If you hold investments in a taxable (non-registered) account, the adjusted cost base (ACB) is the number your capital gain or loss is measured from. Getting it wrong in one direction means paying tax on money you already paid tax on; in the other, under-reporting a gain. This guide covers the calculation and the events that change it: repeat purchases, splits, reinvested dividends, return of capital, foreign-currency purchases and superficial losses. It is part of the investment tax hub.
What adjusted cost base means
The CRA’s Guide T4037 defines ACB as “usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees.” Section 53 of the Income Tax Act then adds and subtracts specific items over time, which is the “adjusted” part.
When you sell, T4037 says to subtract the total of the ACB “and any outlays and expenses incurred to sell your property, from the proceeds of disposition”:
Capital gain (or loss) = proceeds of disposition − ACB − outlays and expenses of selling
Commissions count on both sides: a commission to buy is part of the ACB, and a commission to sell is an outlay that reduces the proceeds.
Average cost for identical properties
Shares of the same class of a company, and mutual fund units or shares of the same class or series of a fund, are identical properties; different series of the same fund are averaged separately. For these, T4037 says you “have to calculate the average cost of each property in the group at the time of each purchase to determine your ACB”, and that “Dispositions of identical properties do not affect the ACB”. In practice:
- every purchase is pooled, and the ACB per share is the pool’s total cost divided by the shares held;
- the CRA works from the average cost of the whole group, not from a particular lot you choose to sell;
- a sale removes shares at the current average and leaves the average for the remaining shares unchanged.
T4037 notes two kinds of securities that are generally not identical properties, so each keeps its own ACB instead of being averaged: securities acquired under an employee option agreement that are subject to the benefit deferral or are designated and disposed of within 30 days, and certain employer shares received as part of a lump-sum payment on withdrawal from a deferred profit sharing plan. How employee stock options are taxed covers how shares from employee stock option plans are taxed.
ACB matters mainly for taxable accounts. Interest, dividends and capital gains earned in a TFSA are generally tax-free, even when you withdraw them. Income earned in an RRSP is usually exempt from tax as long as the funds remain in the plan, and you generally pay tax when you receive payments from it. Gains and losses inside those plans are therefore generally not taxed as they arise.
A single purchase
You buy 100 shares at $50.00 and pay a $10 commission.
| Component | Amount |
|---|---|
| Shares × price (100 × $50.00) | $5,000.00 |
| Commission | $10.00 |
| Total ACB | $5,010.00 |
| ACB per share (total ÷ 100) | $50.10 |
Several purchases: the running average
Each new purchase changes the average. The table tracks the pool after each one.
Three purchases of the same ETF, each with a $10 commission.
| Purchase | Units bought | Price | Cost incl. $10 commission | Units held | Total ACB | ACB per unit |
|---|---|---|---|---|---|---|
| January | 100 | $50.00 | $5,010 | 100 | $5,010 | $50.10 |
| April | 50 | $55.00 | $2,760 | 150 | $7,770 | $51.80 |
| October | 100 | $45.00 | $4,510 | 250 | $12,280 | $49.12 |
Later you sell 100 units at $58 and pay a $10 commission.
| Item | Amount |
|---|---|
| Proceeds (100 × $58) | $5,800 |
| Selling commission | −$10 |
| ACB of the units sold (100 × $49.12) | −$4,912 |
| Capital gain | $878 |
You keep 150 units with a total ACB of $7,368, still $49.12 per unit: the sale lowered the total, not the average.
Stock splits and consolidations
T4037 says a split or consolidation is not a disposition and is not taxable, but the ACB per share “must be recalculated” over the new number of shares. The total ACB doesn’t change.
| Item | Before | After a 2-for-1 split | After a 1-for-10 consolidation (instead) |
|---|---|---|---|
| Shares held | 100 | 200 | 10 |
| Total ACB | $1,000 | $1,000 | $1,000 |
| ACB per share | $10.00 | $5.00 | $100.00 |
Reinvested dividends and distributions (DRIPs)
When a dividend or fund distribution is reinvested in more shares or units, two things happen. You still report the income: the CRA’s mutual fund page says you must report the amounts on your slips “because the CRA considers you to have received these amounts before reinvesting them.” And the reinvested amount is the cost of the new units, so it is added to your total ACB; the same page says to recalculate the average cost “every time you buy additional units or shares, or reinvest your distributions.”
If you leave reinvestments out of your ACB, the gain you report on a sale includes money that was already taxed as a dividend or distribution.
Starting position: 500 shares with a total ACB of $25,000 ($50.00 a share). Four quarterly dividends are reinvested at the price on each payment date.
| Quarter | Dividend reinvested | Price | New shares | Total ACB after |
|---|---|---|---|---|
| Q1 | $300 | $50 | 6.00 | $25,300 |
| Q2 | $312 | $52 | 6.00 | $25,612 |
| Q3 | $325 | $55 | 5.91 | $25,937 |
| Q4 | $338 | $53 | 6.38 | $26,275 |
| Year | $1,275 | 24.29 |
No new money went in, but the total ACB rose by the $1,275 of reinvested dividends, which were taxed as income in the year. The new ACB per share is $50.12 over 524.29 shares.
