• Step 5 - Applying current year capital losses

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Your current year capital losses from step 4 can be applied against (that is, deducted from) any capital gains you made during the year to determine your net capital gain.

    Example - Sale of shares and collectables

    Kathleen sold some assets during the year and has the following capital gains and capital losses for 2003-04:

    Capital gain on the sale of 1000 shares for $6 each on 17 December 2003

    Kathleen bought these shares on 17 November 1998 and each has a cost base of $3 (including incidental costs of acquisition and disposal).

    Capital gain = $6,000 - $3,000 = $3,000

    Kathleen chooses to calculate her capital gain using the discount method.

    Capital gain on the sale of 130 shares for $8 each on 27 February 2004

    Kathleen bought these shares on 10 October 2003 and each has a cost base of $4 (including incidental costs of acquisition and disposal). As the asset was bought and sold within 12 months, Kathleen must use the 'other' method to calculate her capital gain from these shares:

    130 x $8 = $1,040 - (130 x $4) = $520

    Capital loss on the sale of jewellery for $1,000 on 1 April 2004

    Kathleen bought this jewellery for $1,500 and sold it six months later for $1,000.

    She calculates her capital loss as follows:

    $1,000 - $1,500 = $500 capital loss

    Kathleen takes the following steps to complete item 17 on her tax return (or item 9 if she uses the tax return for retirees).

    Firstly, Kathleen shows her total current year capital gain of $3,520 ($3,000 + $520) at H. Her total current year capital gain is the amount before deducting any losses or applying the CGT discount. If Kathleen had made a net capital gain on her collectables (jewellery), this would also have been included here.

    Next, Kathleen notes her capital loss from collectables on her Capital gain or capital loss worksheet or on a separate piece of paper. Although she made a net capital loss from collectables, she cannot reduce her other capital gains by this amount. However, she can carry this amount over so that if she makes a gain from that type of asset in the future, she can deduct this loss from her gain on a later tax return. If Kathleen has no other capital losses from current or prior years, she will now show the amount of $500 at V Net capital losses carried forward to later income years.

    Kathleen still has to complete A Net capital gain.

    Example - Capital loss on the sale of shares

    Using the facts from our earlier example, we will also assume that Kathleen has the following to consider:

    Capital loss on the sale of 600 shares for $3 each on 25 June 2004

    Kathleen had bought these shares on 10 October 2003 and each has a reduced cost base of $4 (including incidental costs of acquisition and disposal).

    Reduced cost base

    600 x $4 =

    $2,400

    Capital proceeds

    600 x $3 =

    $1,800

    Capital loss

     

    $600

    Kathleen now has a $600 loss she can use to deduct from her capital gains. From the earlier example, we know Kathleen has a $3,000 capital gain calculated using the discount method.

    She has another capital gain of $520 that she calculated using the 'other' method. Kathleen chooses to deduct the first $520 of her capital loss from the capital gain calculated using the 'other' method and to deduct the remaining $80 from the capital gain calculated using the discount method. Working this way gives her the best result:

    'Other' method capital gain

    $520

    Capital loss of

    $520

     

    $0

    Discount method capital gain

    $3,000

    Less Capital loss of ($600 - $520)

    $80

     

    $2,920

    Kathleen makes a note that she has capital gains of $2,920 calculated using the discount method.

    When applying your current year capital losses, you can choose the method that gives you the best result to reduce your current year capital gains. While you will need to consider your own situation, for most people the order that usually gives the greatest benefit and the smallest net capital gain is to apply the capital losses against capital gains calculated using the:

    1. 'other' method
    2. indexation method
    3. discount method.

    Apply your current year capital losses from your current year capital gains and make a note of any capital gains remaining. If you have current year capital losses that can be applied this year they must be applied here. You cannot choose to defer to a later year any amount that can be applied this year.

    If you have an amount of unapplied capital losses, you will need to keep a record of any current year capital losses that were not applied to reduce your capital gains. These amounts can be carried over and used to reduce your future capital gains. If you have reduced your capital gains to zero, do not put anything at A Net capital gain.

    End of example
    Last modified: 04 Mar 2016QC 27527