gain.

(c) After the net capital gain is added to taxable income does it also attract medicare levy?

Yes, medicare levy is levied on taxable income.

EDIT:

Prior years CGT losses: $30,000

Prior years income tax losses: $80,000

Discount Capital Gain: $400,000

400,000 - 30,000 = 370,000 gross (discount) capital gain = 185,000 net capital gain

185,000 - 80,000 = 105,000 taxable income

[#3]

TaxedoMask 

Brilliant!  Thank you so much.  This will help me with my future plans.