If the prior year loss is greater than the current capital gain amount, the prior year losses must first be applied to the gross capital gain before applying the 50% CGT discount. The remaining prior year losses, if any, can be carried forward to future years.
For example:
- Gross Capital Gain: $79,137
- Prior Year Losses: $127,757
Since the prior year losses exceed the gross capital gain, the entire gross capital gain of $79,137 will be offset by the prior year losses, leaving no taxable capital gain. The 50% CGT discount will not apply because there is no remaining capital gain after deducting the prior year losses.
The remaining prior year losses will be calculated as: $127,757 - $79,137 = $48,620
This remaining amount of $48,620 can be carried forward to future years for offsetting against future income or capital gains.
Ensure that the deduction of prior year losses is applied correctly to the gross capital gain before considering the CGT discount. If this process is not followed, it may result in errors such as CMN.ATO.IITR.311085.
