A Loss You Cannot Use This Year Never Expires
A capital loss that cannot be used this year is carried forward indefinitely. There is no expiry, no limit on the amount, and no discretion about applying it: where capital gains exist in a year, losses must be applied against them before anything is carried forward. What decides a loss's value is the order of application, not the amount.
- The answer: Capital losses offset capital gains, and the unused balance carries forward indefinitely to be applied against gains in any later year.
- The trap: Losses cannot be applied against ordinary income. A year with a loss and no gains produces no tax benefit at all this year.
- The recommendation: Keep the records. A carried-forward loss is only usable if you can evidence it, and the year you need it is usually the year the detail has been forgotten.
Where the AI summary above gets this wrong
"You can claim capital losses against your income to reduce your tax."
That's surface-true. Here's what it misses:
- Losses offset capital gains only — They cannot reduce salary, rent, interest or dividends. A year with losses and no gains changes this year's tax by nothing.
- They are applied before the discount, which doubles their value against an undiscounted gain — A dollar of loss applied to a gain held under twelve months removes a full dollar of taxable gain; applied to a discounted gain it removes a dollar that would have been halved anyway.
01 How losses are used
A capital loss is applied against capital gains in the same income year. Where the losses exceed the gains, the excess is carried forward with no expiry and applied against gains in any future year.
Application is mandatory rather than elective. You cannot bank a loss for a better year while also having a gain in the current one; the offset happens first and only the remainder carries forward.
Losses cannot be applied against ordinary income. That is the single most consequential rule here, and it is why a retiree with no capital gains gets nothing this year from realising a loss.
02 The order that decides their value
Losses are applied to gross gains before the CGT discount is calculated. A dollar of loss applied against a gain that would have been discounted removes a dollar that would have been halved anyway — so you save tax on fifty cents.
The same dollar applied against a gain held for under twelve months removes a full dollar of taxable gain. Applying losses to undiscounted gains first is therefore worth roughly twice as much, and it is a choice the rules permit.
That ordering is the whole of the strategy described in the loss harvesting post, and it is the part most often reversed by accident.
Shows: the tax saved by applying a loss to an undiscounted gain first, against applying it to a discounted gain. Ignores: the Medicare levy, other income that changes the marginal rate, and any carried-forward losses beyond the amount entered.
Source: ATO — CGT discount
03 Keeping them alive
Carried-forward losses have to be reported in each year's return to remain on record, and the records supporting them have to be retained. A loss claimed years later against a large gain will be checked.
For an individual there is no continuity of ownership test — losses simply carry. Companies and trusts face tests that individuals do not, which is one reason holding investments personally is simpler for most households.
On death, carried-forward capital losses are extinguished. They do not pass to the estate or to beneficiaries, which is a real argument for using them during your lifetime where a gain is available to absorb them.
Source: ATO — Capital gains tax
Losses die with you, and almost nobody plans around that. If you are carrying a large loss balance into your eighties with no gains to absorb it, it is worth about as much as an expired coupon. Realising a gain deliberately to use it is one of the few genuinely free moves in this area.
FAQ
How do I carry forward unused capital losses to reduce CGT in future years?
Unused capital losses carry forward indefinitely with no expiry, reported in each year's return, and are applied against capital gains in any later year. They must be applied in the year they arise if gains are available.
Can I offset capital losses against capital gains across different investments?
Yes. Losses and gains are pooled — a loss on shares can offset a gain on property and vice versa. What they cannot offset is ordinary income.
What happens to carried-forward losses when I die?
They are extinguished. They do not pass to the estate or to beneficiaries, which is an argument for using them during your lifetime where a gain is available to absorb them.
Sources
Regulator references
- ATO — Working out your capital gain or loss · Australian Taxation Office · 2026How Australian capital gains and losses are calculated, applied and carried forward.Last verified: 2026-09-07
- ATO — CGT discount · Australian Taxation Office · 2026The CGT discount on assets held beyond the qualifying period, and who can claim it.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.