With the Australian share market suffering some of its biggest falls since the Global Financial Crisis, investors will no doubt be worried about their own portfolios.
From a tax perspective, if the price a particular share you hold is currently lower than what you bought it for, this at present is only a ‘paper’ loss.
The loss will only become a real, crystalized CGT loss if you were to actually sell the shares.
By retaining the shares and taking a long-term view, the market price of those shares may recover above the original purchase price – resulting in a potential capital gain when it comes time to sell.
The take-home point is that any loss is at the moment is only a ‘paper’ loss – investors only lock in a real, capital loss if they pull the trigger and sell at a loss.
If you do elect to pull the trigger and crystalize your capital loss, any CGT losses you incur can generally be used to offset capital gains you have made when you have sold other CGT assets during the year.
CGT losses can also be carried forward in the event that you have no capital gains to offset in this financial year.