• Step 7 Applying net capital losses from earlier years

    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

    If you do not have any unapplied net capital losses from earlier years, go to step 8. Otherwise, read on.

    You can further reduce your current year capital gains by your unapplied net capital losses from earlier years.

    You must apply unapplied net capital losses from earlier years against capital gains in the order you made them (for example, use net capital losses from 1998–99 before you use any net capital losses from 1999–2000). You can then apply these capital losses against your capital gains in the manner that gives you the best result. Again, 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:

    • 'other' method
    • indexation method
    • discount method.

    Reduce your remaining current year capital gains by any unapplied net capital losses from earlier years and make a note of any capital gains remaining. If you have unapplied net capital losses from earlier years that can be applied this income year, they must be applied here. You cannot choose to defer to a later income year any amount that can be applied this income year.

    You will need to keep a record of any unapplied net capital losses from earlier years. You can continue to carry over these amounts and use them to reduce your future capital gains. There is no time limit on how long you can carry over your net capital losses. You record these at V Net capital losses carried forward to later income years, see step 11. If you have reduced your capital gains to zero, do not put anything at A Net capital gain.

    Example 111: Unapplied net capital losses from earlier years

    Let us also now assume that Kathleen has the following to consider:

    Kathleen has unapplied net capital losses from earlier years of $400 that are not from collectables or personal use assets.

    In our example so far, Kathleen applied her current year capital loss and had $2,920 of capital gains calculated using the discount method remaining.

    Taking this example further, Kathleen would now also deduct the unapplied net capital losses of $400 from earlier income years from her capital gain of $2,920 calculated using the discount method:

    $2,920 – $400 = $2,520

    This leaves $2,520 of capital gains calculated using the discount method.

    Kathleen must use all current year capital losses and all the unapplied net capital losses from earlier years before applying the CGT discount of 50%. In this example, the amount at V is still $500 because this is what she will carry forward as losses from collectables to future income years.

    End of example

    Step 8 Applying the CGT discount

    You can now reduce any remaining current year capital gains calculated using the discount method by the discount percentage (50% for individuals).

    You cannot apply the discount to capital gains calculated using the indexation method or the 'other' method.

    Example 112: Total capital gains calculated using the discount method

    From our earlier information, we know Kathleen had capital gains of $2,520 calculated using the discount method after applying relevant capital losses. She works out her total capital gains by multiplying her capital gain by the CGT discount of 50%:

    $2,520 × 50% = $1,260

    End of example
      Last modified: 08 Jul 2015QC 44187