A net capital loss carries forward indefinitely and offsets future capital gains, not your salary.
Most investors will at some point sell an asset for less than they paid for it. The capital loss that produces can feel painful in the moment, but tax law gives you a way to soften the blow over time. This guide explains how Australia's capital loss carry-forward rules work, the order in which losses interact with the 50% CGT discount, and the practical record-keeping that makes the difference between using a loss properly and losing track of it. It is general information, not tax advice.
A capital loss arises when a CGT event, such as selling shares, ETFs or property, produces capital proceeds that are less than the reduced cost base of the asset. Importantly, a capital loss is not the same as an ordinary tax loss. It sits in its own bucket inside the tax return and follows its own rules. The ATO's working out your capital gain or loss guidance walks through the calculation in detail.
If your capital losses for a year exceed your capital gains, the net amount becomes a net capital loss. Australia does not put a time limit on how long that net loss can be carried forward; you keep it on the books until you have future capital gains to apply it against. That is why long-term investors often track loss balances dating back many years.
This is the rule that catches people out. A capital loss can only be offset against capital gains. It cannot reduce salary, wages, business income, interest or any other ordinary income in the same year, no matter how large the loss. Trying to do so is one of the most common mistakes the ATO sees. If you have no capital gains in a year, the loss simply carries forward.
| Income type | Can capital loss offset it? |
|---|---|
| Capital gain on shares/ETFs/property | Yes |
| Salary or wages | No |
| Business income | No |
| Interest income | No |
| Dividend income (including franking) | No |
| Rental income (without a capital gain) | No |
The order in which capital losses interact with the 50% CGT discount matters. The ATO requires you to apply capital losses, including carried-forward losses, against gross capital gains first, and only then apply the 50% discount to the remaining discountable gains. Doing it the other way around would inflate the loss benefit, which is why the order is fixed. A worked example helps make this concrete.
| Step | Amount |
|---|---|
| Discountable gross capital gain | $20,000 |
| Capital loss carried forward | $5,000 |
| Step 1: Apply loss to gross gain | $20,000 minus $5,000 equals $15,000 |
| Step 2: Apply 50% discount | $15,000 times 50% equals $7,500 taxable |
Compare that with applying the discount first ($20,000 times 50% equals $10,000, then minus $5,000 equals $5,000), which would understate the taxable gain. The order is mandatory.
If you have both discountable gains (assets held more than 12 months) and non-discountable gains (assets held 12 months or less), the ATO generally lets you choose how to apply your capital losses across them. Most taxpayers benefit from applying losses against non-discountable gains first, so that the 50% discount continues to apply to as much of the remaining discountable gain as possible. The ATO's CGT pages set out the approach with examples.
Because losses can sit on your books for years, the practical risk is losing track of them. The carry-forward balance flows from one tax return to the next, but you must still be able to substantiate the original loss if asked. Keep the underlying records, including contract notes, brokerage, cost base details and the calculation that produced the loss. Most accounting and tax software will roll a balance forward, but the responsibility for accuracy sits with you.
Suppose in 2024-25 you sold an ETF parcel at a loss of $8,000 and had no capital gains in the same year. The full $8,000 becomes a net capital loss carried forward into 2025-26. In 2025-26 you sell a long-held share parcel for a $12,000 discountable gain. You first apply the carried-forward loss to gross gains: $12,000 minus $8,000 equals $4,000. You then apply the 50% CGT discount: $4,000 times 50% equals $2,000 taxable. That $2,000 is added to your other income and taxed at your marginal rate. If, instead, you had no gain in 2025-26 either, the $8,000 simply continues into 2026-27, and so on, until it is either used or expires under your records.
The practical value of a carried-forward loss is highest when you have or expect a discountable gain in a higher-income year. Because losses apply before the 50% discount, a $10,000 loss used against a discountable gain produces the same dollar offset on the gross gain whether your other income is small or large; but the eventual tax saved is larger when your marginal rate is higher. That is one reason long-term investors think about the timing of significant disposals, especially around retirement, when income and the marginal rate often change.
Capital losses do not generally pass to other people. If an individual taxpayer dies with unused capital losses, those losses are extinguished and cannot be used by the estate or beneficiaries against future gains on inherited assets. For trusts and companies, special integrity rules apply to losses, including continuity-of-ownership and same-business tests for companies. These areas are technical and worth specific advice if they affect you, but the general individual carry-forward rule covered in this guide is straightforward.
Disclaimer: This article is general, educational information and not tax or financial advice. Always confirm the current position with the ATO and seek advice for your own circumstances, especially when carrying old losses through multiple tax returns.