FIFO Explained: The Simple, Default Method for Calculating Your Capital Gains
Published on July 14, 2025 by Lee at Taxtallee
The 'First-In, First-Out' (FIFO) method is the most common and straightforward way to calculate capital gains on your investments. It's often the default method used by accountants and the ATO's myTax portal, but is it always the best choice for your tax situation?
What is FIFO?
The FIFO method assumes you are selling the shares you purchased first. It's a simple, chronological approach: the first shares you buy are the first ones you sell. In a market that has risen over time, this often means you are selling your oldest shares, which typically have the lowest cost base, potentially resulting in a larger capital gain.
FIFO is often beneficial for accessing the 50% CGT discount, as you are more likely to be selling shares you have held for over 12 months.
FIFO in Action
Imagine you made the following purchases:
- January: Buy 100 shares at $10 each with $10 brokerage (Total: $1,010)
- July: Buy 100 shares at $20 each with $10 brokerage (Total: $2,010)
You then decide to sell 100 shares at $25 each with $10 brokerage.
Let’s break it down using FIFO:
- Sale Proceeds: 100 × $25 = $2,500
- Less Brokerage on Sale: $10
- Net Sale Proceeds: $2,490
- Cost Base (from January purchase):
- → Cost per share = $10 + ($10 / 100) = $10.10
- → 100 × $10.10 = $1,010
- Capital Gain: $2,490 - $1,010 = $1,480
Since the January shares were held for more than 12 months, this gain may be eligible for the 50% CGT discount.
- Discounted Capital Gain (50%): $1,480 × 0.5 = $740
This $740 would be added to your assessable income for tax purposes.
FIFO vs. LIFO: Which is Right for You?
Neither method is universally "better"—the optimal choice depends on your financial goals for the year. FIFO is simple and good for long-term gains, while LIFO can be a strategic tool for minimizing tax in the short term.
But those aren't your only options. taxtallee also supports advanced capital gains allocation strategies such as:
- Minimise CGT: Optimises your sale to reduce your immediate tax bill as much as possible.
- Maximise Capital Gain: Useful when you want to realise larger gains (e.g. in a low-income year).
- Maximise Capital Loss: Strategic for offsetting other gains in the same financial year.
The best part is, you don’t have to stick to just one strategy. taxtallee allows you to model each option in real time, giving you the clarity to make informed, tax-aware decisions before placing a trade.
This article is for informational purposes only and does not constitute personal taxation advice. taxtallee is not a registered tax agent. We recommend consulting with a qualified accountant or tax advisor regarding your specific tax situation.