Australia gives investors flexibility in choosing which parcel they treat as sold. Using this flexibility well is a legitimate part of managing your tax position.
Key takeaway
When selling shares or ETFs, you can choose which parcel is treated as sold first. Choosing the highest-cost or discount-eligible parcel can reduce your tax outcome in a given year. The choice must be made before settlement and recorded clearly.
This is general educational content, not tax advice. Individual circumstances vary. Consult a registered tax agent for advice specific to your situation.
Why Parcel Identification Matters#
When you hold multiple parcels of the same investment, they differ on two key dimensions:
- Cost base (purchase price plus brokerage): higher-cost parcels produce smaller gains (or larger losses) on sale.
- Acquisition date: parcels held for more than 12 months may be eligible for the 50% CGT discount, reducing the taxable gain to half the gross amount.¹
Selecting the right parcel can result in a materially different tax outcome without changing the total investment position.
Example:
You hold two parcels of the same ETF:
| Parcel | Units | Cost Base Per Unit | Date Acquired |
|---|---|---|---|
| Parcel A | 100 | $20.00 | March 2022 (more than 12 months ago) |
| Parcel B | 100 | $30.00 | April 2024 (less than 12 months ago) |
You sell 100 units at $35.00 each (proceeds = $3,500).
Selling Parcel A:
- Gross gain = $3,500 − (100 × $20.00) = $1,500
- Eligible for 50% CGT discount (held > 12 months)
- Discounted gain = $750
Selling Parcel B:
- Gross gain = $3,500 − (100 × $30.00) = $500
- Not eligible for 50% CGT discount (held < 12 months)
- Taxable gain = $500
In this example, selling Parcel A produces a lower taxable gain ($750 discounted vs $500 undiscounted) if the investor is in a high tax bracket. However, selling Parcel B might be preferable for an investor in a low tax bracket, where the discount is less valuable.
The correct choice depends on your circumstances, which is why the ATO allows flexibility.
The Accepted Methods in Australia#
The ATO accepts the following methods for identifying which parcel is sold:
1) Specific Identification#
You nominate exactly which parcel (or parcels) is being sold. This is the most flexible approach and allows the investor to optimise for CGT discount eligibility or cost base.
To use specific identification, you must maintain records that allow the identification to be supported. The identification should be made at or before the time of sale, not retrospectively after the outcome is known.
Some brokers offer a parcel selection feature at the order entry stage. Where this is not available, maintaining your own records and documenting the identification in a spreadsheet or note at the time of the sale is standard practice.
2) First In, First Out (FIFO)#
FIFO treats the oldest parcels as sold first. If you purchased three tranches of the same ETF in different months, the first tranche purchased is the one treated as sold when you sell units.
FIFO is simple to apply but may not produce the most tax-efficient outcome. It is sometimes the default applied by brokers when no specific identification is made.
3) Weighted Average (for Some Asset Types)#
Weighted average is not applicable to most listed shares and ETFs. It is mentioned here because it is a valid method for some other assets. For listed equities and ETFs, specific identification or FIFO are the primary approaches.
4) Other Reasonable Methods#
The ATO requires that any method used be consistent and supportable by records. A method that produces arbitrary or inconsistent outcomes is unlikely to be accepted under audit.
When Specific Identification Is More Valuable#
Specific identification is most useful in the following situations:
Maximising the CGT discount: if you hold parcels acquired more than 12 months ago alongside newer parcels, selecting the older parcel for sale allows you to access the 50% discount even when newer parcels have a higher cost base.
Harvesting losses: if one parcel is at a loss and another is at a gain, selecting the loss parcel to sell against an existing gain position can reduce net taxable capital gains.
Managing marginal rate exposure: in a year where your taxable income is already near a threshold (e.g., affecting Medicare levy surcharge or HELP repayment), selecting the parcel that minimises additional taxable gain can have outsized value.
Approaching the 12-month threshold: if a parcel is close to the 12-month mark, deferring a sale until the anniversary date (or selecting a different parcel to sell in the meantime) can unlock the CGT discount.
The Decision Tree#
Before selling, work through these questions:
- Do I have multiple parcels of this investment?
- If no: parcel selection is not relevant. - If yes: continue.
- Do I have capital gains elsewhere that I want to offset?
- If yes: consider selecting a parcel at a loss (if one exists) to offset.
- Are any parcels over 12 months old?
- If yes: compare the tax outcome of selling the older parcel (with discount) versus the newer parcel (without discount, but possibly higher cost base).
- What is my current year income?
- High income investors generally benefit more from the 50% CGT discount. Low income investors may find an undiscounted but smaller gain is preferable.
- Do I want to maintain exposure?
- If you are only selling part of your holding, which parcel you sell affects which parcels remain for future optimisation.
Record Keeping Requirements#
For specific identification to be defensible, you need:
- Records of every purchase: date, quantity, price per unit, and brokerage
- A record of which parcel was identified at the time of sale
- Consistency in your approach over time
The ATO's position is that parcel identification should be documented before settlement, not reconstructed after the tax outcome is known. Maintaining a simple spreadsheet (as described in the record-keeping guide) with notes at each sale event is the minimum standard.
If you use a broker that offers automatic parcel selection, check which method it applies by default. Some apply FIFO; others apply highest cost. The default may not be optimal for your situation.
What Happens When You Sell Everything#
If you sell your entire holding in one transaction, parcel selection does not change the total outcome: all parcels are sold, all gains and losses are realised. The only relevance in this case is ensuring the cost base for each parcel is correctly calculated (including any AMIT cost base adjustments from prior years).
Parcel selection is primarily relevant when selling a portion of a holding, where the choice of which parcels to include in the sale has a material effect on the tax year's capital gains outcome.
Summary#
When selling shares or ETF units in Australia, investors can identify which specific parcel is treated as sold. The main methods are specific identification, FIFO, and other reasonable approaches. Specific identification offers the most flexibility, allowing investors to select parcels that are eligible for the 50% CGT discount, are at a loss relative to gains elsewhere, or have a higher cost base to minimise the gross gain. The selection should be documented at or before the time of sale and supported by purchase records. This is a legitimate form of tax planning that does not require aggressive structuring: it simply applies the flexibility the ATO's rules allow.
Sources#
- Australian Taxation Office. (2024). 50% CGT discount. https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/discounts-and-exemptions/50-percent-cgt-discount
- Australian Taxation Office. (2024). Records you need to keep for CGT. https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/keeping-records-for-investments
- Australian Taxation Office. (2024). Shares and similar investments. https://www.ato.gov.au/individuals-and-families/investments-and-assets/stocks-and-shares