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When you start investing, understanding the calculation for your Adjusted Cost Base (ACB) is very important. It establishes your profit value and your capital gains for income tax.
The discount brokers will calculate the ACB for you automatically but it’s very important you know how it works as it won’t do all of the necessary work in a non-registered account when it comes to return of capital.
In fact, the Canada Revenue Agency (CRA) expects you to provide the details towards your capital gains calculation when you file your taxes. The statements from your discount broker will help but it won’t do the calculation the CRA wants.
Have a look at the various calculations and the F.A.Q. section to understand how to treat your ACB.
What Is an Adjusted Cost Base
Often reffered to as the ACB, or the adjusted cost basis, the adjuted cost base is the term used that refers to the actual cost of the asset in question.
Since the ACB represent the actual cost, you can deduct expenses to purchase the asset such as your discount broker transaction fees.
In the world of investment, only taxable account where you pay capital gains require diligent accounting as you should be tracking your transaction fees, and the return of capital often included in REIT or ETF distribution.
The simple way to calculate your ACB is the following.
ACB per share = Total Book Value / Total Shares
How to calculate your ACB or Adjusted Cost Base
In this context, we will focus on a few examples that represents the majority of situations for investors doing their own taxes. The Canadian government also has details and forms you can use to help you.
Simple growth stock – dividend or not
Assume you bought shares in Shopify and you want to calculate your capital gains. Hypothetical prices used below and no DRIP.
| Action | Shares | Price per Share | Transaction Fee | Book Value | Share ACB | |
| 2017 | Buy | 10 | $500 | $10 | $5,010 | $501 |
| 2018 | Buy | 10 | $600 | $10 | $6,010 | $601 |
| 2019 | Buy | 10 | $700 | $10 | $7,010 | $701 |
| Total | 30 | – | – | $18,030 | $601 |
Dividend stock with DRIP
The above example is the same if you don’t DRIP and below is an example with DRIP shares getting added quarterly.
| Action | Shares | Price per Share | Transaction Fee | Book Value | Share ACB | |
| 2017 | Buy | 10 | $50 | $10 | $510 | $51 |
| 2017 | DRIP | 1 | $51 | – | $51 | $51 |
| 2017 | DRIP | 1 | $53 | – | $53 | $53 |
| 2017 | DRIP | 1 | $55 | – | $55 | $55 |
| 2017 | DRIP | 1 | $58 | – | $58 | $58 |
| 2018 | Buy | 10 | $60 | $10 | $610 | $61 |
| 2018 | DRIP | 1 | $62 | – | $62 | $62 |
| 2018 | DRIP | 1 | $64 | – | $64 | $64 |
| 2018 | DRIP | 1 | $67 | – | $67 | $67 |
| 2018 | DRIP | 1 | $69 | – | $69 | $69 |
| 2019 | Buy | 10 | $70 | $10 | $710 | $71 |
| Total | 38 | – | – | $2,309 | $60.76 |
Now, it’s all fine when you just buy shares, but what about when you sell shares? The profit you take when selling doesn’t change your cost basis.
| Action | Shares | Price per Share | Transaction Fee | Book Value | Share ACB | |
| 2017 | Buy | 10 | $20 | $10 | $210 | $21 |
| 2017 | DRIP | 1 | $21 | – | $21 | $21 |
| 2017 | DRIP | 1 | $23 | – | $23 | $23 |
| 2017 | DRIP | 1 | $25 | – | $25 | $25 |
| 2017 | DRIP | 1 | $28 | – | $28 | $28 |
| 2018 | Buy | 10 | $30 | $10 | $310 | $31 |
| 2018 | DRIP | 1 | $32 | – | $32 | $32 |
| 2018 | DRIP | 1 | $34 | – | $34 | $34 |
| 2018 | DRIP | 1 | $37 | – | $37 | $37 |
| 2018 | DRIP | 1 | $39 | – | $39 | $39 |
| 2019 | Buy | 10 | $40 | $10 | $410 | $41 |
| 2021 | Sell | -15 | $100 | $10 | -$461.45 | $30.76 |
| Total | 23 | – | – | $707.55 | $30.76 |
It’s initially counter-intuitive but the reality is that selling shares doesn’t change the price of the shares you purchased. The act of selling triggers a capital gains or loss.
