Smarter Tax Selling: How the LIFO Method Can Reduce Your Capital Gains
Published on July 14, 2025 by Lee at Taxtallee
When you sell shares, which ones did you actually sell? The Australian Taxation Office (ATO) gives you a choice. The 'Last-In, First-Out' (LIFO) method is a powerful strategy, especially in a rising market, that can help you manage your capital gains tax bill.
What is LIFO and Why Use It?
The LIFO method assumes you are selling the shares you purchased most recently. In a market where prices are generally trending upwards, your most recent purchases will likely have the highest cost base.
By selling these "last-in" shares first, the difference between your sale price and the cost base is smaller—often resulting in a lower capital gain. This makes LIFO a popular choice for investors looking to minimise their tax liability in a specific financial year.
LIFO 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.
Here’s how LIFO applies:
- Sale Proceeds: 100 × $25 = $2,500
- Less Brokerage on Sale: $10
- Net Sale Proceeds: $2,490
- Cost Base (from July purchase):
- → Cost per share = $20 + ($10 / 100) = $20.10
- → 100 × $20.10 = $2,010
- Capital Gain: $2,490 - $2,010 = $480
Because the July shares were held for less than 12 months, this gain would not be eligible for the 50% CGT discount.
- Taxable Capital Gain: $480
LIFO vs. Other Strategies
LIFO is often useful when you want to reduce taxable gains in the current financial year, but it’s not your only option.
taxtallee allows you to model and compare various tax-lot allocation strategies, including:
- FIFO (First-In, First-Out): Good for maximising long-term CGT discounts.
- Minimise CGT: Tailored to reduce your capital gains tax bill as much as possible.
- Maximise Capital Gain: Ideal when you want to realise profits (e.g., in a low-income year).
- Maximise Capital Loss: Useful for offsetting gains elsewhere in your portfolio.
taxtallee does the heavy lifting by automatically matching transactions to your preferred strategy and showing you the real-time tax impact—before you commit to 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.