Adjusted Cost Base (ACB) in Canada: The Definition, the Formula, and Eleven Worked Examples

What adjusted cost base means

Adjusted cost base is a defined term in the Income Tax Act, not a broker figure. Section 54 defines the adjusted cost base of a property as "the cost to the taxpayer of the property adjusted, as of that time, in accordance with section 53", and adds that "in no case shall the adjusted cost base to a taxpayer of any property at any time be less than nil." For depreciable property the definition points to capital cost instead, which is why rental property and equipment follow different rules, covered near the end of this guide.

In plain terms, for a stock, ETF or mutual fund unit held in a non-registered account, ACB is what you paid, including the commission to buy, adjusted upward for things like reinvested distributions and denied losses, and downward for return of capital. It is kept as one running total per security, across every non-registered account you own, and it is the figure you subtract from your sale proceeds to arrive at a capital gain or loss.

ACB shows up on your return at a disposition, which is a sale or an event the Act treats as one, such as moving shares into a TFSA, and in one case with no disposition at all, covered under return of capital below. For 2025 and 2026 returns one-half of a capital gain is taxable. The increase proposed in 2024 was deferred on January 31, 2025 and cancelled on March 21, 2025, and never took effect.

The ACB formula

The gain formula is s. 40(1) almost word for word. It defines a gain as the amount by which proceeds exceed "the total of the adjusted cost base to the taxpayer of the property immediately before the disposition and any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition."

Two structural rules follow from that wording and trip people up more than anything else. The commission you pay to buy goes into ACB. The commission you pay to sell does not; it is an outlay, entered in its own column on Schedule 3. And selling never changes your ACB per unit. A sale removes units and their share of the total, and the per-unit figure for what remains is unchanged.

One pool per taxpayer, not per account

The rule that makes ACB different from anything your broker shows you is s. 47(1). When you acquire a property identical to one you already own, the Act deems you to have disposed of and reacquired all of them at a single averaged cost. Identical properties are pooled at the level of the taxpayer, so shares of the same class held at two brokers form one pool, and the pool ignores which account any unit sits in. CRA's Guide T4037 says the same thing in procedure form. You "calculate the average cost of each property in the group at the time of each purchase."

Example 1, the cross-broker pool. You hold 100 shares at Interactive Brokers that cost $4,000 and 100 shares of the same class at Wealthsimple that cost $6,000.

Now sell 50 shares at Wealthsimple for $55 each, $2,750 in total. Wealthsimple's book cost for those shares is $60, so its statement implies a $250 loss. Your ACB is $50 per share, so the correct Schedule 3 entry is a $250 gain. Neither broker is wrong about its own accounts. Neither can see the other, and the Act only cares about the total. This is the flagship reason a broker's book cost is not your ACB, and the guide on book cost versus ACB lists ten more.

Registered accounts sit outside the pool entirely. Nothing bought or sold inside a TFSA, RRSP, RRIF, FHSA or RESP produces a taxable gain, so there is no ACB to track there. They re-enter the picture in exactly one place, the superficial loss rule, covered below.

How to calculate ACB step by step

1. Gather every purchase, sale, reinvestment and distribution for the security from every non-registered account, from the first purchase onward, in date order.
2. For each purchase, add units bought to the unit count and the full cost including commission to the total ACB.
3. After each purchase, recompute ACB per unit as total divided by units.
4. For each sale, remove the units sold and their share of the total at the current per-unit figure. The per-unit figure does not change.
5. Apply the adjustments in the next section as they occur, each on its own date, because they change the running total.
6. On Schedule 3, report proceeds, ACB of the units sold, and outlays for each disposition.

Example 2, two purchases and a partial sale. You buy 100 units at $20.00 plus a $9.95 commission, then 100 more at $30.00 plus $9.95, and later sell 100 at $40.00 with a $9.95 commission.

Gain on the sale is $4,000.00 of proceeds minus $2,509.95 of ACB minus the $9.95 outlay, which is $1,480.10. On Schedule 3 the proceeds go on line 13199 and the gain on line 13200. Your T5008 will show the $4,000.00 in Box 21. It may show something in Box 20, and CRA says outright that the figure there "may or may not reflect your adjusted cost base." The remaining 100 units keep their $25.0995 per-unit ACB.

