The First In First Out Strategy (FIFO)

Navarre Trousselot profile picture Navarre Trousselot June 5, 2024

Blog post featured image

The FIFO strategy is the most common way of calculating capital gains. It is often the default method used by accountants and people reporting their own taxes.

The strategy is simple. When calculating the capital gain, you process trades in order of the date you bought them.

The first share parcel bought = the first one out.

Let’s look at an example of FIFO:

Purchases:

  • Buy 10 shares at $1 each — Total cost: $10
  • Buy 10 shares at $5 each — Total cost: $50

Sale:

  • Sell 10 shares at $4 each — Total sale value: $40

FIFO Calculation:

  • First parcel: 10 shares at $1 each — Total cost: $10
  • Sold 10 shares for $40

Capital Gain:

  • Gain: $40 (sale value) -— $10 (cost) = $30

Since this is a capital gain, it is subject to capital gains tax.

A more complex FIFO example.

Suppose we buy the following parcels in company ABC:

  • Buy 10 shares at $2 each — Total: $20
  • Buy 5 shares at $5 each — Total: $25
  • Buy 10 shares at $3 each — Total: $30

This gives us a total of 25 shares at different price points.

Now, let’s sell 13 shares at $4 per share using the FIFO (First-In-First-Out) method.

First Parcel (a):

  • 10 shares at $2 each.
  • Total cost: $20
  • Sale value: 10 shares x $4 = $40
  • Gain: $40 — $20 = $20

Second Parcel (b):

  • Remaining 3 shares to be sold.
  • Next parcel: 5 shares at $5 each.
  • Cost for 3 shares: 3 shares x $5 = $15
  • Sale value: 3 shares x $4 = $12
  • Loss: $12 — $15 = -$3

Total Capital Gain:

  • Gain from first parcel: $20
  • Loss from second parcel: -$3
  • Total gain: $20 — $3 = $17

Therefore, the total capital gain from selling 13 shares is $17.

Navexa Portfolio Tracker: Automate Your CGT Strategy For Tax Reporting

You don’t need to worry about manually tracking your investment’s gains, income, and long-term returns. 

The Navexa Portfolio Tracker automatically handles performance tracking and tax reporting for Australian investors. 


Take a free 14-day trial and see for yourself why thousands of investors trust Navexa to track their portfolio and sort their investment taxes the easy way.


Navarre Trousselot profile picture

Navarre Trousselot

Navarre is the Founder of Navexa — a portfolio analytics service made for Australian investors. Navarre left a lucrative corporate developer job to combine two of his passions; investing and entrepreneurship. He created Navexa because he couldn’t find a portfolio analytics service that met his own high standards. Now, he’s focused on helping as many Australians as possible get more from their portfolios through the smart and creative use of data. Follow Navarre on Twitter and connect with him on LinkedIn.