applying previous capital loss and factoring CGT discount

Working through my MyGov return, i was surprised to see that it wants me to apply any previous years capital losses to this year's capital gain before i go on to apply the 50% 12+month CGT discount. It makes the calculation cumbersome since some gains for this year qualify for the discount and some do not. I would have thought you'd apply the discount, determine the net gain for the year, and then apply previous year's losses.

 

Nope!

 

Were your previous losses discounted?
No.

 

Tax Tip 113: Applying Capital Losses against Capital Gains Tax Tip 113: Applying Capital Losses against Capital Gains

You might be able to apply the capita losses to the gains without the 50% discount - if you have any. I am not sure if I covered it in that thread.

 

Thanks Terry. Using your example and extending it:
Say John had a $100,000 gain after all other expenses taken into account on one property sold this year. John has held that property for 2 years (eligible for 50% CGT discount). Say John sold another property for $100,000 gain this year as well. A property only held for 6 months. John has his $100,000 capital loss to apply against the gains. But how is the 50% CGT discount applied?

 

Say you have $150000 in capital gains $50k of which could not be discounted and $100 k eligible for discount then you apply the loss you have carried forward first against the $50k gains not eligible for discounting and then the remaining $50 k against the gains that can be discounted leaving a capital gain after applying the losses of $50k which you then discount giving a taxable capital gain of $25k

Your losses you carried forward have not been discounted ie you didn’t lose $200k which was then discounted to a loss of $100k

 

Not sure which example you are referring to but you would have to apply the loss before the 50% discount.

 

Why would some capital gains be eligible for the 50% discount, and others not?

You have to hold an asset for > 12 months for the gain to be classed as capital i.e. selling a property for a profit after 6 months is not on capital account but on revenue account and therefore ineligible to offset carry forward capital losses against.

Am I missing something here?

 

That's not the case

 

Losses cant be discounted. A loss is a loss. Only gains arising after discounts can be either discounted or non discounted.

Tip : You should apply losses to non-discounted gains first. This can maximise the amount subject to discount that remains.

 

Tax` law prescribes a 50% general discount to gains where the asset has been held for 12mths+. You should always start with FOUR NUMBERS. It can get complciated where gains of of different types eg shares, property, trust income distributions, sale of trust units etc. There ia CGT worksheet specifically to assist this process.

1. Prior year losses c/fwd
2. PY losses where PY = Present year
3. PY gains not discounted
4. PY gains discounted

Do not halve anything first.
Losses are applied to the gains in the manner the taxpayer chooses (mad not to apply to non-discount first).

Discounting applies to what is left

eg Dave has a $120 loss, And has $140 discount and $160 non-discount (indexed) gains

$160 - $120 = $40 Indexed gain.
$140 discount gain


Most people like o think that it is $140 / 2 = $70 + 40 = $110 less $120 = $10 c/fwd. That isnt the case. The ATO software and schedules specifically cater to this to produce errors
$40 + ($140/2) = $110 taxable net gain

IF a property was held as a CGT asset it is NOT on revenue account. However asking that question suggests it may be wise to seek tax advice to avoid a number of mistakes. Revenue assets can ALSO be CGT assets or have a tie breaker problem