Lovely. Until Capital Gains Tax arrives and starts eating your chips.
Capital gains tax (CGT) can catch people by surprise, especially when they have had a decent year in the market, sold a few shares or a property, and then only think about the tax bill once the money has already been spent on sensible things like holidays, renovations, or “just one quick trip to Bunnings”.
But if you are also holding investments that have dropped in value, there may be a way to reduce the damage.
Terrible name. Useful strategy.
Tax-loss harvesting is when you sell an investment that has fallen in value so the capital loss can be used to offset capital gains you have made elsewhere.
For example, you might have:
• sold shares and made a $20,000 capital gain
• sold other shares and made a $7,000 capital loss
That $7,000 loss reduces the taxable capital gain to $13,000 before any CGT discount rules are applied.
That is the basic idea.
You are not magically avoiding tax. You are using the rules properly so you are not paying more tax than you need to. Which is generally preferred to the alternative, known technically as “just donating extra money to Canberra”.
Capital losses are not like ordinary deductions.
You generally can’t use a capital loss to reduce salary, business income, rent, interest or other ordinary income.
Capital losses can only be used against capital gains.
If your capital losses are more than your capital gains, the unused loss can usually be carried forward and used against future capital gains.
So yes, the loss can still be useful. It may just need to sit there patiently, like an accountant waiting for you to send the missing bank statement.
Tax-loss harvesting only works if the sale happens in the same income year.
If you have made capital gains this year, you need to review potential capital losses before 30 June.
Leaving it until tax time is too late. By then, the year has ended, the trades are done, and your accountant is left doing tax archaeology with a teaspoon.
A quick review before year-end can make a real difference.
This is the big trap.
You can’t just sell shares before 30 June to create a tax loss, then buy them back straight after and pretend everyone had a nice honest day out.
The ATO doesn’t love that. ❌
If you sell and repurchase the same or similar asset mainly to create a tax benefit, the ATO may treat it as a wash sale and deny the loss.
So, if you are selling an investment at a loss and then wanting to re-purchase, make sure there is a genuine commercial or investment reason for doing it.
One example might be asset protection, where you sell the shares and repurchase them through a lower-risk structure, such as your spouse’s name or an investment trust.
That sounds much better than, “I was just trying to make the tax bill look less rude.”
The same broad idea can apply to other assets subject to CGT, including:
👉 managed funds
👉 ETFs
👉 crypto
👉 investment property
👉 business assets
The rules can vary depending on the asset, ownership structure and timing, so don’t assume everything works the same way.
Crypto, in particular, is not the wild west from a tax point of view. The ATO is very much watching. Less “anonymous internet coins”, more “spreadsheet with consequences”.
If you have sold investments for a gain this year, don’t wait until tax time to think about CGT.
Review your position before 30 June.
There may be capital losses you can use to reduce your taxable gains, but the strategy needs to be done properly, with genuine reasons and proper timing.
Tax-loss harvesting can be useful.
Tax-loss harvesting done badly can be a letter from the ATO with all the warmth of a parking inspector.
If you have sold shares, crypto, property or other investments this year, now is the time to review the tax position.
We can help you work out what gains you have made, whether any capital losses can be used, and what actions might make sense before 30 June.
Disclaimer: This article is here to give you general info only, not professional advice specific to your unique situation. While efforts are made to ensure accuracy, the content may change over time. We can’t take responsibility for any decisions based on the contents of this article, so be sure to chat with your accountant or advisor first!
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