What is the adjusted cost base of a property and why does it matter?

Your adjusted cost base (ACB) is the cost of a capital property after adjustments required by the federal Income Tax Act. For most assets, the starting point is the actual purchase price, plus any buying costs such as legal fees and commissions. From there, certain additions and deductions are made over time.

For real estate held as an investment, you can generally add capital improvements — renovations that extend the property's life or add value — to the ACB. Repairs that merely maintain the property are not added. When you sell, your capital gain is the proceeds of disposition minus the ACB minus selling costs like real estate commissions and legal fees.

Keeping accurate records is critical. If the CRA audits a disposition and you cannot prove your ACB, the agency may assume it is zero, maximizing the reported gain and your tax bill. Retain all purchase documents, legal invoices, improvement receipts, and records of reinvested distributions for as long as you own the property and for at least six years after you sell.