Capital Loss Carry Forward for How Long

[wealth]

Hi,

How long can a capital loss be carried forward for?
From reading some posts here, some people states that capital loss can only be carried forward 7 years to offset future capital gains.

However, when I went to the ATO website, it doesn't mention anything about a timeframe for a capital loss to voided.

Am I missing something here??

Reason is I sold some shares a few years back and made a capital loss on it. I have been carrying this loss forward in my tax returns for the last couple of years and did not think it will "expire" until I offset it against a capital gain.

 

[speary]

http://www.ato.gov.au/General/Capit...ss/Working-out-your-net-capital-gain-or-loss/

"There is no time limit on how long you can carry forward a net capital loss."

If you have capital losses carried forward when you die, these are not transferred to your estate.

 

[jrc]

As a general rule there is a time limit on carrying forward income losses but not capital losses.

 

[Terry_w]

http://www.ato.gov.au/General/Capit...ss/Working-out-your-net-capital-gain-or-loss/

"There is no time limit on how long you can carry forward a net capital loss."

If you have capital losses carried forward when you die, these are not transferred to your estate.

This is why it is important to get tax advice after death - an executor. It may be advantageous to sell a property with a capital gain to offset the loss in the final tax return.

 

[Paul@PFI]

Terry raises a valid point...Losses carry fwd until death they they vaporise.
Its a often overlooked tax strategy for a person with terminal illness, ageing etc to crystalise just enough cap gains to offset losses before death. This gives a better cost base to those who inherit too.

Not worth trouble for a few bucks but for large share investors it can be significant savings. Just saved a client $400K day before he died. His daughters shared in benefits and costs of all fuss was well worth it. Its part of our aged care strategies to consider such issues.

 

[Scott No Mates]

This is why it is important to get tax advice after death.

Wouldn't that advice fall on deaf (sic) ears?

 

[Paul@PFI]

Being involved in aged care as part of our lifetime financial & tax strategies we see things differently.

We recommend tax advice BEFORE DEATH where there are significant assets esp non-property.
- Utilise Cfwd CGT losses (that terminate on death).
- Identify CGT assets...Costs base records etc. Just had a client with huge antique collection and few records. Used in a business. A potential nightmare restructured now to avert problems.
- CGT strategies
- Super death benefits strategies and planning incl re-contributions, pensions etc.
The question is "When"....
* Age 56-60 is a good initial point depending on health, work etc. Time to plan longer / medium term strategies that involve large contributions before work tests and age limits start to apply.
* Terminal illness, poor health / dementia etc. Act as early as possible to review update and change strategy as required.
Good legal advice at same time and estate planning services important at this point. Ideally acting together.

Planning should also consider proposed or potential future age care. Nobody wants it but planning should still occur. Gifting early, what assets dont count as assets, personal circumstances eg a carer. DONT SELL THE PENSIONERS HOME without advice. Exempt asset for Centrelink until its sold then $$ counts for income AND assets tests AND affect value of accom bond.

Then its essential that the executors seek tax advice promptly AFTER death. Assets can flow through to beneficiaries without triggering CGT (they acquire the cost base or market value). However its often beneficial to sell assets and distribute cash in some cases (ie a large lumpy asset nobody wants). While you can defer CGT by distribution assets it doesnt end CGT. So beneficiary needs should also be considered if possible to seek lowest tax outcome possible.
Strategies:
* Sell some/all, distribute some / all ? Identify a strategy that may offset gains v's losses especially if a beneficiary has Cfwd losses.
* CGT timing strategies. Consider sale of assets over time in estate to use tax free limits or to fit with beneficiary strategies. Many think a fast administration is better. Not always.
* Consider assets to be held. Refreshed cost base ?
* Consider beneficiary super strategy. in-specie distribution to their fund may be a strategy. CGT triggers etc need to be considered.

 

[Terry_w]

Perhaps another good reason to invest via a trust structure...

 

[wealth]

Thanks all for the clarification.

I had always thought the same in that capital losses can be carried forward indefinately until you die.

Just that in other previous Somersoft post (can't seem to search for it now), people were stating things like captial losses only last 7 years and no-one was correcting them so I thought it was something which I didn't know about.

 

[Paul@PFI]

Australia has no rules that limit losses based upon time EXCEPT non-commercial losses. Some small businesses that incur losses must pass tests to offset the loss against other income. Test are intended to ensure that the business has a commercial footing. The loss carries forward until a test is passed. If not it can be lost.

In larger businesses there are some very complex rules around a consolidation group that merges and if one entity has losses special rule may slow or deny the offset against other group income.

In the above cases a tax adviser would be best source to review an actual position.

 

[Paul@PFI]

Perhaps another good reason to invest via a trust structure...

Yes. Its a strategy too. Also a DT of course. Inter-generational wealth transfer is a whole industry for some family groups. Like the Packers and Reinharts they dont see themselves as "owning" the wealth but pass it on and try to avoid tax in the process. Until they take it public in court.

Perhaps the "owning" thing doesnt apply to the Reinharts. They all want to own it.