If you do not have any unapplied net capital losses from earlier years, go to step 8. Otherwise, read on.
You can further reduce your current year capital gains by your unapplied net capital losses from earlier years.
You must apply unapplied net capital losses from earlier years against capital gains in the order you made them (for example, use net capital losses from 1998–99 before you use any net capital losses from 1999–2000). You can then apply these capital losses against your capital gains in the manner that gives you the best result. Again, for most people the order that usually gives the greatest benefit and the smallest net capital gain is to apply the capital losses against capital gains calculated using the:
- 'other' method
- indexation method
- discount method.
Reduce your remaining current year capital gains by any unapplied net capital losses from earlier years and make a note of any capital gains remaining. If you have unapplied net capital losses from earlier years that can be applied to 2017–18, they must be applied here. You cannot choose to defer to a later income year any amount that can be applied to 2017–18.
You need to keep a record of any unapplied net capital losses from earlier years. You can continue to carry over these amounts and use them to reduce your future capital gains. There is no time limit on how long you can carry over your net capital losses. You record these at V Net capital losses carried forward to later income years, see step 11. If you have reduced your capital gains to zero, do not put anything at A Net capital gain.
Example 111: Unapplied net capital losses from earlier years
Let us also now assume that Kathleen has the following to consider:
Kathleen has unapplied net capital losses from earlier years of $400 that are not from collectables or personal use assets.
In our example so far, Kathleen applied her current year capital loss and had $2,920 of capital gains calculated using the discount method remaining.
Taking this example further, Kathleen would now also deduct the unapplied net capital losses of $400 from earlier income years from her capital gain of $2,920 calculated using the discount method:
$2,920 − $400 = $2,520
This leaves $2,520 of capital gains calculated using the discount method.
Kathleen must use all current year capital losses and all the unapplied net capital losses from earlier years before applying the CGT discount of 50%. In this example, the amount at V is still $500 because this is what she will carry forward as losses from collectables to future income years.
End of exampleStep 8 Applying the CGT discount
You can now reduce any remaining current year capital gains calculated using the discount method by the discount percentage (50% for individuals).
You cannot apply the discount to capital gains calculated using the indexation method or the 'other' method.
Example 112: Total capital gains calculated using the discount method
From our earlier information, we know Kathleen had capital gains of $2,520 calculated using the discount method after applying relevant capital losses. She works out her total capital gains by multiplying her capital gain by the CGT discount of 50%:
$2,520 × 50% = $1,260
End of exampleStep 9 Applying the small business CGT concessions
If you are a small business owner, you may qualify for one or more of the following small business CGT concessions: the 50% active asset reduction, small business rollover relief or the small business retirement exemption. You can apply these concessions now to the amount of any relevant capital gains remaining after step 8. You may apply the concessions to capital gains calculated using any of the three methods.
Businesses with an aggregated turnover of less than $2 million can now access the small business CGT concessions via the small business entity test for the CGT purposes. This will also apply to:
- taxpayers that do not carry on a business but own a CGT asset used in a business by a related entity
- an individual partner who owns a CGT asset used in the partnership business.
For more information, see Small business CGT concessions.
Step 10 Working out your net capital gain
The amount of your remaining capital gains becomes your net capital gain, which you write at A Net capital gain item 18 on your tax return (supplementary section).
It represents the amount you have written at H Total current year capital gains reduced in accordance with:
- Step 6 Applying current year capital losses
- Step 7 Applying net capital losses from earlier years
- Step 8 Applying the CGT discount
- Step 9 Applying the small business CGT concessions.
If you have capital losses that have reduced your capital gains to zero, do not put anything at A Net capital gain. If you have any capital losses remaining after reducing your capital gains, you can carry these forward to future income years, see step 11. Again do not include losses from:
- assets you acquired before 20 September 1985
- personal use assets
- other losses that are disregarded.
Example 113: Net capital gain – A
Because no other CGT concessions apply to Kathleen she writes $1,260 at A Net capital gain item 18 on her tax return (supplementary section).
End of exampleStep 11 Capital losses carried forward to later income years
Your net capital losses amount to be carried forward is the total of any:
- unapplied current year net capital loss from step 6
- unapplied net capital losses from earlier years from step 7
- capital losses from collectables to be applied in future income years from step 4. You will need to keep a separate record of unapplied net capital losses from collectables because you can only use these to reduce capital gains from collectables in later income years. There is no time limit on how long you can carry over the net capital losses.
Write this amount (if any) at V item 18 on your tax return (supplementary section). Remember to deduct these losses from any capital gains in future income years.
Example 114: Net capital losses to be carried forward – V
Kathleen has deducted all her current year capital losses (except those from collectables) and her net capital losses from earlier years from her capital gains in the order that gave her the best result. This means she will only have capital losses from collectables to carry forward to a later income year. Kathleen writes $500 at V item 18 on her tax return (supplementary section).
Kathleen must make a note of this capital loss for next year, as she did with the unapplied net capital losses from earlier years that she used this year. She must also note that her capital losses this year are capital losses from collectables, as she will only be able to deduct them against capital gains from collectables in a future year.
End of example