Calculating your adjusted cost base (ACB) is necessary to determine the true cost of your investments for capital gains and losses. Perhaps more importantly, the CRA requires this calculation to be used for income taxes in relation to capital gains and losses.
The adjusted cost base is calculated by of adding all of your investments into a certain stock or mutual fund, including any reinvested distributions, as well as any commissions or fees incurred to purchase that stock or mutual fund. This total cost is then divided by the number of shares or units you own.
For example, say you buy 500 shares in a company for $15 each and then later buy 200 more shares in that company at $12 each. You also have commissions of $20 for each transaction.
500 x $15 = $7,500
200 x $12 = $2,400
2 x $20 =$40
$7,500 + $2,400 + $40 = $9,940
Total costs of $9,940 divided by 700 shares = ACB of $14.20 per share
In this example, your adjusted cost base is $14.20. Capital gains or losses are then simply calculated as the difference between the ACB and the sale price minus commissions.
If you were to sell 100 shares for $15, you would have a capital gain of $60.
Sell 100 x $15 – $20 = $1,480
ACB 100 x $14.20 = $1,420
If you were to sell 100 shares for $13, you would have a capital loss of $140.
Sell 100 x $13 – $20 = $1,280
ACB 100 x $14.20 = $1,420
Calculating your adjusted cost base is not only mandated by the CRA, it’s also useful for tracking your investments. Knowing the ACB per share makes for more meaningful comparisons to the current prices in the market.
- Athlete Profiles: Pete Sampras
- How to level the playing field at the stock market?
- Schindler's Actual List
Related Posts:
You did not mention ROC (Return on Capital) that some stock pay back yearly thus reducing your Cost.
Good point Lucien, ROC will reduce your ACB and you will have a higher taxable capital gain because of this. Thanks for pointing that out!
When a stock pays a dividend (part of it being ROC (Rtn of Cap) and part of it being Capital Gain), does the Capital Gain also affect our Adjusted Cost Base? Assuming so (because we are paying capital gains tax on that portion), should we add the capital gain to our original cost?
When a stock is transferred out of an RRSP What value is to be used for the ACB? The original purchase price or the transfer out value?
Nimrod,
Do you mean that a stock was transferred out of an RRSP and then later sold? I’m not positive, but I would think it would be the value when transferred since it’s basically considered a sale and purchase at that time?