Adjusted cost base
Investopedia Financial Dictionary:
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Adjusted Cost Base - ACB
An income tax term that refers to the change in an asset's book value resulting from improvements, new purchases, sales, payouts or other factors. An adjusted cost base can be calculated on a single or a per unit basis.
Investopedia Says:
The book value can be adjusted because of a change or improvement made to the asset. The new adjusted cost base is then used to compute the gain or loss when it is sold. In some jurisdictions, the adjusted cost base must be used as the cost of the asset for capital gains purposes.
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Adjusted cost base
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Adjusted cost base
Adjusted cost base (ACB) is a calculation used to determine the cost of an investment for tax purposes. The Canada Revenue Agency requires investors to use the ACB calculation when determining capital gains or losses for income tax purposes on Schedule 3.
Uses
In Mutual Funds:
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ACB = initial investment + additional contributions + reinvested distributions - amount of any previous redemptions |
In some cases, ACB is presented as ACB/unit:
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Average ACB/unit = (initial investment + additional contributions + reinvested distributions - amount of any previous redemptions) / total number of units currently held |
Note: These are simplified equations. In some case, other values are included (ex. commission fees)
It is possible that the ACB might never change if there are no additions or disposals following the initial purchase amount. However, any additions or subtractions to the initial investment needs to be plugged into the above equations since it will have an effect on the ACB. It is for this reason that ACB is recalculated after each transaction.
Dividends that are cashed out and not reinvested don't change the ACB. A redemption will not change the ACB/unit but the reduction of the total unit cost for a redemption is calculated as ACB x units sold. It is not the market value of the units sold.
Dividends that are deemed/notional will increase the ACB but will not change the number of units held, nor will it change the overall market value.
An increase in the ACB will reduce the amount of capital gains realized at time of disposition. Deferred Sales Charge (DSC) charged at time of redemption will not impact the ACB. However, the amount of DSC charged may be claimed as an expense when filing the "Capital gains (or losses)" section of the income tax return.
In Selling Property:
The calculation of ACB for property is complicated by numerous exceptions too complex to discuss in this forum. Please see the Canada Revenue Agency definition
See also
External links
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