How to Calculate Your Adjusted Cost Base in Canada

When you sell shares, fund units or real estate, the tax you owe depends on your gain. The gain depends on your adjusted cost base, often called ACB. Getting it wrong can mean paying too much tax or reporting too little.

This article walks through how ACB is built, how it changes over time, and where it goes on your return. Your records matter most, so it helps to start gathering them early.

This article covers Canadian federal tax law, which applies in every province.

What ACB is and how it sets your gain

ACB is generally the property's capital cost for depreciable property, or its cost adjusted under section 53 of the Income Tax Act for other property, and it can never be negative.

To calculate a gain, subtract the ACB and the outlays and expenses of selling from the proceeds of disposition. The CRA gives this example: 400 shares sold for $6,500, with a $60 commission and a $4,000 ACB, produce a gain of $2,440. Half of that, $1,220, is the taxable capital gain reported on line 12700.

If your taxable capital gains exceed your allowable capital losses, the difference is included on line 12700 of your T1 return. It is added to your other income and taxed at your marginal rates, so it is not a separate flat tax. The one-half inclusion rate applies to gains realized in 2024, 2025 and 2026.

What goes into the cost

ACB is usually the cost of the property plus the expenses to acquire it, such as commissions and legal fees. Current expenses such as maintenance and repairs cannot be added to the cost base.

• Add: the purchase price and acquisition costs like commissions and legal fees.
• Do not add: routine maintenance and repairs.
• Foreign currency: convert the ACB at the exchange rate when you acquired the property, and report in Canadian dollars.

Identical properties and reinvested distributions

Identical properties, such as shares of the same class or units of a mutual fund trust, use an average ACB that is recalculated at each purchase. Selling some of them does not change the average ACB per unit.

On a T3 slip, box 42 shows the amount resulting in a cost base adjustment. A negative amount is added to the ACB of your units, and a positive amount is subtracted. This is how return of capital and reinvested distributions change your ACB.

If subtracting the box 42 amount would take the ACB below zero, the negative amount is deemed a capital gain for the year, the ACB becomes zero, and the gain is reported on line 13200 of Schedule 3.

Part sales, gifts and below-market sales

If you sell only part of a property, divide the ACB between the part you sell and the part you keep.

Other events can reset the starting point. A gift of capital property to someone other than a spouse or common-law partner is treated as a sale at fair market value, and the recipient is generally considered to acquire it at that value. Gifts to a spouse or common-law partner generally occur at ACB, and the transferor can elect out. At death, heirs generally take the deceased's deemed proceeds, usually fair market value just before death, though spousal transfers and certain farm transfers can differ.

If you sell to a relative for less than fair market value, your proceeds are deemed to be fair market value. The buyer's cost remains the lower price paid, so the same gain can be taxed twice.

Superficial losses and capital losses

A loss on a sale is superficial if you or a person affiliated with you acquires the same or identical property during the period starting 30 days before and ending 30 days after the sale, and still owns it, or has a right to acquire it, at the end of that period. Affiliated persons include your spouse or common-law partner and a corporation you or your spouse control.

A superficial loss cannot be deducted, and it is usually added to the cost base of the substituted property. Certain situations, such as the owner becoming a non-resident or the owner's death, are not treated as superficial losses.

A loss that is not superficial can become a net capital loss. Net capital losses can be applied only against taxable capital gains, and they can be carried back three years and carried forward indefinitely. Other rules can apply to business investment losses, so it is worth confirming your situation with a lawyer or accountant.

What to do next

• Gather purchase confirmations, commission records and legal invoices.
• Collect every T3 slip and note box 42 for each year you held fund units.
• Keep a running average ACB for identical properties.
• Report each sale on Schedule 3 in the calendar year it occurs, with proceeds, ACB, outlays and gain in the columns provided.
• If the property came by gift, inheritance or a below-market sale, ask a lawyer or accountant how the cost base is set.

Frequently asked questions