Tax loss harvesting in Australia
Tax loss harvesting is a strategy where you sell investments at a loss to offset capital gains you have realised elsewhere in your portfolio. In Australia, the rules around this strategy differ significantly from the US, and understanding those differences is essential to staying compliant with the ATO.
This guide explains how tax loss harvesting works under Australian tax law, walks through a worked example, and covers the anti-avoidance rules you need to be aware of.
Disclaimer: This article is for informational purposes only and does not constitute financial or tax advice. Consult a qualified tax professional before making investment decisions based on tax considerations.
How tax loss harvesting works
The concept is straightforward. If you have realised capital gains during a financial year and also hold shares that are currently worth less than what you paid, you can sell those losing positions to crystallise a capital loss. That loss offsets your gains, reducing your tax bill.
Under Australian tax law:
- Capital losses must be offset against capital gains before the 50% CGT discount is applied
- Capital losses cannot be deducted against ordinary income (salary, wages, business income)
- Unused capital losses carry forward indefinitely to future financial years
- There is no limit on the amount of capital losses you can use to offset capital gains in a given year
This makes the timing of loss harvesting important. Realising losses in the same financial year as your gains gives you the immediate benefit.
Worked example
Let's say during the 2025-26 financial year you sold two holdings:
Sale 1: BHP Group (BHP)
- Bought for $42,000 in March 2024
- Sold for $54,000 in October 2025
- Held for more than 12 months
- Capital gain: $12,000
Current unrealised position: Zip Co (ZIP)
- Bought for $8,000 in February 2025
- Current market value: $3,500
- Unrealised loss: $4,500
If you do nothing, your tax position on the BHP sale would be:
- Capital gain: $12,000
- 50% CGT discount (held over 12 months): $6,000 assessable gain
- At a 30% marginal rate plus 2% Medicare levy: $1,920 in tax
If you sell the Zip Co holding before 30 June to harvest the loss:
- Capital gain from BHP: $12,000
- Capital loss from ZIP: $4,500
- Net capital gain: $7,500
- 50% CGT discount: $3,750 assessable gain
- At 32% effective rate: $1,200.00 in tax
By harvesting the loss, you save $720.00 in tax. The loss offsets the gain before the CGT discount is applied, which means each dollar of loss effectively saves you more than if it were applied after the discount.
For a full breakdown of how capital gains are calculated, see our guide on how to calculate capital gains on shares in Australia.
The order of operations matters
A common mistake is applying the 50% CGT discount before subtracting losses. The ATO requires the following order:
- Calculate your capital gains for the year
- Subtract any current-year capital losses
- Subtract any carried-forward capital losses from prior years
- Apply the 50% CGT discount to any remaining net gain on assets held for more than 12 months
- Add the result to your assessable income
Because losses reduce the gain before the discount is applied, harvesting a $1,000 loss against a discountable gain effectively removes $500 from your assessable income (the $1,000 gain that would have been halved to $500). This means the actual tax benefit is based on the pre-discount amount.
Australian wash sale rules vs US rules
This is where Australian and US rules diverge significantly.
US: the 30-day wash sale rule
In the US, the IRS has a specific wash sale rule. If you sell a security at a loss and buy a "substantially identical" security within 30 days before or after the sale, the loss is disallowed. The rule is mechanical and automatic. For more detail on the US approach, see our US tax-loss harvesting guide.
Australia: Part IVA anti-avoidance
Australia does not have a specific wash sale rule with a defined time period. Instead, the ATO relies on the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936.
Part IVA applies when:
- A taxpayer obtains a tax benefit in connection with a scheme
- A reasonable person would conclude that the dominant purpose of the scheme (or part of it) was to obtain the tax benefit
The key phrase is "dominant purpose." If you sell shares at a loss and buy them back purely to create a tax deduction, with no genuine commercial reason, the ATO can deny the loss under Part IVA.
What does this mean in practice?
There is no fixed "safe" number of days to wait before repurchasing. The ATO looks at the overall facts:
- Did you sell and immediately repurchase the same shares?
- Was there any change in your economic position?
- Did you have a genuine reason for the sale beyond tax?
- Was the timing suspiciously close to the end of financial year with an immediate repurchase?
For a deeper dive into how wash sale provisions work in Australia, see our dedicated guide on wash sale rules in Australia.
How to harvest losses safely
To reduce the risk of Part IVA applying, consider the following approaches:
1. Sell and do not repurchase
The cleanest approach. If you genuinely want to exit a position, selling at a loss and not buying back the same shares is straightforward and raises no anti-avoidance concerns.
2. Sell and buy a different (but similar) investment
If you sell a losing position but want to maintain exposure to the same sector, you could buy a different stock or ETF in the same industry. For example, selling one bank stock and buying a different bank stock, or selling a specific mining company and buying a diversified resources ETF.
3. Sell and wait before repurchasing
If you do intend to repurchase the same shares, waiting a reasonable period and being able to demonstrate a genuine reason for the sale helps your position. There is no prescribed number of days, but a longer gap and a clear commercial rationale reduce the risk.
4. Document your reasoning
Keep notes on why you sold. If you sold because you believe the company's outlook has deteriorated, because you are rebalancing your portfolio, or because you need the cash, that reasoning supports a genuine commercial purpose.
Common mistakes to avoid
Harvesting losses you cannot use
If you have no capital gains this year and do not expect significant gains in the near future, harvesting losses may not provide an immediate benefit. The losses carry forward indefinitely, which is useful, but you lock in the loss now and lose any potential recovery in the share price.
Ignoring the CGT discount interaction
As shown in the worked example above, losses are applied before the CGT discount. Make sure you model the full calculation before deciding whether to harvest. Our capital gains tax calculator can help with this.
Triggering Part IVA by selling and immediately repurchasing
If you sell shares on Monday and buy them back on Tuesday purely for the tax benefit, you are at risk. The ATO has specifically flagged this type of behaviour in its guidance on wash sales.
Forgetting to consider transaction costs
Brokerage fees apply when you sell and when you buy back. If you are harvesting a small loss, the transaction costs could eat into or even exceed the tax benefit.
How TrackMyShares helps with tax loss harvesting
TrackMyShares includes a dedicated tax-loss harvesting tool that analyses your portfolio and identifies opportunities automatically.
The tool shows you:
- Your realised capital gains for the current financial year, split into short-term and long-term
- Holdings with unrealised losses that could be harvested to offset those gains
- Estimated tax savings based on your marginal tax rate
- Recommended actions for each holding (sell all, sell partial, or hold)
This saves you from manually scanning your portfolio and running calculations. The tool updates as prices change throughout the day, so you can act on opportunities as they arise.
If harvesting a loss changes your portfolio allocation, the rebalancing tool can help you plan how to reinvest while staying aligned with your target allocation.
By combining accurate transaction tracking with automated tax-loss analysis, TrackMyShares helps you make informed decisions before the end of financial year.