In the Canadian tax system the term Adjusted cost base (ACB) refers to the cost of an investment adjusted for several tax-related items including acquisition costs.[1] It is used in the calculation of capital gains or losses.
Calculation edit
For Stocks, Mutual Funds and Bonds:
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ACB = initial investment + additional contributions + fees and commissions - amount of any previous sales or redemptions |
ACB can also be presented as ACB/unit:
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Average ACB/unit = (initial investment + additional contributions + fees and commissions - amount of any previous sales or redemptions) / total number of units currently held |
Note: Additional contributions includes any reinvested distributions.
An increase in the ACB will reduce the amount of capital gains realized at time of disposition. Mutual fund front end or deferred sales charges are treated like purchase and sale commissions for tax purposes.[2]
For Selling Property:
Capital improvements made to a property are added to the ACB of that property. Capital improvements generally extend the life of a property and specifically exclude routine repairs and maintenance.[3]
Acquisition costs such as legal fees, land transfer tax, land surveys and property inspections increase the ACB of a property. Interest paid on debt used to acquire vacant land is added to the ACB of the land.
Phantom distributions edit
An exchange-traded fund (ETF) may choose to reinvest some of its realized capital gains instead of paying the money out as a distribution to unit holders. This incurs a taxable capital gain for unit holders and must be added to the ACB of the ETF to prevent double taxation.[4]
See also edit
- Adjusted basis - Equivalent term in the United States.
- Canada Revenue Agency
- Capital gain
References edit
- ^ "As easy as ACB: Understanding and tracking adjusted cost base with ETFs". Advisor. 2014-06-02. Retrieved 2019-05-16.
- ^ [citation needed]
- ^ Agency, Canada Revenue (2017-06-22). "Adjusted cost base (ACB)". aem. Retrieved 2019-05-16.
- ^ "Haunted by phantom ETF distributions". Retrieved 2019-05-13.