Glossary -> Adjusted cost base
Adjusted Cost Base (ACB), or Cost Basis
The adjusted cost base (ACB) includes the original purchase price, and all costs related to the purchase of an item - i.e., those costs incurred before the item/asset is available for use.
For What Assets Is ACB Tracked?
It is very important to keep records showing the ACB of any investments or property which could result in a capital gain or loss on disposition or deemed disposition. This means if investments are in a registered account such as a TFSA or RRSP, there is no need to track the ACB.
The adjusted cost base, or cost basis, of an investment in securities would include the purchase price, as well as any commission paid. The cost basis is calculated separately for each security owned. It is the total cost of all shares of that security owned in all non-registered investment accounts, and is divided by the total number of shares owned in all non-registered investment accounts (Income Tax Act s. 47(1) identical properties) to get the cost basis per share, or weighted average cost per share. This cost per share is used in calculating any capital gains or losses when some or all of the shares are sold. There can be adjustments to the ACB during the time the shares are owned, such as return of capital (ROC) on mutual funds, exchange-traded funds (ETFs) or income trusts. ROC reduces the ACB of your shares. You may also have an increase to the ACB of your ETFs as a result of reinvested distributions which are included as income on your T5 slip, but are not actually paid out to you.
If you've transferred your investments from one brokerage to another at some time in the past, it is possible that the cost information on your new brokerage statements is not correct. Make sure you check this once your investments are transferred. The ACB of your investments does not change when the investments are transferred from one brokerage to another, by the brokerage.
Having a brokerage transfer your investments from another brokerage can only be done if the sending and receiving accounts are both in the same name, and this will not trigger any capital gains or losses.
If you want to move investments from a personal account in one name to a joint account in two names, this can trigger capital gains. Professional advice from a tax lawyer or a CPA tax specialist would be advised before doing this. See Joint Ownership of Assets.
See also Investments Held Jointly With Spouse.
If you have investments in a US$ account, your brokerage may show the correct US$ cost, but you need the correct $Cdn cost, converted at the exchange rate on the date the investment was purchased. Thus, it is very important to retain the cost information when you purchase investments, including the exchange rate if purchased in a US$ account.
There are online services available that can help you track the ACB of your investments. One such service is AdjustedCostBase.ca, another is ACBTracking.ca (for ETFs, income trusts and closed-end funds). We have not used these services, so cannot advise as to how well they work.
The adjusted cost base of an interest-paying investment such as a bond would not include any amount for interest accrued since the last interest payment date.
The adjusted cost base of a fixed asset such as machinery or equipment would include installation costs, customs brokerage and legal fees, and any other costs expended to get the asset into operation.
There may be costs related to any fixed asset (for instance, major repairs that extend the life of the asset) that must be added to the adjusted cost base instead of being expensed.
The adjusted cost base of a principal residence or a second property such as a cottage would include the original purchase price as well as any capital improvements made since the property was purchased. The criteria used to determine whether an outlay is capital or not would be the same as the criteria for determining this for a rental property. It's important to track this information from the start, even though the property is your principal residence, because the status as your principal residence could change at some point, for instance if you buy a second property and at some point after that want to designate it as your principal residence.
The adjusted cost base of a rental property would include any repairs or renovations that cannot be expensed for tax purposes. Examples of this type of repair would be a new roof (unless it is just being restored to its original condition), new appliances, etc. See the Canada Revenue Agency (CRA) information re Rental Income - Current Expenses or Capital Expenses.
Change of Use Principal Residence: There are special rules to determine deemed capital cost when there has been a complete or partial change in use of property from principal residence to income-producing.
Canada Revenue Agency (CRA) Resources
CRA also has information on Current vs Capital Expenses in Chapter 3 of their guide T4002 Self-employed Business, Professional, Commission, Farming and Fishing Income Guide.
Revised: April 27, 2022
Copyright © 2002 Boat Harbour Investments Ltd. All Rights Reserved. See Reproduction of information from TaxTips.ca