How to use capital losses to offset gains


The end of the financial year is still a few months away but now is the time to examine your investment portfolio: first, to work out the extent of any capital gains or losses that you have incurred during the year and, second, to do some planning to either mitigate those gains or make use of the losses.

If you've already sold some investments that have given rise to capital gains, look through your portfolio to see if there are investments that can be disposed of to generate capital losses.

The losses can be used to offset the gains, minimising your tax position.

capital losses

Equally, if you know you've sold investments at a loss, examine your portfolio for investments sitting on a gain and consider selling to enable the losses to be absorbed and the gains minimised.

Alternatively, you might want to consider deferring any planned disposals until the new tax year if you believe the tax outcome will be more beneficial next year, either because you'll have losses available to absorb gains or gains to absorb losses.

Of course, don't let tax dictate your investment strategy.

You need to think carefully about disposing of anything simply for tax reasons but if there are assets in your portfolio that you were thinking of selling anyway or which are no longer fit your investment strategy, you might as well take the opportunity to optimise your tax position as part of the process.



Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is the author of Life and Taxes: A Look at Life Through Tax.
Post a comment
Link to something D13MvEem