You can't claim a capital loss against your current income, unless you happen to be one of the rare individuals that the ATO classifies as a professional trader. All you can do if you make a capital loss is carry this forward and offset the loss against a gain made that year, or later.

There is no time limit on the carrying forward of losses, if you make a capital loss now and make no capital gains for the next 50 years the capital loss won't be wasted (at least in a nominal sense), you can just keep carrying it forward until one day you make a capital gain and can then net the loss against the future gain in order to reduce your tax bill later on. On the other hand, capital loss credits are lost if not used before your death, you can't leave a capital loss as an asset to someone in your will!

I have met people with huge capital losses from their failed businesses, these people may never have to pay capital gains tax again in their life!

If you make a capital loss "L", you can carry this forward for however long is necessary, so when you finally make a capital gain "G", you pay capital gains tax on G minus L if G is greater than L. If L is greater than G, you carry forward the remaining loss for as long as you have to, until finally another capital gain uses up the previous loss.

Only once the gains and losses have been netted do you apply the discount capital gains, however if you are using the indexed method of capital gains assessment you offset the gain against the loss after applying indexation.

For example, in 2001 you sold a packet of shares and made a capital loss of $1,000. In 2002 you sold a second packet of shares and made $1,500 profit. Assuming you had held both packets for more than a year you will be eligible for the discount capital gains.

From the $1,500 profit, you subtract your previous $1,000 loss. The remaining net $500 capital gain is then discounted, you thus include $250 as assessable income, so you put $250 in your tax return as an assessable capital gain and pay (say) 31.5% capital gains tax on this gain, so you pay $72 tax in total.

On the other hand, if you held an investment prior to the new capital gains rules and may be eligible for indexing, the calculation would work a little differently.

If you made a capital loss (which isn't indexed) you can offset this against an indexed gain. For example if you bought an asset at $30,000 and sold it for $40,000, you would have a $10,000 nominal gain. If you could apply indexing you might reduce this capital gain to an inflation adjusted $5,000 capital gain. You could then offset that against a previous $3,000 loss and would then report a $2,000 capital gain, which you would pay tax on at your marginal tax rate.

As one final note, if you are made bankrupt you lose any net capital losses carried forward from previous years.