Quick answer
The cost basis method you choose determines how much tax you pay — and different jurisdictions mandate different methods.
Accounting
Australia
Canada
India
United Kingdom
United States
Cost Basis Methods
Methods like FIFO, LIFO, and HIFO used to calculate the cost of sold crypto, directly impacting taxable gains.
AustraliaCanadaIndiaUnited KingdomUnited StatesUnderstanding Cost Basis Methods on crypto
Cost basis methods are accounting approaches that determine which acquisition cost is used when calculating a capital gain on disposal of a cryptocurrency. The main methods include: FIFO (First In, First Out — oldest lots first), HIFO (Highest In, First Out — highest cost lots first), LIFO (Last In, First Out — most recent lots first, rarely permitted for crypto), Specific Identification (choosing exactly which lot to dispose of), and Weighted Average Cost / Adjusted Cost Base (averaging all lots, required in Canada and India). The method chosen directly affects the size of reported gains and may change which gains are short-term versus long-term.
Cost basis methods are accounting approaches that determine which acquisition cost is used when calculating a capital gain on disposal of a cryptocurrency. The main methods include: FIFO (First In, First Out — oldest lots first), HIFO (Highest In, First Out — highest cost lots first), LIFO (Last In, First Out — most recent lots first, rarely permitted for crypto), Specific Identification (choosing exactly which lot to dispose of), and Weighted Average Cost / Adjusted Cost Base (averaging all lots, required in Canada and India). The method chosen directly affects the size of reported gains and may change which gains are short-term versus long-term.
What this means for your crypto activity
Tax bill impact
Cost basis method selection can significantly reduce your tax bill — HIFO typically produces the lowest gains in rising markets.
Jurisdiction rules
Different jurisdictions mandate different methods — you cannot freely choose in the UK, India, or Canada.
US flexibility
In the US, FIFO is the default but Specific ID (enabling HIFO) is permitted with adequate records.
Year-to-year consistency
Changing methods between years requires consistency and proper disclosure.
UK pooling
The UK's pooling rules effectively apply a weighted average within the pool — no lot-level selection is possible.
- Cost basis method selection can significantly reduce your tax bill — HIFO typically produces the lowest gains in rising markets.
- Different jurisdictions mandate different methods — you cannot freely choose in the UK, India, or Canada.
- In the US, FIFO is the default but Specific ID (enabling HIFO) is permitted with adequate records.
- Changing methods between years requires consistency and proper disclosure.
- The UK's pooling rules effectively apply a weighted average within the pool — no lot-level selection is possible.
Seeing it in action
Example scenario
Emma has multiple ETH purchases at different prices. Selling 2 ETH at $3,000 each ($6,000 proceeds): under FIFO (oldest lots at $800 avg) her gain is $4,400; under HIFO (most expensive lots at $2,200 avg) her gain is $1,600; under HMRC pooling (pool average $1,600) her gain is $2,800. The difference between FIFO and HIFO is $2,800 in reported gains — a significant tax impact.
How this works across jurisdictions
- Australia
FIFO or other ATO-acceptable method; 50% CGT discount available for 12+ month holds.
- Canada
Adjusted Cost Base (ACB) average cost required for identical property.
- India
FIFO generally accepted; cost of acquisition is the only permitted deduction under Section 115BBH.
- United Kingdom
Section 104 pool average mandatory — FIFO and HIFO not applicable.
- United States
Default FIFO; Specific Identification (enabling HIFO) permitted with adequate records; LIFO not permitted.
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