As tax season approaches, savvy Australian investors are searching for every legal edge to reduce their capital gains tax bill. Enter Highest In, First Out (HIFO)—a tax optimisation method gaining serious traction in 2025 thanks to updated ATO guidance and the rise of digital assets. Whether you hold shares, ETFs, or cryptocurrency, understanding HIFO could be the difference between a hefty tax hit and a smarter, leaner return.
What is HIFO? A Fresh Look at Capital Gains Calculation
HIFO stands for Highest In, First Out. It’s an inventory accounting strategy where, when you sell an asset, you’re considered to be selling the units you bought at the highest price first. This is a departure from the more common FIFO (First In, First Out) and can make a big difference to your tax outcomes—especially in volatile markets like crypto and shares.
- FIFO: Sells oldest units first, often resulting in higher taxable gains.
- HIFO: Sells the most expensive purchases first, usually resulting in the lowest possible capital gains (since your cost base is higher).
For example, if you bought Bitcoin three times—at $30,000, $45,000, and $60,000—and you sell one, HIFO says you’ve sold the $60,000 coin first. If the current price is $70,000, your capital gain is only $10,000 (instead of $40,000 if you used FIFO).
2025: The Year HIFO Hits the Mainstream
This year, the Australian Taxation Office (ATO) has provided clearer rules on using specific identification methods like HIFO for both traditional and digital assets. The ATO now accepts HIFO—provided you can prove your transaction history and keep meticulous records.
Why is this significant?
- HIFO is especially useful for cryptocurrency traders who make frequent buys and sells.
- Share investors using platforms like CommSec or SelfWealth can also benefit, but must ensure their broker supports custom cost basis selection.
- The ATO’s myTax system for 2025 allows direct upload of trading CSVs, making compliance more straightforward.
Case Study: Sarah is an active crypto investor. In 2024, she bought Ethereum at $2,500, $3,200, and $4,100. In early 2025, she sells 1 ETH at $4,400. By applying HIFO, her taxable gain is just $300, compared to $1,900 if she used FIFO. That’s a significant tax saving—multiplied over dozens of trades, it really adds up.
When (and How) Should You Use HIFO?
HIFO isn’t for everyone—it works best for investors who:
- Trade frequently or have bought the same asset multiple times at different prices.
- Want to minimise short-term capital gains in years of high income.
- Can maintain clear, timestamped records of every purchase and sale.
Steps to implement HIFO in 2025:
- Download your full transaction history from your broker or crypto exchange.
- Use portfolio tracking tools (like Sharesight, Koinly, or CryptoTaxCalculator) to select the HIFO method.
- Generate a detailed capital gains report for your tax file.
- Upload your CSV to myTax or share with your accountant—ensuring all records align.
Keep in mind: while HIFO can reduce your tax bill today, it may increase your cost base for remaining assets, potentially leading to larger gains when you sell the rest later. It’s a strategy to use thoughtfully, based on your broader financial goals.
Potential Pitfalls and the Future of HIFO in Australia
The ATO’s embrace of HIFO reflects a broader trend: increased sophistication among Australian investors, and a push for greater transparency in tax reporting. However, HIFO can backfire if:
- Your records are incomplete or inconsistent (ATO audits are on the rise in 2025 for crypto and share traders).
- You switch between methods mid-stream—stick with one method per asset pool for each tax year.
- Your broker or platform doesn’t support custom cost basis reporting (double-check before selling).
Looking ahead, as digital asset trading and micro-investing platforms proliferate, expect HIFO to become a standard tool in the Australian investor’s tax toolkit. With the right documentation, it’s a fully ATO-compliant way to keep more of your profits—especially as market volatility continues to present both opportunities and risks.
Conclusion
In 2025, the Highest In, First Out method isn’t just a clever accounting trick—it’s a legitimate, ATO-recognised strategy for slashing your capital gains tax. For Australian investors juggling multiple trades across shares, ETFs, and crypto, HIFO could mean thousands in tax savings and a more agile approach to managing your portfolio. But remember: records are everything, and consistency is key.
