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
Lowering the cost of commissions is a good way to improve your adjusted cost base. I use Questrade, not only for the $4.95 trade commission, but you can also get $50 in commission for free by using the CanadianFinance promo code.
Calculating your adjusted cost base is not only mandated by the CRA, it’s also useful for tracking your investments. Knowing the adjusted cost base per share makes for more meaningful comparisons to the current prices in the market.
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Tom Drake is the owner and head writer of Canadian Finance Blog.
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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?
Apr 16/11
Using your ACB example above, what would be the new ACB per share on the 500 remaining shares (500+200-100-100)? And how does one make this calculation?
Alot of examples of ACB’s online show you step by step how to get to an adjusted cost base number, but none talk about whether you are supposed to be adding the number of all shares including the current year or just up to the tax year you are trying to calculate for?
I’m likely guessing that you don’t include any current year shares in total since they would skew capital gain/loss.
What about reverse splits?? How do you handle these?
Thanks!
Hello Tom,
Can you provide an example of calculating ACB with mutual funds? As they are priced on a daily basis, so one never knows how many units they will acquire from a purchase until the following business day. I find the above example leaning stocks and I am not familiar with stocks to begin with. Maybe it can show purchases from different dates?…
Can I also assume that the stock example above is displaying two purchases made on the same day?
Thanks Tom, RJP
You’ve got great insights about stocks, keep up the good work!