Tax Reporting - 'specific identification method'

In the Tax Report settings it offers two methods for determining which parcel of shares you sold.
1)First in First out.
2)Last in First out.

Could the specific identification method be added?

Hi @Ljfillmore24292 do you mean where you can select the exact parcel of shares being sold?

Exactly. See this ato certified comment on it. Answered: CGT - Selecting share parcels I sold - ATO Community

Perhaps if that is your selected technique each sale has a marker hover like the dividend ‘verification’ and you just go in and link it to the right purchase parcels?

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Hey @Ljfillmore24292. This feature is something @Navarre and I have discussed in the past. It does add an order of complexity across the platform, so it isn’t super high on the priority list… But it is on “the list”

I agree that would be a great feature, but I certainly wouldn’t want to be the guy to have to write the code for it!
FiFo is good enough for the most part - it is mainly if I have the same stock across multiple brokers (and thus HIN’s) but still within the same tax entity/Navexa portfolio that the specific identification method would be nice to have, but it is certainly not an essential feature to me.

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Spot on Tony- same stock across two brokers- good pick up.

Marinate on it Navexa. I have faith :wink:

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@ Ljfillmore24292
+1 for this feature, need to optimise your tax exposure meaning more $$$$ in your pocket (or to reinvest)

There are a few things to note…

There are 5 Methods for CGT Calculation that will each produce a slightly different result and therefore a different tax outcome for the holder.

  1. LIFO
  2. FIFO
  3. Min CGT
  4. Max CGT
  5. Hand Pick a parcel

LIFO/FIFO are date driven, Min Gain/Max Gain are cost driven. Hand Pick a parcel is your unique choice.

The first thing you have to do in your overall calculation of CGT is to sort out any losses made before apply indexes or discounts. As losses can be carried over from year to year you need to be able to put in a carry over loss balance within the calculation. (or have calculated that from a prior period) but shares may not be the only assets within the entity that you can carry a capital loss over from period to period. So a user defined number is perhaps the best solution. Your CGT loss is not the same as your trading loss. It’s specific to capital losses on disposal of capital assets.More information on losses

You could use the index method but generally the discount methods will produce a better result these days after many years of low/no inflation. The discount varies depending on the type of entity holding the asset. This is topical as the commentary is now about returning to inflation. The index method is worked off CPI increase for the asset.

When CGT came in Sept 1985 we were in a period of higher inflation (9.1% 1985-1986) compared to current low inflation (0.8% 2019-2020) source RBA Inflation Calculator So the index method may yet become of value if we return to a period of high inflation but it only seems to last short term. So if we entered a period of high inflation 2022-2024 and you bought your asset today and sold in 2024 the index method may give a better result over time the discount method generally wins out.

Importantly you would want to “LOCK” a period for CGT so that you can change method to produce the result most effective for you. The method needs to be recorded against the asset being sold as you can use different methods for different assets within the 1 tax year.

The different methods are only important on larger holdings where you dispose of parts of the asset over multiple tax periods. Therefore it only an issue when you sell. If you sell in a single event or sell within a single tax year then it won’t matter which method you choose the result will be the same. It’s only vital over a holding where the disposal is split over multiple tax years.

One thing many systems lack is an ability to calculate to a result. Say you have a tax loss you are ether carrying forward or in the current year (MFG for example) and you want to consume the loss with a share held over many years with a large capital gain (BHP). The question I would ask is either what is the least number of shares I can sell in BHP to cover a set gain (least shares would be Max Gain) and the opposite position what is the most number of shares I could sell (Min Gain). Depending on the size of the BHP Holding I may want to rebalance the portfolio weighting. The other consideration I would have is the CGT answers would give very different capital outcomes (The amount I can reinvest in something else). It gets more complicated if I have several options of assets that I could dispose of (ANZ, CBA or BHP) and then I have to consider the size of the parcel that I am left with in the holding and what its tax consequences are. Hence a planing tool can become very valuable in analysing which asset to sell.

There is quite a good summary of the CGT Considerations of shares within the ATO here

Note: This is not tax advice, I’m not a registered tax agent. I’ve just paid enough accountants, enough money over many multiple years to understand the system! It is complex and not everyone can get it correct.

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Great summary Mike, I guess the main message to the Navexa colleagues is that the tax reporting can use some TLC to fine tune your tax exposure in line with ATO CGT rules.
Note sure about other Navexa users but tax reporting is the second most important feature of a portfolio tracker for me (tracking returns is #1).

