Every investor dreads seeing red on their portfolio screen. But not all losses are created equal. In 2025, as global markets continue to ride waves of volatility and new tax rules reshape the Australian investment landscape, the concept of unrealized loss has become more important than ever. Here’s what Australian investors need to know about unrealized losses, why they matter, and how to navigate them this year.
What Is an Unrealized Loss?
An unrealized loss occurs when the value of an asset in your portfolio falls below its purchase price, but you haven’t sold it yet. It’s sometimes called a “paper loss” because it only exists on paper—until you sell, you haven’t locked in the loss. For example, if you bought $10,000 worth of ASX shares and they’re now worth $8,000, you’re facing a $2,000 unrealized loss.
- Unrealized loss: The difference between what you paid and the current lower market value, not yet realised through a sale.
- Realized loss: When you actually sell the asset for less than you paid, the loss becomes real and is recorded for tax purposes.
This distinction is crucial for tax planning, investment strategy, and understanding your true financial position.
2025 Market Trends and Policy Updates Affecting Unrealized Losses
This year, several factors are shaping how unrealized losses play out for Australians:
- Market Volatility: The ASX and global markets remain sensitive to interest rate decisions, geopolitical tensions, and the ongoing transition to clean energy sectors. Many investors have seen both sharp gains and steep dips since late 2023.
- Tax Changes: The ATO’s 2025 update clarifies that unrealized losses do not offset capital gains until they’re realized. However, with new rules on capital loss carry-forwards, it’s more important than ever to track unrealized losses for future tax planning.
- Superannuation Impacts: With the expanded super tax regime for balances above $3 million coming into effect, the treatment of unrealized gains and losses within super funds is under greater scrutiny. Unrealized losses may help offset future notional gains, influencing fund members’ tax bills.
Example: If your super fund reports a sharp drop in asset values due to market swings in early 2025, those unrealized losses could reduce the notional ‘earnings’ figure, potentially lowering your super tax exposure for the year.
How to Respond: Managing Unrealized Losses Strategically
Unrealized losses can be unsettling, but they aren’t always a reason to panic. Here’s how savvy Australians are approaching them in 2025:
- Stay the Course (if fundamentals are strong): If your investment thesis remains intact, market downturns may only be temporary. For long-term goals—such as retirement or children’s education—selling in a panic could crystallize losses unnecessarily.
- Tax-Loss Harvesting: Some investors deliberately realize losses by selling underperforming assets, then use those losses to offset gains elsewhere. With the ATO’s updated guidance, this remains a smart play—but beware the ‘wash sale’ rules that prohibit quickly repurchasing the same or similar assets.
- Portfolio Rebalancing: Unrealized losses may signal it’s time to review your asset allocation. If losses are concentrated in a particular sector (e.g., tech or property trusts hit by interest rate rises), consider whether a strategic rebalance is warranted.
- Superannuation Strategy: For SMSFs and high-balance super members, understanding the new rules around unrealized gains/losses is critical. Work with your fund administrator to ensure accurate reporting and optimal tax outcomes.
Unrealized Losses: What Not to Do
- Don’t ignore them: Unrealized losses may not impact your tax bill today, but they can affect your psychological approach and future planning.
- Don’t obsess over short-term volatility: Daily price swings are normal. Focus on your long-term objectives and whether the underlying assets still fit your goals.
- Don’t make knee-jerk decisions: Selling at a loss locks it in. Take time to review your strategy, seek professional input if needed, and act methodically.
The Bottom Line: Turning Paper Losses into Strategic Opportunities
Unrealized losses are a fact of life for every investor—especially in a market as dynamic as Australia’s in 2025. They offer a snapshot of your portfolio’s current health, a prompt for tax planning, and a potential opportunity for smarter investing. Don’t let paper losses dictate your emotions or decisions. Instead, use them as data points to refine your approach and build long-term wealth, no matter what the market throws your way.
