• Step 5 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 loss worksheets. These capital losses can reduce any capital gains you made during the year to determine your net capital gain if the losses do not include:

    • 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 losses for 2000-01:

    Capital gain on the sale of 1000 shares sold on 17 December 2000 for $6 each.

    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 = $6000-$3000 = $3000

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

    Capital gain on the sale of 130 shares sold on 27 February 2001 for $8 each.

    Kathleen bought these shares on 10 October 2000 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 on these shares:

    130 x $8 = $1040-(130 x $4) = $520

    Capital loss on the sale of jewellery sold on 1 April 2001 for $1000.

    Kathleen bought this jewellery for $1500 and sold it for $1000 six months later.

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

    $1000-$1500 = -$ 500

    Kathleen takes the following steps to complete item 17.

    Firstly, Kathleen shows her total current year capital gain of $3520 ($3000 + $520) at label 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 collectables capital loss in her Capital gain or 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 in 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 label V-Net capital losses carried forward to later income years.

    Kathleen still has to complete label 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 sold on 25 June 2001 for $3 each.

    Kathleen had bought these shares on 10 October 2000 and each has a reduced cost base of $4 (including incidental costs of acquisition and disposal).

     

    $

    600 x $3 =

    1800

    600 x $4 =

    2400

     

    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 $3000 capital gain using the discount method.

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

     

    $

    'Other' method capital gain

    520

    Capital loss of

    - 600

     

    -80

    Discount method capital gain

    3000

    Capital loss of

      - 80

     

    2920

    Kathleen makes a note that she has discount method capital gains of $2920.

    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 provides the greatest benefit and the smallest net capital gain is:

    1. other method
    2. indexation method
    3. 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 an amount of unapplied capital losses, you will need to keep a record of any excess current year capital losses from collectables and other CGT assets 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 label A-Net capital gain.

    Last modified: 31 Aug 2010QC 16195