Generally, you make a capital loss if your reduced cost base is greater than your capital proceeds. The excess is your capital loss.
However, the reduced cost base is not relevant for some types of CGT events. In these cases, the particular CGT event explains the amounts to use (see the Summary of CGT events at appendix 3).
Note: Reduced cost base
You cannot index a reduced cost base.
Example: Write-off deduction
Antonio acquired a new income-producing asset on 28 September 1994 for $100,000. He sold it for $90,000 in November 2000. During the period he owned it, he was allowed write-off deductions of $7,500. Antonio works out his capital loss as follows.
Cost base |
$100,000 |
Less write-off deduction |
$7,500 |
Reduced cost base |
$92,500 |
Less capital proceeds |
$90,000 |
Capital loss |
$2,500 |
End of example
Example: Capital loss (reduced cost base greater than the capital proceeds)
In July 1996 Chandra bought 800 shares at $3 per share. He incurred brokerage fees and stamp duty of $100. In December 2000, Chandra sold all 800 shares for $2.50 per share. He incurred brokerage fees of $75. He made a capital loss, calculated as follows.
Date expense incurred |
Description of expense |
Expense |
---|---|---|
July 1996 |
Purchase price |
$2,400 |
July 1996 |
Brokers fee and stamp duty |
$100 |
December 2000 |
Brokers fee and stamp duty |
$75 |
Reduced cost base |
- |
$2,575 |
Reduced cost base |
$2,575 |
Capital proceeds 800 × $2.50 |
$2,000 |
Capital loss |
$575 |
End of example
Example: Applying losses and the CGT discount
Sharni acquired some shares in June 1992 and some units in a unit trust in May 1996. She has a net capital loss of $12 000 from the 1999-2000 income year (a prior year), and makes a further capital loss of $6000 in August 2000 (the current year).
Sharni sells the shares in July 2000 and makes a capital gain of $4000 using the indexation method. She then sells the units during February 2001 and makes a capital gain of $22 000 using the discount method.
Sharni may choose to apply her capital losses in any order. However, she must subtract all of her capital losses from her capital gains before applying the CGT discount to any remaining discount method capital gain.
She chooses to apply the $6000 current year capital loss firstly against the $4000 gain realised in July 2000, leaving a current year capital loss balance of $2000.
$4000-$6000 = $2000 capital loss remaining
Sharni then applies the remaining $2000 current year capital loss and the prior year net capital loss of $12 000 (a total of $14 000) against the discount method gain of $22 000.
$22 000-$14 000 = $8000
She then applies the CGT discount of 50% to the remaining capital gain of $8000.
$8000 x 50% = $4000
This means Sharni's net capital gain for 2000-01 is $4000.
Note
Deducting capital losses
If Sharni had deducted her capital losses first from her discount capital gains, her net capital gain would have been
[($22 000-$18 000) x 50% + $4000] = $6000