• 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

    Work out your total current year capital losses from your Capital gain or capital loss worksheets. These capital losses can be applied against any capital gains you made during the year to determine your net capital gain. Remember you cannot apply losses from:

    • assets you acquired before 20 September 1985
    • personal use assets
    • collectables or
    • other losses that are disregarded.

    Example

    Sale of shares and collectables

    Kathleen sold some assets during the year and has the following capital gains and capital losses for 2001-02:

    Capital gain on the sale of 1,000 shares for $6 each on 17 December 2001

    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 2002

    Kathleen bought these shares on 10 October 2001 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 2002

    Kathleen bought this jewellery for $1,500 and sold it 6 months later for $1,000.

    As she bought and sold her asset within 12 months, she must use the 'other' method to calculate her capital loss:

    $1,000 - $1,500 = -$500

    Kathleen takes the following steps to complete item 17 on her tax return.

    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 2002

    Kathleen had bought these shares on 10 October 2001 and each has a reduced cost base of $4 (including incidental costs of acquisition and disposal).

    600 X $3 =

    $1,800

    600 X $4 =

      $2,400

     

    -$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 against the capital gain calculated using the 'other' method and to deduct the remaining $80 from the capital gain calculated using the discount method as this will give her the best result:

    'Other' method capital gain

    $520

    Capital loss of

      $600

     

    -$80

    Discount method capital gain

    $3,000

    Capital loss of

       -$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:

    1. capital gains calculated using the 'other' method
    2. capital gains calculated using the indexation method
    3. capital gains calculated using the discount method.

    Deduct 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 deducted they must be deducted here. You cannot choose to defer to a later year any amount that can be deducted 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, print '0' at A Net capital gain.

    Last modified: 06 Oct 2009QC 27417