Tax Loss Harvesting in Australia: How to Reduce Your CGT Bill Before EOFY

You've had a good year. Some of your stocks went up and you took profits. But now you're looking at a capital gains bill that's going to sting. Meanwhile, a couple of your other holdings are sitting in the red, doing nothing useful.

Tax loss harvesting is how you turn those paper losses into real tax savings. And if you're going to do it for the 2025-26 financial year, you need to act before 30 June 2026.

What Is Tax Loss Harvesting?

Tax loss harvesting means selling investments that are currently at a loss to "crystallise" that loss. Once realised, the capital loss can be used to offset capital gains, reducing your CGT bill.

The shares don't need to be terrible companies. They just need to be worth less right now than what you paid for them. You might have great conviction in the stock long-term but still use the loss strategically at tax time.

Here's the basic equation:

Net capital gain = Total capital gains - Total capital losses

If you have $15,000 in capital gains and you harvest $8,000 in capital losses, your net capital gain drops to $7,000. If those gains qualify for the 50% discount, you'd only pay tax on $3,500 instead of $7,500. At a 37% marginal rate (plus Medicare), that's roughly $1,560 in tax saved.

How Capital Losses Work in Australia

The ATO's rules on capital losses are straightforward:

1. Capital losses can only offset capital gains. You cannot deduct them against your salary, rental income, or any other type of income.

2. Losses must be applied before the 50% CGT discount. This is important. You reduce the gross gain by the loss, then apply the discount to what's left.

3. Unused losses carry forward indefinitely. If your losses exceed your gains this year, the leftover carries forward to future years. There's no expiry.

4. You choose the order. You can choose which gains to apply your losses against. Smart investors offset short-term gains first (those without the 50% discount), because those are taxed at the full marginal rate.

Step-by-Step: Harvesting Losses Before 30 June

Step 1: Review Your Unrealised Gains and Losses

Look at your portfolio and identify:

• Which stocks you've sold at a profit this financial year (your realised gains)
• Which stocks you currently hold at a loss (potential harvest candidates)

You need both sides of the picture. There's no point harvesting losses if you don't have gains to offset.

Step 2: Calculate the Potential Tax Saving

Let's say you have:

• $12,000 in realised capital gains from selling WES shares (held 18 months, discount eligible)
• TLS shares with an unrealised loss of $3,500
• A speculative mining stock with an unrealised loss of $2,000

If you sell both losers, you crystallise $5,500 in losses.

Without harvesting:

• $12,000 gain x 50% discount = $6,000 taxable

With harvesting:

• $12,000 - $5,500 = $6,500 gain x 50% discount = $3,250 taxable

At a 37% marginal rate (plus 2% Medicare levy), that's a tax saving of about $1,071.

Step 3: Check the Calendar

This is where timing matters. Shares on the ASX settle on a T+2 basis, meaning the sale settles two business days after you execute the trade.

For a loss to count in the 2025-26 financial year, the trade must be executed (not settled) on or before 30 June 2026. The ATO uses the contract date, not the settlement date, for CGT purposes.

However, 30 June 2026 falls on a Tuesday, which is a normal trading day. So you have until market close on that day to execute your sell orders. Don't leave it to the last minute though. If there's low liquidity in the stock, your order might not fill.

Step 4: Execute the Sales

Sell the shares through your broker as you normally would. The trade confirmation is your proof of the sale. Keep it.

Step 5: Decide Whether to Buy Back

This is where it gets tricky. See the wash sale section below.

The Wash Sale Rule: Part IVA

Australia doesn't have a bright-line wash sale rule like the US (which has a specific 30-day rule). Instead, we have something broader and vaguer: Part IVA of the Income Tax Assessment Act 1936.

Part IVA is the ATO's general anti-avoidance provision. It lets the ATO deny a tax benefit if a "reasonable person" would conclude that the arrangement was entered into for the dominant purpose of obtaining a tax benefit.

What This Means in Practice

If you sell shares at a loss on 29 June and buy the exact same shares back on 1 July, the ATO can (and does) argue that the sale had no genuine commercial purpose other than generating a tax loss. They can deny the loss entirely.

The ATO has specifically flagged wash sales in their guidance. They look at:

• How quickly you repurchase. Buying back the same stock within days is a red flag.
• Whether your economic position changed. If you sell and immediately buy back the identical stock, your position hasn't changed. That's the textbook definition of a wash sale.
• The dominant purpose. Did you sell because you genuinely wanted to exit the position, or purely for the tax loss?

