The Minimize Gain strategy is a way of calculating capital gains. It is used when people are trying to minimize their capital gain.
The strategy is simple. When calculating the capital gain, you process trades in order ofthe price you bought them for, with the highest price parcel coming first.
Let’s look at an example of Minimize Gain:
Purchases:
- Buy 10 shares at $1 each — Total cost: $10
- Buy 10 shares at $5 each — Total cost: $50
Sale:
- Sell 10 shares at $4 each — Total sale value: $40
Minimize Gain Calculation:
- Highest price parcel: 10 shares at $5 each — Total cost: $50
- Sold 10 shares for $40
Capital Gain:
- Gain: $40 (sale value) — $50 (cost) = $-10
Since this results in a capital loss, it is not subject to capital gains tax.
This loss can then be used to offset other capital gains, or be carried forward to future financial years.
A more complex Minimize Gain example
Suppose we buy the following parcels:
- Buy 10 shares at $2 each — Total: $20
- Buy 5 shares at $5 each — Total: $25
- Buy 10 shares at $3 each -— Total: $30
This gives us a total of 25 shares at different price points.
Now, let’s sell 13 shares at $4 per share using the Minimize Gain method.
First Parcel (a):
- 5 shares at $5 each.
- Total cost: $25
- Sale value: 5 shares x $4 = $20
- Gain: $20 — $25 = $-5
Second Parcel (b):
- Remaining 8 shares to be sold.
- Next parcel: 10 shares at $3 each.
- Cost for 8 shares: 8 shares x $3 = $24
- Sale value: 8 shares x $4 = $32
- Loss: $32 — $24 = $8
Total Capital Gain:
- Loss from first parcel: $-5
- Gain from second parcel: $8
- Total gain: $8 – $5 = $3
Therefore, the total capital gain from selling 13 shares is $3.
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