Adjusted cost base (ACB) in Canada, explained

If you hold investments in a non-registered account in Canada, adjusted cost base is the number that decides how much tax you pay when you sell. Get it wrong and you either overpay, or you underpay and carry the risk of a reassessment.

It is also the number most people never check until the year they need it.

What ACB actually is

Your adjusted cost base is the total amount you paid for a security, including commissions, divided across the units you hold. When you sell, your capital gain is the proceeds minus the ACB of the units sold, minus any selling costs.

In one line, the formula is:

ACB per unit = (total amount paid for every unit you hold, including commissions, plus or minus the adjustments below) ÷ (number of units you hold)

The word doing the work is adjusted. The cost base is not simply what you paid on the day you bought. Several later events change it, and each one moves your eventual tax bill. To run your own numbers through the arithmetic on this page as you read, the adjusted cost base calculator does it in your browser.

Canada pools, it does not stack

This is the part that surprises people arriving from a US context.

Canada uses the average cost method. Every unit of the same security you hold in non-registered accounts is pooled into one average, regardless of which account it sits in or when you bought it. If you own the same ETF at two different brokerages, the CRA treats it as one pool.

The US, by contrast, generally uses specific identification or FIFO, where individual tax lots retain their own cost. If you have read American investing content about "picking which lot to sell", that concept does not apply to your Canadian non-registered holdings.

One practical consequence: you cannot compute a correct ACB by looking at one account in isolation. A brokerage only sees the units it holds. If you hold the same security elsewhere, its number is arithmetically incapable of being right. This is one of several things that only resolve once you can see every account in one place.

The four things that move your ACB

Buying more. A new purchase adds its cost, including commission, to the pool and raises or lowers the average.

Return of capital. Some distributions, common with REITs and certain ETFs, are classified as return of capital rather than income. They are not taxed when received, instead they reduce your ACB, which increases your eventual gain. These appear in box 42 of a T3 slip. If you have held a REIT for a decade and never adjusted for return of capital, your ACB is almost certainly overstated. Return of capital and your ETF cost base covers what happens when the adjustment drives a cost base all the way to zero.

Reinvested distributions. When a distribution is reinvested, you paid tax on it in that year, so it increases your ACB. Phantom distributions, reinvested and immediately consolidated, so your unit count never changes, are the ones people miss, because nothing visible happens in the account. They also appear on the T3.

Corporate actions. Stock splits change the unit count and therefore the per-unit average. Mergers and spin-offs reallocate cost base between securities under specific rules.

Selling does not change your average cost per unit. It reduces the number of units in the pool at the existing average.

How to calculate adjusted cost base: a worked example

The arithmetic is easier to follow on numbers than on rules. Take one ETF, bought twice, paying a return-of-capital distribution, then partly sold. Commissions are $9.95 a trade.

Step 1, the first buy. 100 units at $20.00 is $2,000.00, plus $9.95 commission, so $2,009.95 of cost for 100 units.

Step 2, the second buy. 50 units at $26.00 is $1,300.00, plus $9.95, so $1,309.95. The pool is now 150 units costing $3,319.90 in total, and the ACB per unit is $3,319.90 ÷ 150 = $22.1327. Note what did not happen: the first 100 units did not keep their own $20.10 cost. They were absorbed into one average.

Step 3, return of capital. The fund distributes $0.40 per unit as return of capital. That is not income, so no tax is due now, instead it comes off the pool: $0.40 × 150 = $60.00. The pool falls to $3,259.90 and the ACB per unit to $21.7327.

Step 4, the sale. You sell 60 units at $30.00. Proceeds are $1,800.00 less $9.95 of selling cost, so $1,790.05. The ACB of the units sold is 60 × $21.7327 = $1,303.96.

Capital gain = $1,790.05 − $1,303.96 = $486.09

Step 5, what is left. 90 units, a pool of $1,955.94, and an ACB per unit still at $21.7327. Selling changed the unit count, not the average.

The figure to notice is step 3. Skip the return of capital and your ACB stays at $22.1327, your ACB on the sale reads $1,327.96, and you report a gain of $462.09, $24.00 too little, on one small distribution in one year. Held for a decade across a larger position, that gap is what makes a reassessment expensive.

To keep the pool correct over years rather than computing it once, the ACB tracker applies these adjustments across every account you hold. The adjusted cost base calculator runs exactly this sequence for a security of your own, entirely in your browser.

The superficial loss rule

If you sell at a loss and buy the identical security back within 30 days before or after the sale, the loss is denied and added to the ACB of the repurchased units instead.

CRA applies two conditions, and the second is the one people miss. The first is the purchase: you, or a person affiliated with you, buys or has a right to buy the same or identical property. CRA calls it the substituted property, in the period starting 30 calendar days before the sale and ending 30 calendar days after it. The second is that you, or a person affiliated with you, still owns or has a right to buy that substituted property 30 calendar days after the sale. Both have to be true. If the second is not, the loss is not superficial.

The window is wider than most people assume, because affiliated person is broader than it sounds. CRA's own examples are you and your spouse or common-law partner; you and a corporation controlled by you or your spouse or common-law partner; a partnership and a majority-interest partner of it; and a trust and its majority-interest beneficiary.

That last limb is why a purchase inside your RRSP counts: a registered plan is a trust, and you are its majority-interest beneficiary. A loss sale in your non-registered account followed by a purchase in your RRSP triggers the rule, and in that case the denied loss is simply lost, because there is no non-registered ACB to add it to.

Tax-loss selling and the superficial loss rule works through what a capital loss can and cannot offset, and the accidental cases, a spouse's account, an RRSP, a monthly contribution at a second brokerage.

