What Is the Adjusted Cost Base of My Home for Capital Gains in Canada?
This answer covers Canadian federal tax law, which applies in every province.
Your home's adjusted cost base, or ACB, is generally what the property cost you plus the expenses of acquiring it and any capital improvements. Acquisition expenses include commissions and legal fees, and capital expenditures include additions and improvements. Current expenses such as maintenance and repairs cannot be added.
The ACB then feeds into the gain. The capital gain is your proceeds of disposition minus the ACB and your selling costs, such as legal fees, transfer taxes and advertising. Half of the capital gain is taxable. If the home is only partly exempt, the exempt portion depends on how many years it was designated compared with the years you owned it.
Whether land transfer tax can be added to your cost base is worth confirming with an accountant. If you sell for land and building, the price must be split between them on Schedule 3. A change in use, such as home to rental, is generally a deemed sale and reacquisition at fair market value, which becomes the new cost base, unless you elect under subsection 45(2) or the change is a relatively small partial one that meets certain conditions. Keep receipts for improvements, since they support your numbers if the CRA asks.
Key takeaways
- Your adjusted cost base is generally what the home cost you plus acquisition expenses such as commissions and legal fees, and capital improvements.
- Current expenses such as maintenance and repairs cannot be added to your adjusted cost base.
- Your capital gain is the proceeds of disposition minus the adjusted cost base and your selling costs, and half of that gain is taxable.
- If you sell for land and building, the selling price must be split between land and building on Schedule 3.