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Re: Is there flexibility in applying Capital Loss?

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Hi Community,

 

I have a strange taxation question to ask. Here is a scenario.

 

Hypothetically, if an individual earned 15000 AUD in assessable income (like working in a casual job); and made some capital gains from an investment strategy; e.g. selling some shares and made a net gain of 6000 AUD. This puts the individual to have a total ATO income of 21000 AUD for the financial year. Which of course exceeds the 18200 AUD resident tax rates for 2019-20 first threshold; meaning that the individual has to pay some tax to ATO. I am ignoring any low income offsets etc. for simplicity.

 

However, let's say the individual also made a huge capital loss in another investment in the same financial year from another financial instrument; let's say 10000 AUD; meaning that the taxable income technically becomes 15000 AUD if the individual chooses to use the Capital Loss to offset all of the current year's Capital gain (I understand that you can't deduct a capital loss against assessable income). This would imply that 4000 AUD of Capital Loss will be available in the future for roll over. The consequence is that the individual no longer pays any tax because the total income is 15000 which is < 18200 AUD. But...here is my question:

 

  • May the individual elect to use part of the capital loss as she/he wishes; let's say only 2800 AUD of the capital loss (21000-18200 AUD) to bring it down total assessable income to 18200 AUD and then save the remaining 7200 AUD Capital Loss to be used for future CG events?

or

  • Does the individual need to completely offset all the current year capital gain before the remaining capital loss can carry the loss forward to subsequent years?

In short, are there flexibility in including capital loss? Or otherwise there is presumption that capital gain can only be used when the individual pays taxes (i.e. earning significantly higher than 18200 AUD). An answer would be helpful. Thank you for your time.


Regards,

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Hi @Ashkeroth,

 

Thank you for your post. In relation to offsetting the TOTAL capital gain you would need to apply the entire capital loss amount. This is done before the NET capital gain amount is reported. As such if there was a Net capital gain amount there should not be any capital loss amount remaining. A capital loss can only offset a capital gain. You can view working out your capital gain or loss via our website.

 

Hope this helps.

 

Regards,

Jodie2.   

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Hi @Ashkeroth,

 

Thank you for your post. In relation to offsetting the TOTAL capital gain you would need to apply the entire capital loss amount. This is done before the NET capital gain amount is reported. As such if there was a Net capital gain amount there should not be any capital loss amount remaining. A capital loss can only offset a capital gain. You can view working out your capital gain or loss via our website.

 

Hope this helps.

 

Regards,

Jodie2.   

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Hi Jodie,

 

Thanks for answering. I had to do a double post as this one was originally flagged as spam. I found my answer with @WainWright who helped me clear things up. To other readers; please head to https://community.ato.gov.au/t5/Personal-tax-questions/Is-there-flexibility-in-applying-Capital-Loss...