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  • Capital losses on shares and units

    If you've realised a loss from the disposal of investments, such as shares, and your loss is a:

    • capital loss (that is, made as a result of holding shares as an investor)
      • it can be offset against capital gains
      • it can't be offset against your income including income from other sources
      • it can be carried forward to offset against future capital gains
      • it can't be converted to revenue losses in future years, even if you haven't been able to offset it against a capital gain
       
    • revenue loss (that is, made in carrying on a business of share trading)
      • it can be offset against income from other sources – losses incurred in the business of share trading are treated the same as any other losses from business.
       

    Note that this only applies to a loss you get from disposing of investments – not where you have made a 'paper loss' on investments you continue to hold. For tax purposes, a loss isn't a loss until it is realised.

    When looking at whether your loss is a capital loss or revenue loss, you need to consider:

    • how your investments have been taxed in the past – relevant when working out how to treat them when you dispose of them in the current year. If there has been minimal change in the nature of your investment activity, it's likely the same tax treatment applies in the current year.
    • whether you're a shareholder or share trader.

    See also:

    Re-classifying your activities

    If you re-classify your activities, we may ask you to provide evidence that there has been a change in their nature or that you have reported your income incorrectly in the past.

    If we review your tax returns and find that you have incorrectly claimed losses, you may be subject to penalties.

    Re-classifying from investor to trader

    If your activities change from investor to trader, your investment changes from a CGT asset to trading stock. This can trigger CGT event K4. However, you're unable to convert any prior capital losses you have made as an investor into revenue losses. You should continue to carry forward those capital losses until you have a capital gain to offset them against. If you don't make any capital gains the capital loss can never be used.

    See also:

    Re-classifying from trader to investor

    If your activities change from trader to investor, your investments are no longer trading stock.

    If you stop holding an item as trading stock but still own it, it is treated as if:

    • just before it stopped being trading stock you sold it to someone else (at arm's length and in the ordinary course of business) for its cost
    • you had immediately bought it back for the same amount.
    Last modified: 29 Jun 2018QC 52207