The Inventory Method you choose decides how CTC tracks and calculates the cost of your transactions at the time of disposal. This affects how your capital gains or losses are calculated.
Summary of Inventory Methods in CTC
Inventory Method | Explanation |
The first assets you buy are the first ones you sell. | |
The last assets you buy are the first ones you sell. | |
Sells the highest-cost assets first. | |
Prioritizes assets that would lead to losses first, and then gains. | |
Averages the cost of all assets purchased and uses that average to calculate gains or losses. |
In countries such as the UK and Canada, we have country-specific inventory methods to handle their unique reporting requirements. More details for the UK can be found here, and for Canada can be found here.
Applying Different Inventory Methods for Each Tax Year
Step 1: Review your transactions and file your tax reports
Before locking periods, ensure you’ve resolved the suggestions on the ‘Review’ page and filed the tax reports for the relevant financial years.
Step 2: Lock the Tax Periods
The steps on how to lock periods are discussed here.
Pro Tip: Lock one financial year at a time. It’s better to lock periods one financial year at a time, instead of locking several years all at once. This way, if you ever need to unlock and make changes, you won’t risk unlocking several years.
Step 3: Change your Inventory Method
The steps on how to change your Inventory Method are detailed below. Any locked periods will remain under the previous inventory method. You can freely update the method for new transactions.
How to Change the Inventory Method
Discuss with your accountant or tax professional before changing your Inventory Method to ensure it's the right choice for your tax situation and that you are compliant with the rules in your tax jurisdiction.
Individual users
Individual users
Click the profile icon at the top right of the page and then select Settings from the drop-down menu.
Click ‘Tax’.
Select the inventory method you want to use in the Inventory Method section.
Accountants
Accountants
On your accountant side menu, select the client’s name then click ‘Client settings’.
Click ‘Tax’.
Select the inventory method you want to use in the Inventory Method section.
Examples detailing the difference between the First in First Out, Last in First Out, Highest in First Out, Most Tax Effective and Average Cost inventory methods are shown below:
First In First Out
Date | Trade | Price | Balance | Cost Basis | Proceeds | Gain (Loss) |
1st Jan | Buy 1 BTC | 3,000 | 1 | 3,000 | - | - |
3rd Feb | Buy 1 BTC | 6,000 | 2 | 6,000 | - | - |
4th Jun | Buy 1 BTC | 2,000 | 3 | 2,000 | - |
|
6th Aug | Sell 1 BTC | 4,500 | 2 | 3,000 | 4,500 | 1,500 |
In the above example we sell our first purchase of BTC (purchased on 1st Jan) with a cost basis of $3,000, leading to a gain of $1,500.
Last in First Out
Date | Trade | Price | Balance | Cost Basis | Proceeds | Gain (Loss) |
1st Jan | Buy 1 BTC | 3,000 | 1 | 3,000 | - | - |
3rd Feb | Buy 1 BTC | 6,000 | 2 | 6,000 | - | - |
4th Jun | Buy 1 BTC | 2,000 | 3 | 2,000 | - |
|
6th Aug | Sell 1 BTC | 4,500 | 2 | 2,000 | 4,500 | 2,500 |
In the above example we sell our last purchase of BTC (purchased on 4th Jun) with a cost basis of $2,000, leading to a gain of $2,500.
Highest In First Out
Date | Trade | Price | Balance | Cost Basis | Proceeds | Gain (Loss) |
1st Jan | Buy 1 BTC | 3,000 | 1 | 3,000 | - | - |
3rd Feb | Buy 1 BTC | 6,000 | 2 | 6,000 | - | - |
4th Jun | Buy 1 BTC | 2,000 | 3 | 2,000 | - |
|
6th Aug | Sell 1 BTC | 4,500 | 2 | 6,000 | 4,500 | (1,500) |
In the above example we sell our highest priced purchase of BTC (purchased on 3rd Feb) with a cost basis of $6,000, leading to a loss of $1,500.
Most Tax Effective
Using the Most Tax Effective inventory method, when handling the disposal of an asset we match acquisitions of the asset prioritizing those which would lead to losses first, then gains. The exact categories are below:
Short-term losses
Long-term losses
Long-term gains
Short-term gains
Within these categories we will always prefer acquisitions with higher prices as they will lead to larger losses or smaller gains. This inventory method allows short term gains to mature into long term gains, leading to you paying less tax in the long run.
Date | Trade | Price | Balance | Cost Basis | Proceeds | Gain (Loss) |
1st Jan | Buy 1 BTC | 3,000 | 1 | 3,000 | - | - |
3rd Feb | Buy 1 BTC | 6,000 | 2 | 6,000 | - | - |
4th Jun | Buy 1 BTC | 2,000 | 3 | 2,000 | - | - |
6th Aug | Sell 1 BTC | 4,500 | 2 | 6,000 | 4,500 | (1,500) |
Average Cost
Date | Trade | Price | Balance | Cost Basis | Proceeds | Gain (Loss) |
1st Jan | Buy 1 BTC | 3,000 | 1 | 3,000 | - | - |
3rd Feb | Buy 1 BTC | 6,000 | 2 | 6,000 | - | - |
4th Jun | Buy 1 BTC | 2,000 | 3 | 2,000 | - | - |
6th Aug | Sell 1 BTC | 4,500 | 2 | 3,666.67 | 4,500 | 833.33 |
In the above example we sell a BTC that is assigned the average cost basis of the 3 previous buys. This is calculated by adding the cost basis of each BTC (12,000) and then dividing by the number of BTC held (11,000 ÷ 3) to give a cost basis of (3,666.67). When sold for 4,500, the gain on this BTC is 833.33.
If you have any questions or need help, we're here for you! Feel free to reach out to us via the in-app chat in the bottom-right corner or send your inquiries to [email protected].