Adjusted cost base (ACB)
The adjusted cost base is what an asset is treated as having cost you for tax purposes, and it is subtracted from the proceeds to compute a capital gain or loss.
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Key facts
| Category | Personal tax |
|---|---|
| Also known as | ACB, cost base |
| Starts as | Purchase price plus acquisition costs |
| Increased by | Capital improvements, reinvested distributions, commissions on purchase |
| Reduced by | Returns of capital and certain deemed distributions |
| Proof | The taxpayer's responsibility; records should be kept as long as the asset is held |
| Authority | Canada Revenue Agency; Revenu Québec |
What it means in practice
ACB starts at purchase price plus acquisition costs — commissions, legal fees, land transfer duties — and then moves over the life of the asset. Capital improvements to a property increase it; return-of-capital distributions from a fund reduce it. Identical securities bought at different times are pooled into a single average ACB per unit, so you cannot choose which specific shares you sold. Poor ACB records are the most expensive kind of missing paperwork: with no supporting cost, the CRA can assess the gain on the full proceeds.
The errors that recur
Reinvested distributions on mutual funds and ETFs are the most common omission. Each reinvested distribution was taxed in the year it was received and raises the cost base — failing to add it means paying tax twice on the same amount when the units are sold. Return of capital works the other way. It is not taxed when received but reduces the cost base, so a fund distributing return of capital for years can leave a holding with a very low base and an unexpectedly large gain on sale. On real property, the distinction between a repair and a capital improvement decides whether a cost is deductible now or added to the base. Renovation invoices from years earlier are the records people most often no longer have.
FAQ
I inherited shares. What is my cost base?
How long should I keep purchase records?
Need this applied to your situation?
A definition only gets you so far. Talk to a Montréal CPA about what this means for your return — in English or French.