Just for fun the late Kerry Packer’s views on Tax Minimisation :joy: Kerry Packer On Minimising Your Tax - YouTube

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Good summary Mike and I agree with you, but we may not get the gold standard.
For an enhancement, my main issue is that I have imported historical transactions, and because for some shares I have not used FIFO and now the cost base is out. This means the tax reporting is not reflecting what I have to report on my tax return. So I have to keep a spreadsheet of differences to manually maintain the CGT outside of Navexa.
So I would be very happy if I had a way to update the current tax parcels to set the current cost base.
Going forward, the next preference would be at a portfolio level if you could specify Minimum CGT (If this was not implemented, then the above still allows me to adjust the data manually).

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@Navarre are we likely to see the ability to allocate specific parcels or FIFO/LIFO of shares before EOFY (approx 4 months)? Understasnd there is a level of complexity involved as @nick mentions, so assume that you need to work on it soon if we are going to be able to untilise it for this financial year? Hate keeping records in Excel outside Navexa…spoilt I guess :smirk:
NB. this topic is within the top 10 viewed in this forum.

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Hi all, thanks for the discussion provided here. It goes a long way for us to get this right.

An update on the development front: We will be starting work on this shortly so that our updates are ready in time for EOFY.

We plan on supporting the other tax strategies mentioned like Min CGT and Max CGT etc.

We will roll these out one at a time over the coming months and will come back to this discussion for feedback and ideas on where we can improve.

If you think there is any additional detail we’ll need before we get started, feel free to add a comment here with your ideas and feedback.

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Understand the complexities. It adds further with the cost base alignment (increase/decrease) from past distributions. How do we import them and adjust per tax year so that CGT is calculated, based on the method used such as minimise CGT, FIFO, etc.

Once min CGT feature is provided, we need to have adjustment cost base entry for each year, manually with the provision by Navexa. This should add up to our cost base. Then min CGT feature will help to align the tax implications

Hi @JerryBurry I think the easiest way is to have some form of lock from year to year… When you import the data its just recognising the buys and sells… If when you run the GST report for the period that you generate a tax result so that would seem the logical trigger for getting to a result for CGT…

If you sell out of the holding completely in one tax year then the method you use for CGT will make no difference…

When you partially sell a holding over multiple tax years you will get this issue of which lots you want to pick to get a specific tax outcome. The methodology that you may choose may do some of the work for you in which lots to select for the cost base but being able to select your own lots is something not found in most portfolio software of this type.

They key part is the lock… you need to be able to put the lock on so that you can make sure the basis of what you are doing is confirmed. particularly if you are changing methods from tax year to tax year. but you need to be able to edit a lock period… The question then becomes how do you edit prior periods particularly if you have selected your own stocks in future periods… When and how will it be recalculated … how do you handle an historic carry over loss from period to period… What happens to other stocks sold in the portfolio for the “unlocked” period where you made selections …

Example lets say you had CBA and BHP and partially sold each of them in the 2021 tax year… lets say you picked what you wanted to sell from CBA and used Min Method for BHP. You sell some more CBA in 2022 but need to go back a re-allocate which you sold in 2021 but don’t want to effect the way you have BHP setup in 2021…

Ideally with the 2021 CGT report (or perhaps another report) you might be able to generate a CGT tax planning outcome using different methods on the one report and get different results with different methods so that you can choose the outcome you want…

Thanks, assuming min CGT or min gain will be in place this FY, my aim is to get the cost base equal due to many cost base adjustments need to be manually entered which does not come through with just buys and sales.

Hi All,

Just a quick update. We have today released the first step on the path to getting this feature done.

You can now set the tax strategy at a per holding level as well as the portfolio level. This can be accessed via the ‘Tax Settings’ button in the CGT report.

The next part we will be working on is adding ‘Minimise Gain’ and ‘Maximise Gain’ tax strategies. Which should be out in the next two weeks.

Please feel free to drop feedback here on the work so far.

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Awsome new features. Great work guys! These features take Navexa to the next level in my book. Thanks for the constant updates and listening to the customer feedback. Will take it for a spin shortly… :grinning:

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Hi All,

We have just released, ‘Minimize Gain’ and ‘Maximize Gain’ as additional tax strategies in the CGT report.

You will now have access to them in the usual spots and can set them at a portfolio level or per holding level.

Take em for a spin and let us know how you get on here.

More improvements are on the way in the coming days!

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Hi Navarre,
Have checked this out and is working as expected on my portfolio. Great work! Thanks for the update.

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