What Is Adjusted Cost Base? ACB Defined Term Definition ACB Average cost of investment Purpose Calculate capital gains Tracking Required for non-registered Method Weighted average
Why ACB Matters When Selling Calculation Proceeds What you receive Minus ACB Your cost Equals Capital gain or loss
Basic ACB Calculation Component Calculation Total cost All purchases + commissions Total shares All shares owned ACB per share Total cost ÷ Total shares
Simple Example Purchase Shares Price Commission Total Cost Buy 1 100 $50 $10 $5,010 Total 100 $5,010
ACB per share = $5,010 ÷ 100 = $50.10
Multiple Purchases Adding to Position Transaction Shares Price Commission Total Cost Running Total Buy 1 100 $50 $10 $5,010 $5,010 Buy 2 50 $55 $10 $2,760 $7,770 Buy 3 100 $45 $10 $4,510 $12,280 Total 250 $12,280
ACB per share = $12,280 ÷ 250 = $49.12
Weighted Average Note Details Method Must use weighted average Not FIFO Canada doesn’t use first-in-first-out Not specific ID Can’t choose which shares to sell
Selling Shares Partial Sale Action Impact on ACB Sell some shares Total ACB reduces proportionally ACB per share Stays same Capital gain Proceeds minus (shares sold × ACB/share)
Example Sale Before Sale Shares owned 250 Total ACB $12,280 ACB per share $49.12
Sale Sell 100 shares Proceeds $6,000 ACB of sold shares 100 × $49.12 = $4,912 Capital gain $6,000 - $4,912 = $1,088
After Sale Shares remaining 150 Total ACB $7,368 ACB per share Still $49.12
DRIP and ACB How DRIP Affects ACB Event Impact Dividend paid Taxable income DRIP buys shares Increases ACB New shares Added to position
DRIP Example Quarter Dividend DRIP Price Shares Added Cost Added Q1 $150 $48 3.125 $150 Q2 $155 $52 2.98 $155 Q3 $160 $50 3.2 $160 Q4 $165 $55 3.0 $165 Year $630 12.305 $630
Your ACB increases by $630 even though you added no new money.
Why DRIP ACB Matters If You Don’t Track Problem Report wrong ACB Pay too much tax Miss DRIP additions Overstate capital gains Double taxation Dividend + gain on same $
Return of Capital (ROC) What Is ROC Definition Details Tax-deferred distribution Not immediately taxable Reduces ACB Lowers your cost basis Deferred gain Pay more tax later
ROC Example Starting Position Shares 1,000 ACB $25,000 ($25/share)
ROC Distribution ROC received $500 Not taxable now Deferred New ACB $24,500 ($24.50/share)
Why ROC Matters When You Sell Impact Lower ACB Higher capital gain Tax deferred But not avoided Track carefully T3/T5 slips show ROC
ETFs and Mutual Funds Phantom Distributions Distribution Type ACB Impact Cash dividend No (unless reinvested) Reinvested Increases ACB Capital gains distribution Adds to ACB Return of capital Reduces ACB
T3/T5 Slips Slip Information T5008 slip Proceeds and transaction details from your broker Box 21 Capital gains Box 42 Return of capital Box 26 Dividends
Your brokerage records and T5008 slip can help reconcile sales, but you still need to track ACB yourself because the slip often does not reflect the correct adjusted cost base.
Reinvested Capital Gains Situation Treatment Fund distributes cap gains Taxable to you If reinvested Adds to ACB If not tracked You pay tax twice
Superficial Loss Rule What It Is Rule Details If you sell at a loss And rebuy within 30 days Loss denied Cannot claim Added to ACB Of replacement shares
Time Window Period 30 Days Before sale Cannot have bought After sale Cannot buy Total window 61 days
Example Action Result Sell stock at $5,000 loss Buy same stock 15 days later Loss claim Denied New shares ACB Increased by $5,000
Foreign Securities US Stocks Factor Treatment Purchase price In CAD at time of purchase Sale proceeds In CAD at time of sale ACB Track in CAD
Currency Conversion Transaction Convert Buy $1,000 USD @ 1.30 ACB = $1,300 CAD Sell $1,200 USD @ 1.35 Proceeds = $1,620 CAD Gain $320 CAD
Options Tool Features Spreadsheet Manual, flexible AdjustedCostBase.ca Free, automated Broker records May not be complete Software Portfolio trackers
What to Track For Each Transaction Record Date Of transaction Type Buy, sell, DRIP, ROC Shares Number Price Per share Commission If any Currency If foreign
Sample Spreadsheet Date Type Shares Price Comm Total Cumulative Shares Cumulative Cost ACB/Share Jan 1 Buy 100 $50 $10 $5,010 100 $5,010 $50.10 Apr 1 DRIP 2 $52 $0 $104 102 $5,114 $50.14 Jul 1 Buy 50 $48 $10 $2,410 152 $7,524 $49.50
Common Mistakes Tracking Errors Mistake Consequence Ignoring DRIP Overstate gains Missing ROC Understate ACB Wrong currency Wrong gain calculation Forgetting commissions Slightly wrong ACB
Reporting Errors Mistake Consequence Using broker ACB only May be incomplete Not reporting at all CRA has records Inaccurate cost Audit risk
Summary ACB Key Points Rule Remember Weighted average Required method DRIP adds to ACB Track each reinvestment ROC reduces ACB Check T3/T5 slips Track everything In non-registered Foreign = CAD Convert at transaction
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