Announcements
Looking for answers? Search our popular topics or ask a new question.

ATO Community

Re: Is there flexibility in applying Capital Loss?

Highlighted

Initiate

Views 517

Replies 4

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 with a gain of 6000 AUD. This puts the individual to have a total taxable income of 21000 AUD; meaning he/she has to pay tax. I ignored low income offsets etc. for simplicity.

 

However, let's say the same individual made a huge capital loss in another investment, i.e. not from disposal of shares but from a bond in the same financial year; let's say 10000 AUD was the loss. Can the individual have the flexibility to use part of the loss to offset the 6000 AUD capital gain that he/she obtained from the sales of shares? Or must she use all of it before the remaining can be rolled over for next year?

 

So here is my question

 

Scenario 1 - the capital loss must be used offset the all capital gain loss of the same financial year before it can be rolled over

Meaning the capital gain is reduced from 6000 AUD to zero and the taxable income is simply 15000 AUD.

 

Scenario 2 - some of the capital loss can be used; for example, just to reduce until the first tax bracket of 18200 AUD.

This means only 21000 - 18200 = 2800 Capital Loss is used; while the remaining 10000 - 2800 = 7200 AUD can carried forward?

 

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

 

EDIT: I originally posted a question; but somehow got deleted. I am reposting this again. Thanks.

 

1 ACCEPTED SOLUTION

Accepted Solutions
Highlighted

Most helpful response

Community Support

Replies 3

Hi @Ashkeroth ,

The key webpage to consider this is Working out your net capital gain or loss . The relevant quote from this webpage is :-

"You must offset your capital losses against your capital gains in the order in which you made them. You can't choose not to offset capital losses against capital gains if you have them, but you can choose which capital gains to deduct your losses from.

Net losses from collectables can only be deducted from capital gains made from collectables, not from other capital gains." (italics, bold added).

  The bottom line, is that if you eligible capital gains, then you have to use your capital losses (including any from previous years) to reduce that gain.

 

So in answering your question -

* Scenario 1 is correct (including your explanation)

* Scenario 2 is incorrect (as explained above).

 

Hope this helps,

 

 

 

4 REPLIES 4
Highlighted

Most helpful response

Community Support

Replies 3

Hi @Ashkeroth ,

The key webpage to consider this is Working out your net capital gain or loss . The relevant quote from this webpage is :-

"You must offset your capital losses against your capital gains in the order in which you made them. You can't choose not to offset capital losses against capital gains if you have them, but you can choose which capital gains to deduct your losses from.

Net losses from collectables can only be deducted from capital gains made from collectables, not from other capital gains." (italics, bold added).

  The bottom line, is that if you eligible capital gains, then you have to use your capital losses (including any from previous years) to reduce that gain.

 

So in answering your question -

* Scenario 1 is correct (including your explanation)

* Scenario 2 is incorrect (as explained above).

 

Hope this helps,

 

 

 

Highlighted

Initiate

Replies 2

Hi @WainWright . Thanks for you input. May I quote what the latter part of the sentence

 

...but you can choose which capital gains to deduct your losses from.

 

What does this actually mean?

 

 

Community Support

Replies 1

Hi @Ashkeroth,

 

Thank you for your reply. The website advises - If your total capital losses for the year exceed your total capital gains, your net capital loss is calculated using the following formula: A − B

Where:

A is your total capital losses (including any net capital losses from previous years)

B is your total capital gains for the year (including those distributed by a managed fund or trust)

You can't deduct a net capital loss directly from your income, but you can carry it forward and deduct it from capital gains in later income years. There is no time limit on how long you can carry forward a net capital loss.

 

You must offset your capital losses against your capital gains in the order in which you made them. You can't choose not to offset capital losses against capital gains if you have them, but you can choose which capital gains to deduct your losses from.

Net losses from collectables can only be deducted from capital gains made from collectables, not from other capital gains.

 

For example - If you had:

  • $20000 capital loss from property in 2017 and
  • $5000 capital loss from shares in 2018 along with 
  • $20000 capital gain from shares in 2018.

You would use the $20000 loss from 2017 to offset the $20000 gain in 2018. You would still have capital loss of $5000 from shares in 2018 to carry forward. 

 

Then if you had:

  • $20000 capital gains from shares in 2018 and
  • $20000 capital gains from property in 2018 along with 
  • $20000 capital loss from other shares in 2018

You have a TOTAL of $40000 in capital gains in 2018. It is up to you to apply the $20000 capital loss to the property or the shares in 2018. Your calculations may vary depending on if one asset is entitled to a discount and the other is not. 

 

You can view the previous links for working out your capital gain or loss.  

 

Hope this helps.

 

Regards,

Jodie2.

 

Highlighted

Initiate

Replies 0

Hi Jodie2

 

Understood. Thanks for the clarity!