Tax-Loss Harvesting in Australia — How It Works

Tax-loss harvesting is the practice of deliberately selling investments at a loss to offset capital gains — reducing your overall CGT liability for the year. It is legal in Australia and widely used by investors near the end of the financial year.

How Tax-Loss Harvesting Works

Capital losses can only offset capital gains — they cannot reduce your salary or other income. By realising a capital loss before 30 June, you can use it to reduce a capital gain you have already made (or expect to make) in the same financial year.

Example:

You have a $20,000 capital gain from selling shares in February 2025
You also hold an ETF that is sitting at a $7,000 unrealised loss
By selling the ETF before 30 June 2025, you realise the loss and reduce your net gain:
- $20,000 gain − $7,000 loss = $13,000 net gain
- Apply 50% CGT discount (if >12 months): $6,500 taxable instead of $10,000

Timing — The 30 June Deadline

Capital gains and losses must be realised in the same income year to offset each other. The CGT event generally occurs on the date you enter into the contract of sale — not settlement.

For ASX shares, the trade date (not settlement date) is when the disposal occurs. So if you want a capital loss to count in FY2025–26, the trade must settle before or on 30 June 2026 — but more practically, you need to place the trade at least 2 trading days before 30 June to ensure settlement in the same financial year (ASX uses T+2 settlement).

Carry-Forward Losses

If you have more capital losses than capital gains in a year, the excess losses are carried forward to future years. There is no time limit on carrying forward capital losses — they can be used years or even decades later.

Wash-Sale Risk in Australia

In the United States, “wash-sale” rules prohibit buying back the same investment within 30 days of selling for a loss. Australia does not have a formal wash-sale rule in the tax legislation. However, the ATO has general anti-avoidance provisions under Part IVA of the Income Tax Assessment Act 1936.

The ATO has warned that it may apply Part IVA where the dominant purpose of an arrangement is to create a tax benefit — for example, selling shares at a loss and immediately buying them back to generate a loss with no real economic substance.

Practical approach for Australian investors:

Selling a losing investment and buying a similar but different ETF (e.g., selling VAS and buying A200) is generally considered low-risk — there is a genuine economic change
Selling and immediately repurchasing the exact same security may attract ATO scrutiny under Part IVA

When Tax-Loss Harvesting Makes Sense

Tax-loss harvesting is most useful when:

You have realised significant capital gains in the current year
You hold investments at an unrealised loss that you no longer want to hold
You are at a high marginal tax rate
You can replace the sold investment with a similar but not identical alternative

It is less useful if:

You have no capital gains to offset
You carry forward significant capital losses already (adding more losses doesn’t help if there are no gains)
The brokerage costs of selling and rebuying outweigh the tax saving

Frequently Asked Questions

Is tax-loss harvesting legal in Australia? Yes, deliberately selling investments to realise capital losses and offset capital gains is legal. However, immediately repurchasing the same investment to create a “paper loss” with no real economic change may attract scrutiny under the ATO’s anti-avoidance provisions.

Can I use capital losses to offset my salary income? No. Capital losses can only offset capital gains, not other income. Unused losses are carried forward to future years.

When is the deadline for tax-loss harvesting in Australia? For ASX shares, the trade date determines the financial year. Trades settle T+2, so to ensure a trade counts in FY2025–26, the trade date should be no later than 26 June 2026 (two trading days before 30 June).

This article provides general tax information for FY2025–26. Tax-loss harvesting strategies should be assessed based on your individual situation. For advice, speak with a registered tax agent or accountant. Find one through the Tax Practitioners Board register.