Quick answer: In Australia, a capital loss can only offset capital gains — never your salary, business income or rent. If your losses are bigger than your gains this year, you carry the leftover forward indefinitely — no expiry, no carry-back to earlier years. But here’s the catch most investors miss: if you have any capital gains this year, you must apply your losses now. You can’t save them for later, even when using them now burns half their value against a discounted gain.
This guide walks through the ATO’s application order, the sequencing rules that decide how much tax you actually save, and three fully costed 2026-27 examples — the discount-then-loss trap, a crypto loss harvest before 30 June 2027, and a small loss worth keeping. Run your own numbers with our CGT calculator.
How capital losses actually work in Australia
A capital loss happens when a CGT event — usually selling an asset — leaves you worse off than your cost base. Sell $40,000 of CBA shares you bought for $52,000 (plus $500 in brokerage), and you’ve crystallised a $12,500 capital loss. Sell an investment property for less than it cost you all-in, same thing.
That loss then enters a very specific calculation. The ATO’s method for your net capital gain is:
- Add up all your capital gains for the year.
- Subtract your current-year capital losses and any unused carried-forward losses from earlier years.
- Subtract the 50% CGT discount (and any small business concessions) you’re entitled to.
Notice the order: losses come off before the discount — the single most important fact in this guide. A dollar of loss is subtracted from the full gain first. At a 30% marginal rate, a $1 loss applied against a discounted gain saves you 15 cents of tax, not 30 — because the halved gain only halves the loss’s value. Applied against a gain that isn’t discount-eligible, the same dollar saves the full 30 cents.
The second foundational fact: capital losses live in their own quarantine. They can only reduce capital gains — salary, wages, business income, rental income and dividends are all untouched. It is the most common misconception we see in tax-time forums.
The application order: which losses, which gains, and when
When you have gains and losses in the same year, the ATO’s guide lays down an order:
- Current-year capital losses first. These are subtracted from your current-year gains before anything carried forward.
- Carried-forward losses next, in the order you made them — the oldest loss is applied first.
- Discount last. Only after every applicable loss has been applied do you halve the remaining discount-eligible gains.
You do get one choice: which gains your losses come off. The ATO’s advice here is genuinely useful — apply losses against gains that aren’t discount-eligible first. Wiping out a gain that was never going to be discounted preserves more of your discount benefit on the rest.
The trap version is real and costly. Two $10,000 gains: one from shares held 8 months (no discount), one from shares held 3 years (discount eligible). You have a $10,000 capital loss. Apply it the smart way — against the non-discounted gain:
| Step | Smart order | Amount |
|---|---|---|
| Non-discounted gain | $10,000 − $10,000 loss | $0 |
| Discounted gain | $10,000 × 50% discount | $5,000 net capital gain |
Apply it the lazy way — against the discounted gain first — and you get $10,000 of non-discounted gain left standing, and $10,000 of net capital gain instead of $5,000. Same losses, same gains, double the taxable outcome. At a 30% marginal rate that’s a $1,500 mistake from a single ordering choice.
Carry-forward rules: no expiry, no carry-back, no deferral
If your allowable losses exceed your gains for the year, the difference becomes your net capital loss, carried forward to future years. Three properties define the system:
- No time limit. A loss from 2019-20 is still fully usable in 2026-27 and beyond. This is one of the more generous features of the Australian system; some countries impose hard deadlines.
- No carry-back. You can’t push a 2026-27 loss back against 2025-26 gains. Losses only ever travel forward.
- No voluntary deferral. If you have carried-forward losses and you make capital gains this year, you must apply the losses. The ATO’s guide states it plainly: you cannot choose to defer to a later year any amount that can be applied this year — even if a future gain would be taxed at a higher rate.
In practice, myTax tracks your carried-forward losses and pre-fills them at V Net capital losses carried forward (item 18, supplementary section) from your previous returns. Handy — but don’t trust it blindly. Amendments, agent changes and non-lodgement years can silently drop old losses. Keep your own running schedule.
