How Long Can Capital Losses Be Carried Over In Australia?

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Have you just sold an investment property in Australia from abroad as an Aussie expat? We hope you made a profit! 

But there might be a situation in which you made a loss and are wondering what the implications are for capital gains taxes. Because if you have made a loss, you might be wondering “how long can capital losses be carried over in Australia?”

In our database, we have an article on capital gains tax in Australia, which outlines all the facts you need about capital gains and capital losses. However, this article will go deeper into this specific question of “how long can capital losses be carried over in Australia?”

So, if you have made a capital loss as an expat or resident, you’ll find out the critical facts on this topic in this article!

How Long Can Capital Losses Be Carried Over In Australia?

What is a capital loss in terms of property?

In relation to the question how long can capital losses be carried over in Australia, a quick definition of a capital loss is that it refers to the losses you make when you sell an asset (like a property).

Now, when you sell an asset, in this case a property, you will either make a capital gain or a capital loss, meaning that you will either have to pay tax on the capital gain you have made (i.e. the profit you make), or have the opportunity to have the capital loss you have made carried over to the following tax year.

How long can capital losses be carried over in Australia: What is the time frame?

According to the Australian taxation office, you don’t have a time limit in terms of how long capital losses can be carried over in Australia. So, in answer to the question of carrying over capital losses, you have an indefinite time frame for this.

But let’s now explore a few other topics related to carrying over capital losses in Australia.

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What is meant by offsetting in relation to how long can capital losses be carried over in Australia?

Offsetting plays a fundamental role in the process of carrying over capital losses in Australia–it refers to the process of counterbalancing any taxable gains made in future years with the capital losses made in the current year. For this reason, carrying over capital losses for the purpose of capital gains tax can benefit you as an expat investor.

For example, if you invest in shares in the current year, purchasing them for $5,000 and make a capital loss of $1,000 when you sell them at $4,000, this capital loss can be carried forward to the following year. So, next year, if you sell a property for $300,000 that you purchased as an expat investor for $285,000, you can offset the taxable amount (for your capital gain of $15,000) with the capital loss you made with the shares.

Why is knowing how long can capital losses be carried over in Australia important?

Knowing how long can capital losses be carried over in Australia as an expat is important because, since capital losses can be deducted from the income you declare on your tax return for the following year, you can reap more favourable financial circumstances in future tax years. In this way, you can pay less tax on capital gains in future years.

In a sense, this is fairer when selling assets from year to year as if you have made a capital loss now, you get to reduce the taxable gains made on future sales in future years of your assets.

How Long Can Capital Losses Be Carried Over In Australia?

How to calculate capital losses on property in Australia?

In addition to how long can capital losses be carried over in Australia, knowing the following calculation to work out capital losses is important. You can calculate capital losses by taking the cost base of your property and deducting any capital works costs from this sum, then taking your reduced cost base and deducting the capital proceeds from this sum.

To make this clearer, here’s an example of how to calculate capital losses on property:

  • You invest in a property that produces income that cost you $200,000
  • Your cost base is $200,000
  • Your capital works deductions are $15,000
  • Your reduced cost base is $185,000
  • You sell the investment property the following year for $180,000
  • Your capital loss is $5,000

What is the process for carrying over capital losses in Australia?

The next question you might have in mind in relation to how long can capital losses be carried over in Australia is how the losses are carried over. The process involves checking the criteria and ensuring that your capital losses are categorised as such. 

Then, to complete the process, you will need to establish your capital losses and apply the ones made from the current year (which might be from the sale of a property to your capital gains–in other words, these must be deducted from your capital gains from the same year.

You will then need to record this on your tax return, which can be done online, and make the appropriate deduction of losses from the capital gains you make in future years.

How long can capital losses be carried over in Australia for commercial property?

In the event you sell a commercial property from abroad as an expat, it’s possible that you’ll either make a capital gain or a loss, and the loss can be carried over or carried forward to future income years indefinitely. 

This means that if you invest in commercial property, sell it and then invest in other commercial property, any capital losses you make for commercial property can be carried forward and be deducted from capital gains tax for future years.

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What happens if I make a capital loss on a property that is my home residence?

One thing to keep in mind as an Australian resident is that your home residence is exempt in terms of capital gains tax. If you make a capital loss on your main residence, and were a resident in Australia at the time of selling the contract, the capital loss on this property can be disregarded.

Carrying over capital losses: The fundamental facts

The fundamental facts to remember when carrying over capital losses is that they can be carried over to future years indefinitely, as stated by the Australian taxation office. What’s more, offsetting your taxable capital gains the following year is more than possible by carrying forward your capital losses from the current financial year.

If you invest in property as an expat and make a small capital loss, the situation can be turned around when you sell an investment property in the future; offset the gains, pay less in capital gains tax and reap the benefits.

The extra facts you need on property investment can be discovered on Odinmortgage.com. See our articles and get the facts you need to invest with success.

How Long Can Capital Losses Be Carried Over In Australia?

How Long Can Capital Losses Be Carried Over In Australia FAQs

Is it possible to deduct capital losses from my income instead of carrying them over?

No. It is not possible to deduct capital losses from income. The Australian taxation office specifies that any capital losses can be carried over to the next financial year. So if you sell an investment property and make a capital loss, it’s not possible to deduct it from your income.

What strategy can I use with capital losses to avoid capital gains tax?

One option you have if you want to avoid capital gains tax is to plan your losses and time them well. So if you’re expecting to sell a property and make a significant capital gain, but also expecting to sell some shares for a capital loss, you might shrewdly choose to sell those shares first and then make your sale, so that you can offset the gain with the loss.

Can I deduct net capital losses in Australia?

Yes. It is possible to deduct the net capital losses from a previous year and yield the ideal financial situation for you. What’s important is that any net capital losses must be deducted chronologically i.e. in the same order you incurred them. A capital loss made in 2000–2001 must first be deducted and then a capital loss made in 2003-2004 can be deducted afterwards.

Is a tax loss the same as a capital loss in Australia?

Tax losses are different from capital losses. On the one hand, tax losses can arise in income. On the other hand, capital losses arise if you dispose of or sell an asset and receive less in comparison to the asset’s tax value.

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