Tax Loss Carryforward in Australia: 2026 Guide & Strategies

Tax loss carryforward is a rule that allows you to use losses from previous years to offset future taxable income. This can help reduce the amount of tax you pay in profitable years. The rules differ for individuals and businesses, but the core idea is the same: losses don’t have to be wasted—they can be used to your advantage in future years.

How It Works for Individuals

If you’re an individual investor and you make a net capital loss (for example, by selling shares or property for less than you paid), you can carry that loss forward to offset capital gains in future years. There is no time limit on how long you can carry forward a capital loss. However, capital losses can only be used to offset capital gains—they cannot be used to reduce other types of income, such as salary or business income.

Example:

Suppose you sold shares in 2023/24 and made a $10,000 capital loss. In 2024/25, you sell another investment and make a $15,000 capital gain. You can use your $10,000 carried-forward loss to reduce your taxable capital gain to $5,000 for the 2024/25 year.

How It Works for Businesses

Businesses can also carry forward tax losses, but there are additional rules to consider. Trading and capital losses may be carried forward and used to offset future profits, reducing the business’s tax bill when profitability returns. However, businesses must meet certain tests—such as the continuity of ownership test or the similar business test—to be eligible to use carried-forward losses. These tests are designed to ensure that losses are only used by the same business that incurred them.

Key Points for Businesses:

• Losses can be carried forward to offset future income, provided eligibility tests are met.
• If there are significant changes in ownership or business activities, the ability to use carried-forward losses may be affected.
• Accurate record-keeping is essential to support any claim for carried-forward losses.

Tax laws and guidance are updated regularly, and 2026 brings some changes and clarifications that are relevant for those using tax loss carryforward:

Company Tax Integrity Measures

The Australian Taxation Office (ATO) continues to focus on company tax integrity. In 2026, companies are required to provide more detailed records to demonstrate continuity of ownership and eligibility for loss offsets. This is particularly important for businesses with complex ownership structures or those that have undergone significant changes.

Digital Asset and Cryptocurrency Losses

With more Australians investing in digital assets, the ATO has clarified that capital losses from cryptocurrency and similar assets can be carried forward, provided the assets were disposed of in genuine transactions. As with other capital losses, these can only be used to offset capital gains.

Small Business Concessions

Some small businesses may be able to access expanded capital gains tax (CGT) concessions or use losses in conjunction with asset rollovers, depending on their circumstances. Eligibility for these concessions depends on meeting turnover and asset tests. Strategic planning around asset sales and losses is increasingly important for small and medium enterprises.

Understanding the rules is only the first step. Here are practical strategies to help you maximise the benefits of tax loss carryforward in 2026:

1. Review Your Investment Portfolio

If you have investments that have declined in value, consider whether it makes sense to realise a loss before the end of the financial year. Realised losses can be carried forward and used to offset future capital gains. This is sometimes referred to as “loss harvesting.”

2. Time Asset Sales Carefully

If you are planning to sell an asset that will generate a capital gain, check your carryforward loss balance. By timing the sale to coincide with available losses, you can reduce your capital gains tax liability.

3. Keep Detailed Records

For both individuals and businesses, accurate and up-to-date records are essential. You need to be able to demonstrate the amount and nature of any carried-forward losses, as well as your eligibility to use them. For businesses, this includes ownership records and documentation of business activities. For investors, keep transaction histories and evidence of asset disposals.

4. Understand the Tests for Businesses

If you operate a company, be aware of the continuity of ownership and similar business tests. Major changes in shareholding or business activities can affect your ability to use carried-forward losses. Before restructuring or issuing new shares, check how these changes might impact your eligibility.

5. Consider Small Business Concessions

If you run a small business, review whether you qualify for any CGT concessions or asset rollover provisions. These can sometimes be used in combination with carried-forward losses to further reduce your tax bill. Eligibility depends on factors such as turnover and asset values.

6. Stay Informed About Digital Assets

If you invest in cryptocurrencies or other digital assets, ensure you keep meticulous records of all transactions. The ATO is paying close attention to this area, and only genuine disposals of assets can be used to generate capital losses for carryforward purposes.

While tax loss carryforward is a powerful tool, there are some common pitfalls to watch out for:

Failing the Continuity or Similar Business Tests

For companies, significant changes in ownership or business direction can mean you lose the ability to use past losses. Always check the rules before making structural changes.

Forgetting to Claim Losses

Carried-forward losses are not applied automatically. You must claim them in your tax return each year. Keep a record of your losses and review your position annually.

Mismatching Loss Types

Capital losses can only be used to offset capital gains, not other types of income. Make sure you are matching losses and gains correctly in your tax calculations.

Consider a small business that experienced a trading loss in 2024 due to challenging market conditions. In 2026, the business returns to profitability after adjusting its operations. The business can use the carried-forward loss from 2024 to reduce its taxable income in 2026, lowering the amount of tax payable and freeing up cash for further investment.

Similarly, an individual investor who made a capital loss on shares in a previous year can use that loss to offset gains from selling other investments in the future, reducing their capital gains tax liability.

Tax loss carryforward can be a valuable part of your financial strategy, but it’s important to stay up to date with the latest rules and requirements. The ATO regularly updates its guidance, and compliance requirements can change from year to year. Keeping good records and seeking professional advice when needed can help you make the most of your losses while avoiding compliance issues.

For more information on managing your finances and understanding tax rules, visit our finance section.

Tax loss carryforward is a practical way for Australians to turn past setbacks into future tax savings. By understanding how the rules apply to your situation, keeping accurate records, and planning ahead, you can make the most of this opportunity. With some changes and clarifications in 2026, now is a good time to review your records and strategies to ensure you’re making the most of your tax position.