The discount-then-loss trap, worked with real numbers
This is the example to tattoo on your brain. Sarah sells ASX shares in 2026-27 that she held for 18 months: $85,000 proceeds, $40,000 cost base — a $45,000 gain, fully discount-eligible. She also has a $20,000 net capital loss carried forward from 2023-24. Her other income puts her in the 30% bracket (2026-27 rates: 30% from $45,001 to $135,000).
| Step | Calculation | Amount |
|---|---|---|
| Capital gain (discount-eligible) | $85,000 − $40,000 cost base | $45,000 |
| Less carried-forward loss | $45,000 − $20,000 (loss applied before discount) | $25,000 |
| Less 50% CGT discount | $25,000 × 50% | $12,500 net capital gain |
| Tax at 30% marginal rate | $12,500 × 30% | $3,750 |
Without the loss, the gain would have been $45,000 × 50% = $22,500, taxed at 30% = $6,750. The $20,000 loss saved Sarah $3,000. But because the loss came off before the discount, half the loss’s potential value evaporated — against a non-discounted gain, the same loss would have saved the full $6,000.
The genuinely painful version: imagine Sarah instead had a $50,000 current-year loss against that $45,000 gain. She might think: “I’ll use $45,000 of it and keep $5,000 for next year when I sell the investment property.” The law agrees with the second half — but there is no choice in the matter. The calculation is mechanical: $45,000 gain − $50,000 loss = $0 net capital gain, $5,000 carried forward. The discount never enters the picture — you can’t halve a gain of zero.
Try different combinations for your own situation on the CGT calculator.
Example 2: the crypto loss harvest before 30 June 2027
Daniel bought 0.4 BTC for $40,000 in 2024 (cost base $40,400 after exchange fees). By June 2027 it’s worth $31,400. In the same year he sold ETF units held for 8 months for a $25,000 gain (under 12 months — not discount-eligible). He’s in the 37% bracket.
Two timing facts matter. First, the loss must be realised — a paper loss on coins you still hold is worth nothing at tax time. Selling, swapping or spending the crypto is a CGT event; holding it isn’t. Second, the disposal must happen before 30 June for the loss to count in the 2026-27 return. Sell on 2 July and it belongs to 2027-28.
| Step | Calculation | Amount |
|---|---|---|
| Crypto capital loss | $31,400 − $40,400 cost base | $9,000 |
| ETF capital gain (non-discounted) | $25,000 − $9,000 loss | $16,000 net capital gain |
| Tax at 37% | $16,000 × 37% | $5,920 |
Without the harvest, Daniel pays 37% on the full $25,000 = $9,250. The $9,000 realised loss saves him $3,330 — and because the ETF gain wasn’t discount-eligible, every dollar of the loss worked at full value. This is also why June is harvest season: the CGT reform taking effect on 1 July 2027 replaces the flat 50% discount for newly accruing gains with cost-base indexation plus a 30% minimum-tax framework. Realising losses in 2026-27 — while the current regime still applies to your gains — is planning that only works before the door closes.
One warning for the crypto crowd: selling a coin at a loss and immediately rebuying it to crystallise the loss while keeping your position is a classic wash sale. Australia has no fixed 30-day safe-harbour rule like the US — but the ATO can cancel the tax benefit under Part IVA where an arrangement’s dominant purpose is the tax benefit and you kept substantially the same economic exposure. The ATO also data-matches broker and share-registry data against returns, so the “they’ll never notice” theory is a poor strategy. If you sell at a loss, genuinely change your position — or get advice before rebuying. (More in our crypto tax guide.)
Example 3: the small loss that was still worth keeping
Mei sold some underperforming LIC units in 2020-21 and crystallised a $1,200 capital loss. She nearly didn’t bother recording it — but there is no minimum threshold for a carried-forward capital loss, so she kept the contract notes and logged it in her own schedule.
Six years later, in 2026-27, she sells shares for an $18,000 gain (held 4 years, discount-eligible). She’s in the 30% bracket:
| Step | Calculation | Amount |
|---|---|---|
| Capital gain | $18,000 − $1,200 carried-forward loss | $16,800 |
| Less 50% discount | $16,800 × 50% | $8,400 net capital gain |
| Tax at 30% | $2,520 |
Without the loss she’d have paid $2,700. The saving is only $180 — but it cost her nothing to keep, and the principle scales: every dollar of loss you fail to record is a dollar of future gain you can’t shelter. The record-keeping rule is strict but simple: keep purchase and sale records for five years after the CGT event, and keep records supporting any carried-forward net capital loss until it is fully applied. A loss from 2020 is still claimable in 2027 — but only if you can prove it. (Our cost base guide shows exactly what to keep.)
Losses you can’t use: the exclusions that catch people out
Not every loss the market hands you is a tax loss. The ones that bite ordinary investors:
- Personal use assets. The boat or furniture you sold at a loss — those losses are disregarded entirely.
- Cars and motorcycles. Exempt from CGT altogether, so no loss either.
