In the Canadian tax system the term Adjusted cost base (ACB) refers to the cost of an investment adjusted for several tax-related items including acquisition costs. It is used in the calculation of
capital gains
Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares ...
or losses.
Calculation
For Stocks, Mutual Funds and Bonds:
ACB can also be presented as ACB/unit:
Note: ''Additional contributions includes any reinvested distributions.''
An increase in the ACB will reduce the amount of capital gains realized at time of disposition. Mutual fund front end or deferred sales charges are treated like purchase and sale commissions for tax purposes.
For Selling Property:
Capital improvements made to a property are added to the ACB of that property. Capital improvements generally extend the life of a property and specifically exclude routine repairs and maintenance.
Acquisition costs such as legal fees, land transfer tax, land surveys and property inspections increase the ACB of a property. Interest paid on debt used to acquire vacant land is added to the ACB of the land.
Phantom distributions
An
exchange-traded fund (ETF) may choose to reinvest some of its realized capital gains instead of paying the money out as a distribution to unit holders. This incurs a taxable capital gain for unit holders and must be added to the ACB of the ETF to prevent double taxation.
See also
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Adjusted basis In tax accounting, adjusted basis is the net cost of an asset after adjusting for various tax-related items.
Adjusted Basis or Adjusted Tax Basis refers to the original cost or other basis of property, reduced by depreciation deductions and increa ...
- Equivalent term in the United States.
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Canada Revenue Agency
The Canada Revenue Agency (CRA; ; ) is the revenue service of the Canadian federal government, and most provincial and territorial governments. The CRA collects taxes, administers tax law and policy, and delivers benefit programs and tax c ...
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Capital gain
Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares ...
References
{{reflist
External links
Canada Revenue Agency Website - Adjusted Cost Base
Taxation in Canada
Tax terms