When you sell shares or ETF units in a non-registered account, your capital gain or loss is the selling price minus what the units cost you. In Canadian tax language, that cost is the adjusted cost base, or ACB. Get it wrong and you pay tax on the wrong gain, sometimes twice on the same money.
This guide is general information, not tax advice. Check the CRA's Capital Gains guide (T4037) or an accountant for your own situation.
What the ACB is
The CRA describes the ACB as usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees. Over time, a number of events adjust it up or down, which is where the "adjusted" comes from.
The ACB only matters for non-registered accounts (and corporate accounts). Gains inside a TFSA, RRSP, FHSA, RESP or RRIF are not reported as capital gains, so those accounts have no ACB to track.
The average cost method
When you buy the same security several times, each purchase is an "identical property", and Canada does not let you pick which lot you sell. You average them. The CRA's rule: calculate the average cost of each property in the group at the time of each purchase. Selling does not change the average cost per unit; it only reduces the number of units.
An example with round numbers:
- You buy 100 units of an ETF at $20, plus a $10 commission. Total cost: $2,010.
- Later you buy 50 more at $26, plus $10. Total cost: $2,010 + $1,310 = $3,320 for 150 units, or about $22.13 per unit.
- You sell 60 units at $30, paying a $10 commission. Proceeds: $1,800. ACB of the units sold: 60 × $22.13 = about $1,328.
- Your capital gain: $1,800 − $10 − $1,328 = about $462.
- You still hold 90 units with an ACB of about $1,992, still $22.13 each.
Notice two things. The buy commission was added to the cost. The sell commission was not added to the ACB: it is an outlay that reduces your proceeds. Both reduce your gain, just in different places.
Identical properties are averaged across all your non-registered holdings of that security, not account by account. If you hold the same ETF at two brokers, or in a cash account and a margin account, you have one ACB, not two.
Events that change the ACB
Return of capital
Some ETFs, REITs and funds pay part of their distributions as a return of capital: your own money coming back. It is not taxed when you receive it, but it reduces your ACB. For trust units, it shows on the T3 slip (box 42 in the CRA's example).
If returns of capital push your ACB below zero, the CRA treats the negative amount as a capital gain for that year, and your ACB is then zero.
Reinvested distributions
Many ETFs and mutual funds declare distributions that are reinvested rather than paid in cash. Two cases:
- Reinvested in new units. The distribution is reported as income, and the new units are bought with it. The CRA says to recalculate your average cost per unit: the reinvested amount is added to your total cost.
- Reinvested, then consolidated. With many ETFs, a year-end distribution is reinvested and the units are then consolidated, so your unit count does not change and no cash shows up. You are still taxed on the distribution through your T3 slip, and the reinvested amount is still added to your total cost. If you forget it, you will be taxed on the same money again when you sell.
Dividend reinvestment plans (DRIPs) on shares work the same way as the first case: the dividend is income, and the shares it buys are added at that cost.
Commissions and fees
Purchase commissions go into the ACB. Selling commissions are deducted from the proceeds of the sale.
Superficial losses
If you sell at a loss and you or an affiliated person, such as your spouse or your own TFSA or RRSP, buy the same security within 30 days before or after the sale, the loss can be denied and added to the ACB of the units bought back. Our guide on the superficial loss rule explains it in detail.
Purchases in US dollars
For a US stock or a US-listed ETF, the CRA wants everything in Canadian dollars, at the right rate for each transaction:
- The cost is converted at the exchange rate in effect when you bought.
- The proceeds are converted at the rate in effect when you sold.
- Outlays, like commissions, are converted at the rate when they were paid.
The CRA's guide refers to the Bank of Canada rate for the day of the transaction, and accepts other widely available rates used consistently. Do not compute a gain in US dollars and convert it at the end: currency movements are part of your Canadian-dollar gain or loss.
So a US stock bought and sold at the same US price can still give a capital gain or loss in Canadian dollars if the exchange rate moved.
Why your broker's book value may be wrong
Your broker shows a "book value" or "book cost" for each position, and sends a T5008 slip when you sell. These figures are a helpful starting point, but they are not always your ACB:
- Per account, not per person. The broker averages within one account. The tax rule averages across all your non-registered accounts holding that security.
- Transfers. Positions moved in from another broker sometimes arrive with a missing or estimated cost.
- Returns of capital and non-cash distributions are often known only after year-end, when funds publish their tax information, and may not be reflected in the book value.
- Superficial loss adjustments are generally not applied by the broker.
- Currency. A US-dollar position may show its book value in US dollars, while your ACB must be in Canadian dollars at historical rates.
You are the one who reports the gain, so it pays to keep your own record from your trade confirmations and each fund's yearly tax information.
A simple record to keep
For each security you hold outside registered accounts, keep a running list: date, units bought or sold, amount in Canadian dollars (with the exchange rate if it was in US dollars), commissions, and each return of capital or reinvested distribution. After every event, recompute total cost and cost per unit. That list is your ACB.
How Indivia helps
Indivia calculates the ACB at the Canadian average cost, per owner, across all of that owner's non-registered accounts, in Canadian dollars. TFSA, RRSP, FHSA, RESP, RDSP, LIRA and RRIF accounts are left out of the ACB. This is on every plan, including Free.
Entries cover buys and sells (the commission is part of the amount), Return of capital (lowers the ACB), Reinvested distribution (a capital gain reinvested with no cash, which raises the ACB) and Reinvested dividend (DRIP). For a foreign-currency trade you can type the rate to Canadian dollars from your statement; left blank, the app's rate table is used, with Bank of Canada rates.
The Overview tab shows each owner's capital gains for the year with the taxable portion, flags superficial losses, and gives the Adjusted cost base today per security, which can differ from your broker's per-account figure. On the Investor plan, the Tax pack lists every sale with its proceeds, ACB and gain, exportable to CSV or PDF. You can enter trades by hand, start from a starting position, or import your broker's CSV file (TD Direct Investing, Desjardins Disnat or any CSV).
Sources
- Capital Gains guide (T4037), CRA
- Special rules and other transactions: adjusted cost base and identical properties, CRA
- Tax treatment of mutual funds, CRA
In Indivia’s help
Indivia keeps the numbers these guides talk about, for every property, account and person in your household.