Return of capital
A return of capital (ROC) is not taxed when you receive it. The CRA says it “will reduce the adjusted cost base” of your units or shares, which defers the tax to the sale, when the lower ACB produces a larger gain. Some REITs and covered-call ETFs include ROC in their distributions.
For units of a mutual fund trust or ETF, the T3 slip reports it in box 42, “Amount resulting in cost base adjustment”: a positive amount is subtracted from the ACB, and a negative amount is added. For shares of a mutual fund corporation, return of capital isn’t shown on the T5 slip, so you track it yourself.
You hold 1,000 units with a total ACB of $25,000 ($25.00 a unit), and your T3 shows $500 in box 42.
| Item | Amount |
|---|---|
| ACB before | $25,000 |
| Return of capital (box 42) | −$500 |
| ACB after | $24,500 |
| ACB per unit | $24.50 |
If ROC takes the ACB below zero, T4037 says “the negative amount is deemed to be a capital gain in the year”, the ACB is deemed to be zero, and you report the gain on Schedule 3 even though you sold nothing.
How fund distributions affect ACB
| What the fund pays | Taxed in the year? | Effect on your total ACB |
|---|---|---|
| Interest, dividends or capital gains paid to you in cash | Yes | None |
| The same distributions reinvested in more units | Yes | Increases by the amount reinvested |
| Return of capital (T3 box 42 positive amount) | No | Decreases |
The CRA’s own mutual fund example combines the two: a reinvested capital gains distribution and a return of capital on the same T3 change the total cost by the difference between them. For ETFs, including year-end distributions paid in new units, see how ETFs are taxed.
Foreign-currency purchases
ACB is kept in Canadian dollars. T4037 says to convert the ACB “to Canadian dollars using the exchange rate in effect at the time the property was acquired”, and the proceeds using the rate at the time of the sale. The Income Tax Act’s “relevant spot rate” (section 261) is the rate quoted by the Bank of Canada for that day, or another rate acceptable to the CRA. The Bank of Canada publishes daily exchange rates.
Two purchases of a US-listed stock, each with a US$5 commission, at illustrative exchange rates.
| Purchase | Cost in US$ | US$ to C$ rate that day | ACB in C$ |
|---|---|---|---|
| 50 shares at US$40 + US$5 | US$2,005.00 | 1.32 | $2,646.60 |
| 50 shares at US$45 + US$5 | US$2,255.00 | 1.28 | $2,886.40 |
| Total (100 shares) | $5,533.00 |
ACB per share: $55.33. On a sale, the US-dollar proceeds are converted at that day’s rate, so a change in the exchange rate shows up inside the capital gain or loss.
Superficial losses
A capital loss is a superficial loss, and can't be deducted, if you or a person affiliated with you (such as your spouse or common-law partner, or a corporation either of you controls) buys, or has a right to buy, the same or identical property in the period from 30 calendar days before to 30 calendar days after the sale, and still owns it or has a right to buy it 30 calendar days after the sale. If you are the one who acquires the substituted property, you can usually add the denied loss to its adjusted cost base, so it reduces your gain or increases your loss when you sell it. The superficial loss guide explains the window, who counts as affiliated, and a worked ACB example.
Keeping records
For each transaction, record the date, the security, the type (purchase, sale, reinvestment, return of capital, split or other corporate action), the number of shares or units, the price and commission in Canadian dollars (with the exchange rate if converted), and the running units, total ACB and ACB per unit afterwards. A spreadsheet works for a few holdings; dedicated ACB trackers help with frequent reinvestments.
Your broker’s T5008 slip reports proceeds and may show a cost or book value, but that figure is the broker’s and may not include adjustments such as reinvested distributions, return of capital or a superficial loss. The T5008 slip guide explains how to read it; your own ACB record is what goes on Schedule 3.
Common mistakes
| Mistake | Result |
|---|---|
| Leaving reinvested dividends out of the ACB | Gain overstated: tax paid twice on the reinvested amount |
| Ignoring return of capital (T3 box 42) | ACB overstated: gain understated |
| Using the broker’s book value without checking it | Errors carried over from transfers or missing adjustments |
| Leaving out purchase commissions | ACB slightly understated on every purchase |
| Converting a US purchase at the sale-date rate | ACB in Canadian dollars is wrong |
| Claiming a superficial loss | Loss denied on review; ACB of the replacement understated |
ACB, book value and market value
| Term | What it is | Used for |
|---|---|---|
| ACB | Tax cost, averaged across identical properties and adjusted for reinvestments, return of capital and superficial losses | Capital gains and losses on your return |
| Book value | Your broker’s record of cost | Reference; check it against your own ACB |
| Market value | Current price × units held | What the holding is worth today |
| Fair market value | Value on a particular date (for example at death or emigration) | Deemed dispositions |
Related guides
Sources
The figures and rules on this page come from these sources, last checked against them on October 1, 2026. How we check facts.
- Canada Revenue Agency: Capital Gains – 2025
- Canada Revenue Agency: Registered Retirement Savings Plan (RRSP)
- Canada Revenue Agency: What is a TFSA