As Easy as ACB – Understanding and tracking your adjusted cost base with ETFs

One of the most complicated and tedious tasks investors must do is calculate the adjusted cost base (ACB) for each security in their taxable accounts.

Your ACB is the original cost of your investment, adjusted upwards for any new purchases (lump-sum buys, reinvested dividends, or reinvested capital gains distributions) and downwards for any sells or return of capital (ROC) distributions.

While calculating your ACB is complex and time-consuming, it’s extremely important. If you neglect to adjust your ACB upwards, you’ll pay too much tax when you sell the security. If you neglect to adjust it downwards, you’ll pay too little. Although the latter may sound appealing, the Canada Revenue Agency is not likely to share your enthusiasm.

Reporting your ACB would be easier if your brokerage kept the records for you. Unfortunately, they do not always do this accurately. They are not entirely to blame: because your ACB must be calculated for identical securities across all taxable accounts, no single brokerage can see the entire picture.

Because individuals are ultimately responsible for the accuracy of their ACB reporting, we’ve put together this white paper to make it easier for ETF investors.

We recommend you complete this task every March, before you file your personal tax return. This will allow ETF providers enough time to report the tax breakdown of their funds’ distributions.