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 |
| Box 21 |
Capital gains |
| Box 42 |
Return of capital |
| Box 26 |
Dividends |
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 |