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  • Using capital losses to reduce capital gains

    You deduct your allowable capital losses from your capital gains to reduce your capital gains tax (CGT).

    Some types of capital loss cannot be deducted and some have restrictions.

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    When to use losses

    Capital losses must be used at the first opportunity.

    If you have any capital losses in the current year, or unused capital losses from previous years, you must:

    • use these losses to reduce any capital gains in the current year (but check the restrictions below)
    • use the earliest losses first.

    Carrying forward a net capital loss

    If your allowable capital losses are greater than your capital gains, you have a net capital loss.

    You cannot deduct a net capital loss from your income but you can carry it forward and deduct it from capital gains in later years.

    There is no time limit on how long you can carry forward a net capital loss.

    Non-allowable capital losses

    You cannot deduct capital losses you make from:

    • personal use assets, such as boats or furniture
    • assets that are exempt from CGT, such as cars and motorcycles
    • collectables below a certain value
    • a lease (whether the result of expiry, forfeiture, surrender or assignment) – except if its main purpose is producing income, such as for a commercial rental property or a car
    • paying personal services income to yourself through an entity you have set up.

    Losses from collectables

    Capital losses from collectables can only be deducted from capital gains made from collectables. They cannot be deducted from gains made from other assets.

    If you do not have a capital gain from another collectable, you can carry forward the capital loss to deduct it against a gain from a collectable in a future year.

    A collectable is not subject to CGT if you acquired it for $500 or less (or acquired an interest in it when it had a market value of $500 or less). This means you ignore a capital gain or loss from the collectable.

    Company losses

    A company can deduct previous net capital losses from capital gains in the current year as long as it is either:

    • substantially under the same ownership and control
    • still in the same line of business.

    Trust losses

    Capital losses made by a trust cannot be distributed to the trust’s beneficiaries. The trust can carry forward its losses and deduct them from capital gains in future years.

    Exempt entity losses

    Losses made by an entity that is exempt from income tax are disregarded.

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    Last modified: 04 Aug 2021QC 66025