Navexa supports four different capital gains tax strategies to choose from.

Your chosen strategy can greatly affect your tax outcome (read about optimizing your CGT report here).

Many times, investors will buy into a position multiple times, resulting in different ‘parcels’ of shares bought at different prices.

With the FIFO method, when you sell a parcel of shares for a given holding, you are indicating you want to sell the first parcels of shares in that holding first.

See the following example:

If the FIFO method is selected for FY22-23, the capital gain would be calculated by using the first parcel of shares purchased.

It would calculate the gain by using $1 as the purchase price and $3 as the sale price (this being the price from the first parcel). This would result in a gain of $2 per share — a $14 gain in total.

With the LIFO method, when you sell a parcel of shares for a given holding, you are indicating you want to sell the last parcels of shares in that holding first.

Here’s an example:

If the LIFO method is selected for FY22-23, the capital gain would be calculated by using the last parcel of shares purchased.

It would calculate the gain by using \$2 as the purchase price and $3 as the sale price (this being the price from the last parcel). This would result in a gain of $1 per share — a $7 gain in total.

With the ‘Maximize Gain’ method, when you sell a parcel of shares for a given holding, you are indicating you want to sell the parcels that incur the most capital gain first.

See the following example:

If the maximize gain method is selected for FY22-23, the capital gain would be calculated using the parcel with the lowest purchase price first.

It would calculate the gain by using $0.5 as the purchase price and $3 as the sale price (this being the price from the parcel with the lowest purchase price). This would result in a gain of $2.50 per share — a $17.50 gain in total.

With the ‘Minimize Gain’ method, when you sell a parcel of shares for a given holding, you are indicating you want to sell the parcels that incur the least capital gain first.

Here’s an example:

If the minimize gain method is selected for FY22-23, the capital gain would be calculated using the parcel with the highest purchase price first.

It would calculate the gain by using $2.50 as the purchase price and $3 as the sale price and (this being the price from the parcel with the highest purchase price). This would result in a gain of $0.5 per share — a $3.50 gain in total.

Q: What if the sell trade sells a quantity more than the first parcel?

A: The tax rules will calculate the gain for the total number of shares in the first parcel. Then, if there is more quantity left in the sell trade, it will then move to the next parcel based on the tax strategy selected.

See the following example (assuming FIFO selected):

It would calculate the gain by using $3 as the sale price.

It would then calculate the gain from the first parcel, which only has a quantity of 5. This comes to a gain of $10.

Then it would move to the next parcel, which has a purchase price of $2.5.

Since there are only 2 shares remaining in the sell trade, it would calculate the gain of 2 shares against the $2.50 purchase price — a gain of $1.

Adding the two gain values together would come to $11. This is the capital gain for the sale of the 7 shares using the FIFO strategy.

Q: Does the tax strategy from previous financial years affect the current financial year?

A: Yes.

If you have owned a holding for multiple years, and made multiple buys and sells in that time period, then the tax strategies selected in previous financial years will have been applied already.

As you sell parcels of the holding in previous financial years, those parcels are no longer available to use in future financial years.

So initially, you might use the minimize gain method, which will deplete all your lowest gain parcels.

Then in a later financial year, you will be left with the higher gain parcels for selling.