Tracking the ACB of your investments can be simplified with good record keeping. Your investment statements and confirmations should provide all of the information required to maintain the required information for reporting. An accountant or bookkeeper can also help track individual securities and related transactions.

ACB calculation example

Ingrid receives a bonus from her employer each year and uses a portion to invest in a mutual fund. She has opted to receive cash distributions (more on that below). Ingrid occasionally makes a withdrawal for her lifestyle expenses as needed. Ingrid is diligent in record keeping and maintains the following transaction activity.

What gain does Ingrid need to report for her sales in years four and six? The answer resides in first determining the appropriate cost of the units she sold. By keeping track of her transactions throughout the year, Ingrid can more easily determine the appropriate amounts to include when completing her tax return. 

First, we can establish the cost of units after year three as simply the total accumulated cost of $8,264.70, or $32.41 per unit when divided by 255 total accumulated units. The cumulative ACB per share is then identified as the cost base for the subsequent sale of those units. 

Next, when Ingrid sells a portion of her units in year four at a price of $33.96 per unit, we know that this price is higher than what she has acquired some units for, and lower than others. Does Ingrid report a gain, a loss, or both? As described above, we know that the accumulated cost of what she has purchased is $32.41 per unit. For the 20 units that were sold this amounts to a cost of $648.20. The sale of these units results in proceeds of $679.20 for a gain on sale of $31, or $1.55 per unit.

Acquiring additional units in year five adds to her cost, and continuing the process, we can identify the gain in year six as $75.68, illustrated in the table below.

The impact of distributions

In addition to changes in unit price, many investments such as stocks and mutual funds will make regular income distributions that an investor can choose to take in cash, or reinvest back into the stock or fund. For investments that pay regular distributions and are reinvested, the ACB calculation will also need to consider the distribution. Whether taken as cash, or reinvested, distributions represent income to the investor and are taxed when paid in non-registered accounts. With income distributions presumed to be an amount paid and taxed, reinvestment is considered to be an additional contribution, thus increasing the total cost of the investment. 

Investing in mutual fund units will generate taxable income through distributions of income from the portfolio and capital gains (or losses) when units of the mutual fund are sold or otherwise considered disposed of by the investor. For a more detailed discussion of the tax treatment of mutual fund investments including distributions and the sale of mutual fund units, please refer to our Mutual Fund Trust Taxation Guide.

Planning tips

Investing, performance, and taxation are all important components of any financial plan. An integrated approach that includes discussion with your investment, tax and other professional advisors is encouraged in order to determine strategies that are appropriate for you. When developing your plan, consider the points below as they might apply to your situation:

• Investment returns can generally comprise of interest, dividends, realized gains, and unrealized/deferred gains. Review your investment portfolio asset allocation with your advisor to determine the appropriate strategy for your goals.
• If you hold the same security in multiple non-registered accounts, the ACB calculation must consider all non-registered accounts.
• Taxable capital gains can normally be reduced by other capital losses. If you have capital losses that exceed capital gains in the current year, you can carry back the losses to any of the three preceding taxation years to be deducted against capital gains in those years. Capital losses can also be carried forward indefinitely and applied to offset future capital gains.
• When claiming capital losses, consideration should also be given to the superficial loss rules. Generally speaking, a capital loss is defined as superficial if, during the 30 days on either side of the date of sale, the taxpayer (or an affiliated person) purchases the same property or one deemed to be identical. If this is the case, the loss cannot be used to offset capital gains, but rather it will be added to the adjusted cost base of the substituted property. 
• Investments in an RRSP or RRIF account are tax-deferred. i.e. Taxes are only paid when amounts are withdrawn from the account. Investment income earned in a TFSA is not taxable, nor are withdrawals. To the extent you have available contribution room, consider making a contribution to an RRSP, TFSA, or both. Speak to your advisor to determine strategies appropriate for your situation.