Luum does not apply superficial loss adjustments. It flags a sale that may be a superficial loss, but its capital gains figures do not account for the rule, so if you have sold at a loss and repurchased within the window, verify the treatment yourself.

Book value is not your adjusted cost base

This is the single most common way a Canadian return goes wrong, and it is worth stating plainly: the book value your brokerage shows you and your adjusted cost base are two different numbers that happen to agree in the simplest case. They agree when you have held one security, in one account, at one institution, with no transfers in, no return of capital and no corporate actions. Most people do not have that portfolio for long.

Seven pages take this from the account you are most likely holding, each leading on the situation that actually brings people to it:

• Wealthsimple, on what a transfer in does to the record
• Questrade, on US-dollar holdings and reinvested distributions
• TD Direct Investing, on the corporate actions that accumulate on a long holding
• BMO InvestorLine, on a joint account, where one slip has to serve two taxpayers
• RBC Direct Investing, on rebuilding a pool when the downloadable history runs out before the holding does
• Scotia iTRADE, on what a beneficiary starts from, and why a spouse is the exception
• Qtrade, on rebalancing, where every trade in a non-registered account is a disposition

The two terms are not synonyms for one number. Book value is an institution's bookkeeping record of what a holding cost inside one account, built from the activity that institution can see, and no law defines it. Adjusted cost base is a tax concept defined by the Income Tax Act, it belongs to you rather than to an account, and it moves on events a brokerage ledger may never record.

Book value describes an account. Adjusted cost base describes a taxpayer. That is the whole difference, and the five ways it shows up are:

• ACB pools across every account you hold and book value cannot. Hold the same ETF at two institutions and neither one's book value is your ACB, because neither sees the other's units. Arithmetic, not an error by either broker.
• Return of capital lowers ACB and may not touch book value. It is confirmed on a T3 after year end, so a book value that has not been adjusted is now too high, which understates your eventual gain.
• Transferred-in positions arrive with whatever cost came with them, estimated, reset to the transfer-date price, or dropped entirely.
• Corporate actions are allocated under specific rules, and an unapplied spin-off allocation can sit in a book value for years.
• A denied superficial loss is added to ACB and appears nowhere on a statement. It is a tax adjustment with no counterpart in a brokerage ledger.

Which number do you file? Your adjusted cost base, computed across all of your accounts, every time. Book value is a starting point for that calculation rather than a substitute for it, and where the two disagree, keep the working that explains the difference: it is the support for what you filed.

Your brokerage's T5008 and your own records are both inputs. The CRA holds you responsible for the figure you report, not your brokerage, and CRA tells the brokers preparing that slip, in as many words, that box 20 "may or may not reflect the investor's ACB". What box 20 actually contains works through the four places it comes apart.

What to actually do

Keep the transaction history. Not the monthly statements, the trade-level record of every buy, sell, distribution and corporate action, for as long as you hold the security plus six years after you dispose of it.

Check your T3 slips for boxes 42 and 30 each year, and record the adjustment when it happens rather than reconstructing it a decade later.

If you hold the same security at more than one institution, maintain the pool yourself, because nobody else is positioned to.

To work a pool through by hand, the adjusted cost base calculator applies the average-cost arithmetic above to one security across buys and sells, in your browser. It carries the same exclusion this article does: it does not apply the superficial loss rule, and says so.

If you keep that pool in Luum, how Luum tracks adjusted cost base sets out which adjustments it applies automatically and which, the superficial loss rule among them. It leaves to you. For the superficial loss case specifically there are Canadian tools that do handle it, and Luum vs AdjustedCostBase.ca says plainly which of the two is ahead on that point.

Verify with the CRA or a qualified tax professional before you file.

The two-institution case has its own page, because the arithmetic is where most people go wrong: pooling cost base across two brokerages works a full example in both directions. If the vocabulary is the obstacle, portfolio and tax terms, defined covers it.

Common questions

What is the difference between adjusted cost base and book value?

Book value is an institution's record of what a holding cost inside one account, built from the activity that institution can see. Adjusted cost base is a tax concept that belongs to you as a taxpayer, pools identical property across every account you hold, and moves on events such as return of capital, corporate actions and denied superficial losses that a brokerage ledger may never record. They agree when one security sits in one account for its whole life, and diverge in most other cases.

Why is my book value different from my adjusted cost base?

Five causes account for nearly all of it: the same security held at more than one institution, a return-of-capital distribution that lowered your cost base without the broker applying it, a position transferred in without its original cost, a corporate action allocated inconsistently, and a superficial loss whose denied amount was added to your cost base. Each one changes adjusted cost base without necessarily changing what your statement shows.

Is my broker's book value the same as my adjusted cost base?

Not necessarily. Book value is an account-local figure your broker maintains from the activity it can see. Your adjusted cost base is a taxpayer-level figure that follows you across every account and institution. They agree for a straightforward holding bought and sold in one account, and they diverge after a transfer in kind, a return-of-capital distribution, or the same security being held in two places.

Do I have to pool the adjusted cost base of the same ETF held at two brokerages?

Yes. Canadian tax rules treat identical property held by one taxpayer as a single pool regardless of which institution holds it. Two hundred units at one broker and one hundred at another is one weighted-average cost base over three hundred units, not two separate calculations. Neither broker can do this for you, because neither can see the other side.

Does moving shares between my own accounts change my adjusted cost base?

A transfer in kind between two of your own taxable accounts is not a disposition, so it does not by itself change your cost base. What often changes is the receiving broker's book value, because it may have no record of what you originally paid and will sometimes record the market price on the transfer date instead. Keep the statement from the sending institution.