Can I fully deduct capital losses against discounted capital gains?

Question

I have shares in 2 Australian stocks that I am thinking of selling (at least partially). I am an Australian resident for tax purposes. Let's call these stocks;

1. Stock ABC
2. Stock DEF

I have owned stock ABC for over 1 year and have collected dividends. I also purchased these shares with the intention of obtaining an income, so on that basis I will claim the CGT discount of 50% when I sell these shares.

Stock ABC has appreciated substantially since I purchased it, and I am facing a substantial tax burden on its sale. The stock is now, in my view, overvalued so I want to sell it.

For the sake of illustration let's say I will make a gain of $25,000 when I sell my ABC shares. I also hold shares in DEF, which was a speculative purchase in a stock that was never likely to yield me any dividends, and as such I would not claim the CGT discount on its sale (even had I made a profit). Having said that, I have owned DEF shares for more than 1 year as well. Let's say I stand to realise $5,000 in capital losses upon selling at the current trading price.

My question is; can I claim a full $5,000 deduction against my $12,500 discounted capital gains, or can I only deduct $2,500?

Answer 1

The short answer is no - the CGT discount is only applied against your net capital gain.

So your net capital gain would be: $25,000 - $5,000 = $20,000 Your CGT discount is $10,000 You will then pay CGT on $10,000

Of course you could sell ABC in this financial year and sell DEF next financial year. If you had no other share activities next financial year than that net capital loss can be carried forward to a future year.

In that case your net capital gain this year would be $25,000 Your CGT discount is $12,500 You will then pay CGT on $12,500 Next year if oyu sell DEF, you'll have a $5000 net capital loss which you can carry forward to a future year as an offset against capital gains.

Reference: https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Working-out-your-net-capital-gain-or-loss/