A capital loss happens when you sell shares for less than they cost you (your cost base, including brokerage). A loss is not wasted: it reduces the tax on your other capital gains, and anything left over carries forward.
You can only claim it once you sell
A share that has dropped in value but that you still hold is only a paper loss. You cannot claim it until you actually dispose of the shares (ATO: When you can claim losses on shares and units).
Losses offset gains, not your salary
A capital loss can only be used against capital gains, not against your wage or other income. A loss on shares can offset a gain from other assets too, such as property or cryptocurrency, in the same year (ATO: Using capital losses to reduce capital gains).
The order matters
Two rules decide how much tax you actually save:
- Apply losses before the 50% discount, never after. The loss reduces the gain dollar for dollar, and only what is left over gets halved.
- Apply losses to gains that do not qualify for the discount first. That leaves more of your discounted gain intact and gives you the lowest tax.
For example, a $5,000 gain on shares held more than 12 months, reduced by a $2,000 loss, becomes a $3,000 gain. Apply the 50% discount and you are taxed on $1,500. Applying the discount first would be incorrect.
Carrying losses forward
If your losses are more than your gains this year, the unused amount becomes a net capital loss that you carry forward to future years. Net capital losses can be carried forward indefinitely, and you apply them in the order you made them.
A caution on "wash sales"
Selling shares purely to crystallise a loss and buying the same shares straight back (a "wash sale") can be denied by the ATO under its anti-avoidance rules. If you are thinking about selling for tax reasons near year end, get advice first.
CGT Mate applies your current-year losses in the correct order, before the discount, and shows any net capital loss left to carry forward.