Hello Fellow Manager Fans,
I am trying to understand how to manage Manager so that when I buy parcels of shares in the same company at different prices, I can later make it discriminate between the parcels so as to minimize the profit, and hence minimize the capital gain.
For example, in the referenced file here:
I have bought on 2 Nov 2024, 3 shares in AAA company at $100, $200 and $300 each.
On 3 Nov 2024, I sell one share at $400.
I want Manager to allow me to choose which share I sell.
Right now it decides that I have sold the share I bought at $200, giving me a net profit of $200.
This is visible on the P & L statement named Test Capital Gain 3 Nov 2024.
But I want to sell the $300 share, so that my profit is only $100.
Is there a way to do this so that I do not need to create separate inventory items for each parcel of shares.
That would be very tedious, as in real life I have dozens of trades in the same stock.
Hope there is an answer.
Andrew Scott
You can select any parcel of shares under Australian tax law and Manager doesnāt restrict you from doing so.
Parcel selection methods
Shares can be described as āfungibleā because one share is identical to and interchangeable with any other share.
As one share is functionally identical to all others of the same share class (for example, ordinary shares, preference shares) in that company, it is difficult to identify which shares were disposed of. The shares that are disposed of need to be identified to work out the cost base when calculating CGT.
There are 3 common ordering methods for parcel allocation when calculating CGT on shares:
FIFO (first-in, first out), where the shares bought first are sold first, regardless of cost
LIFO (last-in, first-out), where the shares bought last are sold first, regardless of cost
HIFO (highest-in, first-out), sometimes also referred to as HCFO (highest-cost, first-out) ā the most expensive shares bought are sold first, regardless of timing.
A different method of parcel selection may be applied for each parcel of shares sold. Most people use FIFO because it is the easiest to keep track of, however you can choose any of these 3 methods.
To minimise capital gains tax you have to minimise realised gains / maximise unrealised gains.
Procedurally this means you have to sell the shares you bought for the highest price. In a rising market they are the most recent shares you bought (LIFO).
As for how to do this in Manager
Manager currently only shows and tracks unrealised asset value and gains/losses which unfortunately obscures the realised value & gains/losses which makes tracking realised changes harder.
entering actual share sales in Manager requires entering the sales receipt with separate lines for each bundle sold (quality & purchase price) with the remainder allocated to a realised gain/loss profit & loss account
tracking which shares you still have and which have already been sold, currently has to be done outside of Manager.
Thanks Tony,
I understand your answer but Manager doesnāt.
It just allocates a parcel according to some mysterious method that I wish to understand and control.
That has been discussed in this thread Investment Revaluation tab - #24 by AJD but is not currently supported by Manager. Some support maybe added after inventory item revaluation updates are done
The benefit of a separate manager investment for every share purchase is limited. Imo itās more efficient just to tack share parcels externally then manually reenter the purchase price / quantity for sold shares at the time of sale.
The downside of external tracking would be the effect on bank account reconciliation.
How can we reconcile bank statements with Manager if we donāt specify which lots of shares are sold when we receive a payment from the broker?
The two are not even remotely related. Bank statement reconciliation only compares your records of receipts and payments with the bankās records of deposits and withdrawals. The sources and destinations are not factors.
Further, determination of capital gains does not depend on your bankās statement, but on brokerage statements related to purchase and sale of the asset.
Thinking this through, if a business has bought shares in company A on five occasions and company B on 10 occasions, entering this in Manager requires
Creating 5 Manager investments for investment A and 10 for investment B
Each time the unrealised gains in Manager for the investments are updated, 15 entries are required not 2.
When shares are sold, the user manually select what combination of lots are actually sold
Displaying the total shares value and quantity for investment A and investment B probably requires a separate control accounts for At cost, unrealised capital change, unrealised profit, realised profit. Custom searches may help also.
Maybe Iām wrong but that approach looks less efficient than using a spreadsheet with all prior share parcel purchases & what has been sold. Then when selling shares re-enter the sold shares purchase price in the receipt with the remainder allocated to a profit realised gain account.
Managerās current Investment function would be dramatically improved it it just allowed the user to set custom accounts for
Unrealised investment Gain/loss (unrealised profit / loss account)
(in the future a custom āRealised investment Gain/lossā profit / loss account would also be required if Manager directly supported calculation of realised gains)
Of course in an ideal world Manager would treat sale of investment shares in an equivalent manner to a receipt for a sales invoice. The old share purchase lot acts similar to a sales invoice when selling the share. Allowing default automatic allocation or manual lot selection as per a business requirements.
We sell some shares.
The broker remits the funds into our bank account.
In Manager, we need to assign the receipt to the sale of the appropriate investment, otherwise the transaction will remain in suspense.
The only way to do this usefully in Manager is as Patch describes above.
However, as Patch says, the efficiency of creating separate investments for each purchase of shares in the same company is questionable, but right now itās all we have if we wish to avoid the spreadsheet exercise.
It is simply lot tracking. Brokerage houses do this routinely with specialized software. But note: they are not accounting as the term is meant with respect to Managerāno balance sheets, no profit and loss statements.
This highlights a concern Iāve had since investment monitoring was first introduced. Manager is being tortured to accomplish something that is not really accounting. In my opinion, it is more advisable to rely on the specialist tracking and reporting capabilities of oneās broker rather than duplicating them in a general purpose accounting package. The ongoing discussion reveals how poor the fit is.