How to Stay on the Right Side

There's no magic number of days you need to wait. But here are some practical guidelines:

• If you genuinely don't want the stock anymore, sell it and don't buy it back. This is always safe.
• If you want to maintain market exposure, consider buying a different but related investment. For example, sell your individual bank shares at a loss and buy a financials ETF. Your exposure to the sector is maintained, but you're holding a different asset.
• If you want the exact same stock, wait a reasonable period (many tax advisors suggest at least 30 days) and ensure you can demonstrate the repurchase was a separate investment decision.
• Document your reasoning. If you sell a stock and later buy it back, having a clear record of why you sold (rebalancing, portfolio review, changing your position sizing) helps if the ATO ever asks.

The safest approach: sell the losing stock, offset the gain, and either stay out or invest in something different.

Which Losses Should You Harvest?

Not all losses are equally valuable. Think about these factors:

Short-Term Losses vs Long-Term Losses

The loss itself isn't affected by how long you held the shares. A $5,000 loss is a $5,000 loss whether you held for 3 months or 3 years.

But the gains you offset matter a lot. If you have both discounted (long-term) and non-discounted (short-term) gains, apply your losses against the non-discounted gains first. Why? Because:

• $5,000 loss against a short-term gain saves $5,000 x your marginal rate = up to $2,350 in tax
• $5,000 loss against a long-term gain only saves $5,000 x 50% x your marginal rate = up to $1,175 in tax

Same loss, double the tax saving, just by choosing the right gains to offset.

Stocks You Actually Want to Dump

Tax loss harvesting works best when you were going to sell anyway. If you've lost faith in a company and it's sitting at a loss, selling it is a no-brainer. You get out of a bad position and get a tax benefit.

Stocks That Are Only Slightly Down

Be careful about selling a stock that's down 5% just to harvest a small loss if you'd incur $40 in brokerage round-trip. The transaction costs might eat up most of the tax benefit.

Stocks on the Cusp of 12 Months

If you've held a losing stock for 11 months, the loss is the same whether you sell now or in a month. But if that stock might recover, waiting until it passes 12 months could be smart, because if it does recover and you sell at a gain later, you'd get the 50% discount.

Practical Example: Putting It All Together

Here's a realistic scenario for an investor in the 2025-26 financial year.

Realised gains this year:

Total gains: $11,600

Current portfolio holdings in the red:

Without tax loss harvesting:

• CSL gain (short-term): $3,400 taxed at full rate
• BHP gain (long-term): $8,200 x 50% = $4,100 taxed at full rate
• Total taxable: $7,500
• Tax at 37% + 2% Medicare: $2,925

With tax loss harvesting (sell both losing stocks):

• Total losses: $7,300
• Apply $3,400 against CSL gain (short-term, no discount): CSL gain eliminated
• Apply remaining $3,900 against BHP gain: $8,200 - $3,900 = $4,300
• BHP discounted gain: $4,300 x 50% = $2,150
• Total taxable: $2,150
• Tax at 39%: $838.50

Tax saved: $2,086.50

That's real money back in your pocket, just by being strategic about when you sell your losers.

Risks and Pitfalls

Don't Let the Tax Tail Wag the Investment Dog

Selling a stock purely for a tax loss when you strongly believe it's about to recover is a bad idea. The tax saving is a fraction of the potential gain. Make investment decisions first and tax decisions second.

Transaction Costs

Every sell (and potential rebuy) costs brokerage. For small positions, the brokerage might exceed the tax benefit. Do the maths first.

Missing a Recovery

If you sell and the stock bounces back before you can buy it again (if you wanted to), you've missed the recovery. This is the real cost of tax loss harvesting.

The ATO Is Watching

The ATO uses data matching to identify wash sales. They see every trade your broker reports. If you sell on 28 June and buy back on 2 July, expect questions.

Capital Loss Carry-Forward Rules

If you carry forward losses, you must use them at the first opportunity. You can't stockpile losses and choose to use them in a year that suits you. If you have gains next year, those carried-forward losses must be applied.

How SavvyPortfolio Helps

SavvyPortfolio shows your unrealised gains and losses in real time, making it easy to spot harvesting candidates before 30 June. You can see at a glance:

• Which holdings are in the red and by how much
• How long you've held each position (relevant for discount eligibility)
• Your total realised gains for the year so far
• The potential tax impact of harvesting specific losses

Instead of pulling up spreadsheets and cross-referencing broker statements, you get the full picture in one screen.

Act Before 30 June

Tax loss harvesting is one of the few genuinely free tax strategies available to Australian share investors. You're not doing anything artificial or aggressive. You're simply timing the sale of investments you were going to sell anyway.

But the window closes on 30 June. If you have unrealised losses sitting in your portfolio and realised gains on the other side of the ledger, it's worth running the numbers now.

For more on how CGT works, see our guide to calculating capital gains tax on shares. And for a full pre-EOFY rundown, check out our EOFY tax checklist for share investors.