Tax and accounting terms
Adjusted Cost Base Explained: Working Out the Cost of What You Sell
Average costis the ACB of shares of one class, or units of one fund, bought at different prices: their total cost divided by the number you hold.
Sources checked October 20263 min read
Key points
- ACB is what you paid plus the costs of buying, such as commissions and legal fees
- Capital improvements add to it; repairs and maintenance do not
- Identical shares and fund units share one average cost, recalculated at every purchase
- Reinvested distributions raise ACB, and returns of capital lower it
What adjusted cost base includes
The adjusted cost base, or ACB, is the cost of a capital property for tax purposes. It starts with what you paid, adds the expenses of acquiring it such as commissions and legal fees, and includes capital expenditures such as additions and improvements. Current expenses, such as maintenance and repairs, do not add to it.
ACB matters when you sell, or are treated as selling. The gain or loss is the proceeds less the ACB and the costs of selling, so every dollar missing from the ACB is a dollar of gain reported that should not be. Property bought in a foreign currency has its ACB converted to Canadian dollars at the exchange rate when it was acquired, and property you inherit, receive as a gift or change the use of usually takes its fair market value at that time as its cost.
Averaging identical shares and units
Shares of the same class of a corporation, or units of the same mutual fund trust, are identical properties. Each time you buy more, you work out one average cost for the whole holding: total cost divided by the number of units held. The average covers every identical share you own in all your non registered accounts, so a broker's book value for one account may not be your ACB. Selling some of the holding does not change the average cost of the rest.
In the example below, the 60 shares sold carry an ACB of $1,328, which is subtracted from the sale proceeds to find the gain. The 90 shares still held keep the same $22.13 average.
| Transaction | Total cost | Shares held | ACB per share |
|---|---|---|---|
| Buy 100 at $20, plus $10 commission | $2,010 | 100 | $20.10 |
| Buy 50 at $26, plus $10 commission | $3,320 | 150 | $22.13 |
| Sell 60 | $1,992 | 90 | $22.13 |
Events that change ACB
The ACB of a holding moves with more than purchases.
- Reinvested distributions from a mutual fund buy more units, so they are added to the ACB like any other purchase.
- A return of capital, such as a positive amount in box 42 of a T3 slip, reduces the ACB. If it takes the ACB below zero, the negative amount is a capital gain that year and the ACB resets to zero.
- A superficial loss is added to the ACB of the property bought back. It arises when you, or an affiliated person such as your spouse or a corporation you control, buy the same property within 30 days before or after selling it at a loss and still hold it 30 days after the sale.
- A stock split spreads the same total ACB over more shares: 100 shares that cost $1,000 have an ACB of $10 each, and $5 each after a two for one split.
- A transfer to your own corporation under section 85 sets the cost of the shares you receive by reference to the amount elected on Form T2057.
Records to keep
Purchase records are not sent with the return, but the CRA can ask to see them. Keep trade confirmations, closing documents, invoices for improvements, and the T3 and T5 slips that show reinvested and returned amounts. Record the fair market value of any property on the date you inherit it, receive it as a gift or change its use, because that value becomes its cost.
Quick answers
What is the difference between ACB and book value?
Book value is the figure a broker reports for one account. ACB is the tax figure, averaged across every identical share you own in your non registered accounts and adjusted for the events tax law recognizes, so the two can differ.
Do reinvested distributions increase my ACB?
Yes. Reinvested distributions buy more units, so their cost is added to the ACB, which keeps them from being taxed a second time when you sell.
What happens if my ACB goes below zero?
For units of a trust, the negative amount is treated as a capital gain in the year it happens, and the ACB is reset to zero.
Related pages
Official sources
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Important. This article provides general educational information, not legal or tax advice for a specific business. Rules, administrative policies, rates and deadlines can change. Confirm your facts and current obligations with the responsible government agency and a qualified adviser.