The capital gains is $100 – $30.76 multiplied by 15 shares. You have a capital gains of $1,038.60.
REITs with DRIP and ROC
Time to do an example with a return of capital. It usually is communicated once a year and it needs to be tracked. A return of capital is giving you back part of your capital (almost like a partial refund) so you have to take it out of the price.
The thing is, it’s an annual recurrence so it’s cumulative. It means that over a really long period of time, you could significantly reduce your cost which increases your capital gains.
| Action | Shares | Price per Share | Transaction Fee | Book Value | Share ACB | |
| 2017 | Buy | 10 | $20 | $10 | $210 | $21 |
| 2017 | DRIP | 1 | $21 | – | $21 | $21 |
| 2017 | DRIP | 1 | $23 | – | $23 | $23 |
| 2017 | DRIP | 1 | $21 | – | $21 | $21 |
| 2017 | DRIP | 1 | $23 | – | $23 | $23 |
| 2017 | ROC | 14 | – | – | -$3.50 | – |
| 2018 | Buy | 10 | $20 | $10 | $210 | $21 |
| 2018 | DRIP | 1 | $21 | – | $21 | $21 |
| 2018 | DRIP | 1 | $23 | – | $23 | $23 |
| 2018 | DRIP | 1 | $21 | – | $21 | $21 |
| 2018 | DRIP | 1 | $23 | – | $23 | $23 |
| 2018 | ROC | 28 | – | – | -$7.00 | – |
| 2019 | Buy | 10 | $25 | $10 | $260 | $26 |
| 2019 | ROC | 38 | – | – | -$9.50 | – |
| 2020 | ROC | 38 | – | – | -$9.50 | – |
| Total | 38 | – | – | $827 | $21.75 |
Frequently Asked Questions – Adjusted Cost Base Calculation
Is the stock Adjusted Cost Base (ACB) calculated across accounts?
No, the ACB for a stock is calculated per account. When you do your taxes, you report the capital gains per stock per account per discount broker. So if you have Royal Bank at CIBC Investor’s Edge and at Questrade, you calculate the ACB for each discount broker.
If you hold Manulife in your TFSA and your non-registered account at Questrade, you also need to calculate the ACB per account.
Does when you buy or sell impact the Adjusted Cost Base (ACB) calculation?
No, the ACB calculation is based on all purchases and return of capitals. In fact, the sell of shares doesn’t change the calculation.
Assume you bought shares of TD Bank 5 years ago and you DRIP 1 share every quarter. Each of the DRIP share price needs to be included in the ACB.
In the last year, you buy 50 shares for $70 and sell all 50 shares for $75. You have to calculate the ACB across all 5 years. You cannot simply match block of shares to make your life simpler with the tracking and calculation.
When transferring to another account, do you use the Adjusted Cost Base (ACB) or the market value?
When you transfer shares to other accounts at another institution, you provide them with the book value. The book value refers to the total cost of the shares (ie shares x ACB).
The act of transferring shares doesn’t change the cost of your shares.
Does selling shares impact the Adjusted Cost Base (ACB)?
No, selling shares triggers a capital gains or loss but doesn’t impact the cost of your shares.
Assume you have the following:
- Bough 10 shares at $9
- Bought 10 shares at $10
- Bought 10 shares at $11
- Sold 10 shares at $12
In the above example, the ACB is $10 per share. The $12 on the sell doesn’t change the price you paid for the other shares, it only impacts the capital gains in this case.
How do stock splits impact your Adjusted Cost Base (ACB)?
Technically, stock splits, or reverse stock splits, have no impact to your ACB. Sure you have a new ACB but if you are to look at the book value (shares x ACB) before and after the split, the amount would be exactly the same.
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