Could any one explain the benefit of deferring a CGT loss

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Australian Taxation Office

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  AustriaBargain on 27/09/2023 - 01:37

  -6

  You have a good understanding of the basics of Capital Gains Tax (CGT) loss deferral, but let's break it down further and address your questions:

  Deferring CGT Loss: You are correct that deferring a CGT loss can be beneficial when the CGT loss is greater than the CGT gain in a financial year. By deferring the loss to a year when you have a CGT gain, you can offset the loss against the gain, potentially reducing the overall tax liability.

  Offsetting Short-Term Gains: Yes, CGT losses can offset capital gains from assets held for less than 12 months (which are typically subject to the full CGT rate). When you have both short-term and long-term capital gains, the losses are generally applied to the short-term gains first, automatically offsetting the gains from the shortest-held assets.

  No Benefit with Consistently Higher Gains: You are correct that if all your assets are held for more than 12 months, and your capital gains consistently exceed your capital losses, there may be no immediate benefit to deferring the loss, as you won't have short-term gains to offset. However, it's worth noting that tax laws and personal financial situations can change, so a CGT loss deferred to a future year may still be valuable.

  Change of Marginal Tax Rate (MTR): Changes in your Marginal Tax Rate can indeed impact the decision to defer a CGT loss. If you anticipate a change in your tax rate, such as moving into a higher tax bracket in the future, it might be advantageous to defer the loss to offset against the higher-taxed gains later.

  In summary, deferring a CGT loss can be a strategic tax planning tool, but its benefits depend on your individual circumstances, including the composition of your capital gains, your expected future gains, and changes in your Marginal Tax Rate. Consulting with a tax advisor or accountant can help you make informed decisions tailored to your specific financial situation and goals.

• 

  ihbh on 27/09/2023 - 06:52

  Only benefit is called hope. Investor hopes that capital loss reduces or turns into a gain.

  No other tax benefit as such.

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  original15 on 27/09/2023 - 08:28

  Tangent: While we are on the topic of CGT losses..any tips for someone who purchased shares over a decade ago, those shares capitulated during gfc and were reduced to $0 when companies collapsed, but none of this was ever recorded on tax returns as you didn’t know losses were worth recording..?

  • 

    freefall101 on 27/09/2023 - 10:31

    +2

    You need to lodge an objection - https://www.ato.gov.au/General/dispute-or-object-to-an-ato-d…

    Bit of a pain in the arse because you then need to look at every tax return in that time and look at what capital gains you had to offset those losses against. If you didn't have any capital gains since then it's easy, just whack it in as a carried forward loss on this years return.

    If it's a fair bit of money, this is one of those "go to an accountant" scenarios.

    • 

      original15 on 27/09/2023 - 10:50

      Thanks mate, appreciate your knowledge here. haven’t had any CGT events since, but have a few shares which have modest growth, though not sure I’m selling any time soon. All up would be $3k in losses from 2010ish so had wondered if I’d missed a trick not mentioning them on tax returns. Was a kid when I had them and acct ask if any income from shares..shook my head in embarrassment and didn’t ask about losses lol

      • 

        freefall101 on 27/09/2023 - 11:00

        +1

        In that case, so long as you have all the records, you can just whack on a carried forward capital loss in this years return and keep carrying it forward until you do sell.

        For $3k of losses it's a pretty minor adjustment so I'd go for it. If you didn't do it this year just do it next year lol

        You can also call up the ATO and double check. I was a tax accountant for a fair while but I haven't done it in a decade, so I wouldn't take "random dude on the internet" as gospel. But they seem to still put the same advice on their website - https://community.ato.gov.au/s/question/a0J9s000000T76G/p002…

        • 

          original15 on 27/09/2023 - 13:51

          @freefall101: Thanks random dude on the internet, will be sure to use this as my defence when they come knocking

          Truly tho, appreciate the tips man. Glad I don’t have to go back thru a decade of adjusting existing return documentation

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  Sinnerator on 27/09/2023 - 08:28

  +1

  rich people do it to confuse the sh!t out of the ATO

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  CrowReally on 27/09/2023 - 09:04

  +1

  Managing marginal tax rates

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  Malik Nasser on 27/09/2023 - 09:10

  The tax system is based on a set of rules, most of which can be open to interpretation (as long as it is substantiated), but ultimately comes down to trust.
  Capital losses are applied to capital gains. If losses are greater than gains, then they are carried forward to the following years (or indefinitely).
  You get to choose how to apply the losses (so apply them to benefit you the most). As such apply them to short term capital gains (less than 12 months) first, and the remainder can be applied to long term capital gains (assets held for over 12 months, due to 50% CGT discount). Losses are applied before the 50% CGT discount.
  All capital gains and capital losses must be applied each year, with any left over capital losses carried forward.