What is FIFO?
FIFO stands for "First-In-First-Out." It's a method for determining which shares you're selling when you own multiple parcels of the same stock purchased at different times and prices.
The Rule: When you sell shares, FIFO assumes you're selling the shares you purchased first.
Why the ATO Prefers FIFO
The Australian Taxation Office (ATO) considers FIFO to be the default method for identifying which shares are sold. While you can use other methods (like specific identification), FIFO is:
- Simple and consistent
- Easy to audit
- Logical chronological ordering
How FIFO Works: An Example
Let's say you bought Commonwealth Bank (CBA) shares as follows:
| Date | Shares | Price | Total |
|---|---|---|---|
| 1 Jan 2024 | 50 | $100 | $5,000 |
| 1 Jun 2024 | 50 | $110 | $5,500 |
| 1 Dec 2024 | 50 | $95 | $4,750 |
Now you sell 75 shares at $120 each on 1 Feb 2026.
FIFO Allocation:
- First 50 shares from Jan 2024 parcel: Cost base $5,000
- Next 25 shares from Jun 2024 parcel: Cost base $2,750
Capital Gain Calculation:
- Sale proceeds: 75 × $120 = $9,000
- Total cost base: $5,000 + $2,750 = $7,750
- Capital gain: $9,000 - $7,750 = $1,250
Since all shares held > 12 months: 50% discount applies
- Taxable gain: $625
FIFO and the CGT Discount
One important implication of FIFO: your oldest shares are sold first, which often means:
- They've been held longer
- They're more likely to qualify for the 50% CGT discount
- They may have a lower cost base (if prices have risen)
This can work for or against you depending on price movements.
Alternatives to FIFO
While FIFO is the default, you can use other methods if you maintain proper records:
Specific Identification: Choose exactly which parcel to sell. Requires lot-level tracking and documentation.
Average Cost: Used mainly for managed funds, not generally applicable to direct share holdings.
Best Practices
- Document every purchase with date, quantity, price, and fees
- Track DRP parcels as separate lots (they each have their own cost base)
- Use software to automate FIFO calculations
- Keep records for 5 years after selling (ATO requirement)
How Pro Portfolio Tracker Helps
Our platform automatically:
- Tracks every parcel separately
- Applies FIFO ordering to sales
- Calculates the 50% discount where applicable
- Generates ATO-ready CGT reports
Stop wrestling with spreadsheets and start getting accurate CGT calculations.