Adjusted Cost Base
Encyclopedia
Adjusted cost base is a calculation used to determine the cost of an investment for tax purposes. The Canada Revenue Agency
requires investors to use the ACB calculation when determining capital gains or losses for income tax
purposes on Schedule 3.
In some cases, ACB is presented as ACB/unit:
Note: These are simplified equations. In some case, other values are included (ex. commission fees)
It is possible that the ACB might never change if there are no additions or disposals following the initial purchase amount. However, any additions or subtractions to the initial investment needs to be plugged into the above equations since it will have an effect on the ACB. It is for this reason that ACB is recalculated after each transaction.
Dividends that are cashed out and not reinvested don't change the ACB. A redemption will not change the ACB/unit but the reduction of the total unit cost for a redemption is calculated as ACB x units sold. It is not the market value of the units sold.
Dividends that are deemed/notional will increase the ACB but will not change the number of units held, nor will it change the overall market value.
An increase in the ACB will reduce the amount of capital gains realized at time of disposition. Deferred Sales Charge (DSC) charged at time of redemption will not impact the ACB. However, the amount of DSC charged may be claimed as an expense when filing the "Capital gains (or losses)" section of the income tax return.
In Selling Property:
The calculation of ACB for property is complicated by numerous exceptions too complex to discuss in this forum. Please see the Canada Revenue Agency definition
Canada Revenue Agency
The Canada Revenue Agency is a federal agency that administers tax laws for the Government of Canada and for most provinces and territories, international trade legislation, and various social and economic benefit and incentive programs delivered through the tax system...
requires investors to use the ACB calculation when determining capital gains or losses for income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
purposes on Schedule 3.
Uses
In Mutual Funds:ACB = initial investment + additional contributions + reinvested distributions - amount of any previous redemptions |
In some cases, ACB is presented as ACB/unit:
Average ACB/unit = (initial investment + additional contributions + reinvested distributions - amount of any previous redemptions) / total number of units currently held |
Note: These are simplified equations. In some case, other values are included (ex. commission fees)
It is possible that the ACB might never change if there are no additions or disposals following the initial purchase amount. However, any additions or subtractions to the initial investment needs to be plugged into the above equations since it will have an effect on the ACB. It is for this reason that ACB is recalculated after each transaction.
Dividends that are cashed out and not reinvested don't change the ACB. A redemption will not change the ACB/unit but the reduction of the total unit cost for a redemption is calculated as ACB x units sold. It is not the market value of the units sold.
Dividends that are deemed/notional will increase the ACB but will not change the number of units held, nor will it change the overall market value.
An increase in the ACB will reduce the amount of capital gains realized at time of disposition. Deferred Sales Charge (DSC) charged at time of redemption will not impact the ACB. However, the amount of DSC charged may be claimed as an expense when filing the "Capital gains (or losses)" section of the income tax return.
In Selling Property:
The calculation of ACB for property is complicated by numerous exceptions too complex to discuss in this forum. Please see the Canada Revenue Agency definition