Capital losses occur when you sell an asset for less than the price you paid for it. Gains from investments may also be offset by losses.
Let’s say a shareholder gains money from selling shares, but also suffers a loss on the same or different shares, or other investment asset sales like property. The investor can then subtract the capital loss from the capital gain before paying tax on the net gain.
Losses on capital investments may be rolled over to subsequent financial years. You can carry a capital loss forward and use it to balance capital gains realised in future years if you have a capital loss, but do not have any capital profits to offset it in the current year.
For example, let’s say an individual purchases 500 shares in ABC Company for a total cost of $10,000. After a period of time, the individual decides to sell their shares due to poor performance of the company and receives $7,000. The individual has incurred a capital loss of $3,000 (the difference between the sale price and the purchase price). The individual can claim this capital loss as a deduction on their tax return for the financial year in which the shares were sold. The capital loss can be used to offset any capital gains that the individual has made in the same financial year, reducing the overall tax liability. If the individual did not have any capital gains in the same financial year, the capital loss can be carried forward to offset any capital gains in future financial years.