- Collectables are quarantined. Losses from collectables (art, jewellery, antiques, stamps) can only offset gains from other collectables. A collectable acquired for $500 or less is disregarded completely.
- Your main residence. Losses on a fully exempt main residence are disregarded.
- Trust losses stay in the trust. A trust can’t distribute its capital losses to beneficiaries; they carry forward inside the trust.
- Death ends the carry-forward. Unused losses can be used in your date-of-death return, but anything left over lapses — it doesn’t transfer to the estate or beneficiaries.
For share investors, the related detail is in our CGT on shares guide.
Common mistakes
- Assuming losses offset salary. The number-one myth. A $50,000 capital loss does not reduce your $120,000 salary by a cent. It only offsets capital gains.
- Trying to “save” a loss for a better year. If you have gains this year, the losses must be applied now. There is no deferral election.
- Applying the discount first. Backwards math — halving the gain and then subtracting the loss — overstates your tax saving. Losses always come off the full gain before any discount.
- Ignoring the loss-ordering choice. Failing to apply losses against non-discounted gains first can double your net capital gain (see the $10,000/$10,000 example above).
- Trusting myTax pre-fill as your only record. Pre-fills can silently drop old losses after amendments, agent changes or non-lodgement years. Keep your own loss schedule with dates, amounts and source documents.
- Realising the loss on 1 July instead of 30 June. The financial year boundary is absolute. A day late pushes the whole loss into next year’s return.
- The wash-sale rebuy. Selling shares at a loss on 28 June and buying them back on 29 June to “bank” the loss while keeping the position is exactly the pattern the ATO’s Part IVA guidance targets. There is no safe waiting period in Australia — the question is the arrangement’s dominant purpose, not the calendar gap.
Tips: making your losses work hardest
- Do a June stocktake. Before 30 June, list your realised gains and unrealised losses. If you’re sitting on a big gain, selling a genuine loser before year-end converts a dead position into a tax asset.
- Record every loss, however small. No de minimis threshold exists. Keep the contract note, the brokerage statement, and a one-line schedule: date, asset, loss amount, year made.
- Match losses to non-discounted gains first. When you have a choice of which gains to offset, burn losses against the gains the discount can’t touch — it’s the highest-value use of each loss dollar.
- Don’t let losses die with you. Unused capital losses lapse at death. If an older family member holds large carried-forward losses and is planning asset sales anyway, the sequencing of those sales before death has real tax value.
- Plan around the 2027 reform. For gains accruing from 1 July 2027, the 50% discount gives way to indexation plus a 30% minimum tax. Losses realised in 2026-27 still work under the current, better-understood regime — another reason June 2027 is a meaningful deadline.
Frequently asked questions
Can I use capital losses to reduce my salary or rental income?
No. Capital losses can only offset capital gains. Salary, wages, business income, rental income and dividends are ordinary income and are completely untouched.
How long can I carry forward a capital loss in Australia?
Indefinitely — there is no time limit, provided you keep the records. But there is no carry-back: you can’t apply this year’s loss against last year’s gains.
Do I have to apply my carried-forward losses this year, or can I save them?
You must apply them. If you have capital gains this year and carried-forward losses available, the ATO’s order applies the losses — you cannot hold them back, even if a future gain would be taxed at a higher rate.
Can I sell shares at a loss and buy them straight back to claim the loss?
This is a wash sale. Australia has no fixed waiting period, but under Part IVA the ATO can cancel the benefit where the dominant purpose was the tax benefit and you kept the same economic exposure. Broker data is matched against returns — assume it will be seen.
Do crypto losses work the same way as share losses?
Yes. A realised crypto loss offsets gains from any CGT asset, and unused balances carry forward indefinitely. But it must be realised (a sale, swap or spend) and the disposal must happen before 30 June to count in that financial year.
What happens to my carried-forward capital losses when I die?
They can be applied against capital gains in your date-of-death tax return, but anything left over lapses — it cannot be carried forward by the estate and does not transfer to beneficiaries or the executor.
The bottom line
Capital losses are one of the few genuinely generous features of Australian tax law — no expiry, usable against any kind of capital gain, no minimum threshold. But the system is rigid where it matters: losses must be applied the moment you have gains, they come off before the discount (halving their value against discounted gains), and the ordering choice between discounted and non-discounted gains can double or halve your bill. Keep a running loss schedule, do your June stocktake before 30 June, never trust pre-fill as your only record, and get advice before any sale-and-rebuy manoeuvre.
