CGT Parcel Selection (Australia): FIFO vs Specific Parcels

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.

Law update (15 July 2026): the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 is now law. It preserves the practical need to identify parcels, but changes the tax calculation for CGT events from 1 July 2027. Existing assets held by eligible Australian resident individuals and trusts are generally split into pre- and post-reform components through a deemed sale and reacquisition on 30 June/1 July 2027, with the pre-reform gain or loss deferred until the asset is actually sold.^⁴

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:

1. Cost base (purchase price plus brokerage): higher-cost parcels produce smaller gains (or larger losses) on sale.
2. Acquisition date: for disposals under the current rules, parcels held for more than 12 months may be eligible for the 50% CGT discount. From 1 July 2027, the holding period also affects eligibility for indexation and the transitional treatment.^{¹ ⁴}

Selecting the right parcel can result in a materially different tax outcome without changing the total investment position.

Example under the rules applying before 1 July 2027:

You hold two parcels of the same ETF:

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, Parcel B produces the lower taxable gain ($500 versus Parcel A's $750 discounted gain). Parcel A may still be preferable for non-tax reasons, or where preserving the newer, higher-cost parcel is more valuable for a future sale.

The correct choice depends on your circumstances, which is why the ATO allows flexibility.

What Changes From 1 July 2027#

The 2026 Act replaces the 50% CGT discount for gains accruing from 1 July 2027 with inflation-based cost-base indexation for eligible Australian resident individuals and trusts. Some post-reform gains of Australian resident individuals are also subject to a 30% minimum tax. Gains that accrued before 1 July 2027 can retain the earlier discount treatment where the requirements are met.^{⁴ ⁵}

For many shares and ETF units already held at the transition date, the law generally treats the parcel as sold just before 1 July 2027 and reacquired immediately afterward at market value. The resulting pre-reform gain or loss is disregarded at that point and deferred until the real sale. The post-reform component is calculated separately using the new cost base, including eligible indexation. An approved apportionment method may be used instead where the legislative requirements are met.^⁴

That makes these parcel-level records especially important:

• original acquisition date, quantity and cost base
• AMIT, return-of-capital and other cost-base adjustments up to 30 June 2027
• the 30 June 2027 market value or evidence supporting an approved apportionment method
• post-1 July 2027 cost-base adjustments and indexation inputs
• the exact parcel identified when units are sold

Parcel selection therefore remains useful, but the comparison becomes more detailed. A higher original cost base may reduce the deferred pre-reform gain, while a different transition value or post-reform indexed cost base may change the later component. Model both components before choosing a parcel for a material sale.

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:

Using the current CGT discount: for sales before 1 July 2027, selecting an eligible parcel held for more than 12 months can preserve access to the 50% discount even when a newer parcel has a higher cost base. For later sales, compare the parcel's deferred pre-reform component with its indexed post-reform component.

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 tax and threshold 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. From 1 July 2027, also consider whether the 30% minimum tax applies to the post-reform gain.

Approaching the 12-month threshold: the 12-month holding period remains relevant. Before 1 July 2027 it can determine access to the 50% discount; under the new rules it is also a condition for cost-base indexation.

The Decision Tree#

Before selling, work through these questions:

1. Do I have multiple parcels of this investment?

- If no: parcel selection is not relevant. - If yes: continue.

1. 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.

1. Are any parcels over 12 months old, and when will the sale occur?

- Before 1 July 2027: compare an older discount-eligible parcel with a newer parcel that may have a higher cost base. - From 1 July 2027: compare the deferred pre-reform and indexed post-reform components for each candidate parcel.

1. What is my current-year tax position?

- Under the current rules, compare the discounted and undiscounted gain. Under the post-2027 rules, include the possible 30% minimum tax and the statutory order for applying capital losses.

1. 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. Specific identification offers the most flexibility, while FIFO remains a record-keeping method rather than a mandatory rule. Before 1 July 2027, cost base and access to the 50% discount are the main tax variables. From that date, each parcel may also have a deferred pre-reform component and an indexed post-reform component, with post-reform gains potentially subject to a 30% minimum tax. Make the selection at sale time and retain the original, transition-date and post-reform records that support it.