When it comes to taxes, the Australian system offers a unique opportunity: the ability to carry forward tax losses to offset future gains. For investors, small business owners, and even everyday taxpayers, understanding tax loss carryforward could be the difference between a hefty tax bill and a much lighter one. As we move through the 2025 financial year, updated policy tweaks and market volatility make this strategy more relevant than ever.
What Is Tax Loss Carryforward and How Does It Work?
Tax loss carryforward is a mechanism that allows you to apply previous years’ tax losses to reduce your taxable income in future years. In Australia, both individuals and companies can benefit from this rule—though there are key differences in eligibility and application.
- For individuals: If you’ve made a net capital loss (for example, by selling shares at a loss), you can use that loss to offset capital gains in future years. There’s no time limit—it can be carried forward indefinitely until it’s used up.
- For businesses: Trading and capital losses can often be carried forward, but the business must meet continuity of ownership or similar business tests to qualify. Losses can be offset against future business income, reducing the tax bill when profits return.
For example, if you sold shares in 2023/24 for a $10,000 loss and in 2024/25 you sell another parcel for a $15,000 gain, you’d only pay capital gains tax (CGT) on $5,000—the net result after applying the previous loss.
2025 Policy Updates and Why They Matter
Tax laws evolve, and 2025 has brought a few important changes for those using loss carryforwards:
- Company Tax Integrity Measures: The ATO continues to scrutinise ‘phoenixing’ and complex company structures designed to artificially generate or shift losses. New reporting requirements in 2025 mean companies must provide more detailed ownership records to prove eligibility for loss offsets.
- Crypto and Digital Asset Losses: With digital asset investing now mainstream, the ATO clarified in its 2025 guidance that capital losses from cryptocurrency trades can be carried forward like other capital losses, but only if the assets were disposed of in a genuine transaction.
- Small Business Concessions: Expanded small business CGT concessions mean some businesses can now access more generous offsets or use losses in conjunction with asset rollovers, but only if turnover and asset tests are met. This makes strategic planning around asset sales and losses even more valuable for SMEs.
Staying on top of these changes ensures you’re not missing out on legal avenues to reduce your tax bill—or risking compliance headaches down the line.
Real-World Strategies to Maximise Your Carryforward Losses
How can you put the tax loss carryforward rule to work? Here are practical strategies for 2025:
- Harvest Losses in Volatile Markets: If your investment portfolio took a hit, consider realising capital losses before 30 June. These can be banked for future years, ready to offset gains when markets rebound.
- Plan Asset Sales Strategically: If you’re considering selling an investment property or shares with a large gain, check your carryforward loss balance. Timing your sale to match available losses can significantly cut your CGT bill.
- For Businesses: Document Ownership and Business Activities: Ensure you have detailed records to pass the continuity of ownership or similar business test. Any major changes in shareholding or business activity could impact your eligibility to use carried-forward losses.
- Crypto Investors: Keep Meticulous Records: With the ATO’s increased focus on crypto, detailed transaction histories and evidence of genuine disposals are essential for claiming capital losses.
Example: In 2024, an online retailer suffered a $50,000 trading loss due to supply chain disruptions. In 2025, after pivoting to a new product line, profits bounce back. The business can apply the $50,000 loss to offset its current year profit, effectively reducing taxable income and freeing up cash for growth.
Common Pitfalls and How to Avoid Them
- Failing the Continuity Tests: For companies, major changes in ownership or business direction can invalidate the ability to use past losses. Always check before restructuring or issuing new shares.
- Forgetting to Apply Losses: Losses don’t automatically offset future gains—you must claim them in your tax return each year. Keep records of all losses and check your balance annually.
- Mismatching Loss Types: Capital losses can only be used to offset capital gains, not ordinary income. Make sure you’re matching the right loss to the right type of income.
The Bottom Line
Tax loss carryforward is a powerful tool that can help smooth the bumps of investing and business ownership. By understanding the latest rules and planning ahead, Australians can convert past setbacks into future tax savings. With 2025’s policy landscape making compliance more complex but also more rewarding, it pays to stay informed and proactive.
