Overview of the capital gain calculation methods

For Investors with Losses

• If your portfolio includes capital losses, consider:
  • Non-CGD trades with highest profit first, or
  • Non-CGD trades with lowest profit first
• Why?
  • You cannot apply the Capital Gains Discount (CGD) to offset losses under Australian tax law.
  • By prioritising non-CGD trades first, you preserve CGD-eligible assets (held for more than 12 months) for future years when profits may be higher.
  • This approach helps maximise long-term tax efficiency.

Example:

• You sell shares with a $10,000 profit (held less than 12 months) and have $10,000 in capital losses.
• Losses cancel out the profit → no tax payable.
• If you had instead sold a CGD-eligible asset ($10,000 profit held over 12 months):
  • 50% discount applies → taxable profit is $5,000.
  • Your $10,000 loss offsets $5,000 profit → leaving $5,000 loss unused.
• Result: You “waste” the CGD benefit. That’s why non-CGD trades first is more efficient.

For Investors with Profits

• If you don’t have losses:
  • Keep your CGD-eligible trades.
  • These attract a 50% tax reduction on profits from assets held longer than 12 months.

Example:

• You sell shares held over 12 months for a $20,000 gain.
• CGD applies → only $10,000 is taxable.
• Compared to selling short-term shares with the same profit, you save tax on half the amount.

Tax-Free Threshold Considerations (2025)

• The Australian tax-free threshold is $18,200.
• If you have no other income, you can use this strategically:

1. Non-CGD method
   • Sell shares with a $18,200 profit (held under 12 months).
   • Entire amount is taxable → $18,200.
   • Falls within the threshold → no tax payable.
2. CGD method
   • Sell CGD-eligible shares with a $36,400 profit (held over 12 months).
   • CGD applies → 50% discount = $18,200 taxable.
   • Falls within the threshold → no tax payable.

👉 This way, you can choose the right method based on whether you have losses, profits, or low total income — maximising tax efficiency.

Yes you can! One of the strengths of Stock Profit is the ability to test multiple calculation methods before deciding which is the most tax-efficient for you.

How to Compare Methods in Stock Profit

1. Make a copy of your Stock Profit spreadsheet.

2. Run different CGT calculation methods, such as:

   • FIFO (First In, First Out)

   • LIFO (Last In, First Out)

   • Highest profit first

   • Biggest loss first

   • Non-CGD vs CGD trades

3. Compare the tax outcomes side-by-side to see which approach results in the lowest taxable gains.

4. Select the method that legally minimises your tax liability.

Example: Comparing FIFO vs Highest Profit First

• Portfolio:

  • 100 shares bought at $10 each (held < 12 months) → cost $1,000

  • 100 shares bought at $20 each (held > 12 months) → cost $2,000

  • Current price = $30 per share

• You sell 100 shares at $30 = $3,000 total proceeds.

Method 1 – FIFO (First In, First Out):

• Sell the $10 shares (cost $1,000).

• Profit = $3,000 – $1,000 = $2,000.

• Held < 12 months → no CGD.

• Taxable gain = $2,000.

Method 2 – Highest Profit First (CGD-eligible):

• Sell the $20 shares (cost $2,000).

• Profit = $3,000 – $2,000 = $1,000.

• Held > 12 months → CGD applies (50%).

• Taxable gain = $500.

👉 By choosing the right method, you reduce taxable gains from $2,000 to $500.