Example 3, which side each commission belongs on. You buy 200 shares at $20.32 with a $9.95 commission, so ACB is $4,073.95 with the commission inside it. You sell all 200 at $35.23 with another $9.95. Proceeds are $7,046.00, outlays $9.95, and the gain is $7,046.00 minus $4,073.95 minus $9.95, which is $2,962.10. The purchase commission lowered the gain through ACB, and the sale commission lowered it through the outlays column. Neither is counted twice and neither is skipped.

Adjustments that change your ACB after you buy

Section 53 is a list. Subsection 53(1) names the amounts "there shall be added to the cost" and subsection 53(2) the amounts "there shall be deducted." For an investor in stocks and funds, five events on that list do most of the work.

Example 4, a reinvested dividend with a fractional unit. You hold 100 units with an ACB of $2,500, or $25.00 per unit. A $102.50 dividend is reinvested at $41.00 per unit, buying 2.5 units. Add $102.50 to the total and 2.5 to the count. The new ACB is $2,602.50 over 102.5 units, or $25.3902 per unit. The dividend itself is taxed as income on your T5 or T3 in the usual way. The reinvestment, including the fraction, appears on no slip at all, only on the plan statement, which is why DRIPs change your ACB in ways people miss for years.

Example 5, return of capital. You hold 1,000 units with a total ACB of $15,200. The fund's T3 shows $203 in Box 42, labelled "amount resulting in cost base adjustment." Return of capital is not income when you receive it. It reduces ACB instead, so the new total is $14,997. CRA's special rules page gives the instruction directly. "If box 42 contains a positive amount, subtract this amount from the ACB of the units of the trust identified on the T3 slip." A negative Box 42 works the other way and is added.

ACB cannot go below zero. If your ACB is $150 and Box 42 reports $200, the $50 shortfall is a deemed capital gain in that year under s. 40(3) and the ACB resets to nil. CRA has you report that deemed gain on line 13200 with a zero on line 13199, since nothing was sold. Long-held REITs and covered-call ETFs reach this point, and the guide on return of capital and your ETF's ACB shows how quickly.

Example 6, a reinvested or phantom distribution. An ETF declares a year-end reinvested capital gains distribution of $1.68564 per unit and you hold 1,000 units, so $1,685.64 is allocated to you. No cash arrives and your unit count does not change, because the units are reinvested and immediately consolidated. You pay tax on the capital gain this year, and you add $1,685.64 to your ACB. Skip the addition and the same $1,685.64 is taxed a second time when you sell.

The T3 does not isolate this figure. Box 21 reports capital gains, but it aggregates cash and reinvested amounts, so the phantom portion has to come from the fund's own year-end tax breakdown. That is what our lookup of verified ETF tax factors exists for.

Example 7, splits and consolidations. You hold 100 units with a total ACB of $5,000. A two-for-one split gives you 200 units, the total is unchanged, and the per-unit ACB becomes $25.00. A one-for-five consolidation of the original 100 leaves 20 units at $250.00 each. Neither is a disposition and neither produces a slip. Mergers, spinoffs and other reorganizations have their own allocation rules, including the s. 86.1 spinoff election.

Example 8, a mutual fund with a year-end reinvested distribution. You hold 200 units with an ACB of $3,040, or $15.20 per unit. The fund reinvests a $250 distribution at $16.00, adding 15.625 units, and its T3 also reports $60 of return of capital in Box 42. The total becomes $3,040 plus $250 minus $60, which is $3,230, over 215.625 units, or $14.98 per unit. The reinvested $250 is taxed in the year it is allocated, through the T3 boxes that carry it, not when you eventually redeem. CRA's mutual fund page walks through the same mechanics for a different fund with its own figures and shows the redemption fee treated as an outlay.

Foreign currency: ACB is always in Canadian dollars

ACB is kept in Canadian dollars even when the security trades in U.S. dollars. Each leg is converted separately at the Bank of Canada rate for its own date, and the exchange movement between the two dates lands inside your capital gain rather than being tracked on its own. Section 261 defines the "relevant spot rate" for a day as "the rate quoted by the Bank of Canada on the particular day", and CRA's instruction is to use that daily rate "to 4 decimal places" and, when none is quoted, "the rate from the closest preceding day for which a rate is quoted." Income Tax Folio S5-F4-C1 applies the rule to reporting. A single average rate for the year is not the rule for a securities sale.

Which day counts for an exchange trade is a live question. Section 261 points to the day the amount arose, and for a securities trade that is either the trade date or the settlement date, when the shares and the money actually change hands. CRA technical interpretation 2012-0468931C6 treats settlement as the acquisition and disposition date for exchange trades, and that is the position ActiveACB follows. Each leg is converted at the settlement-date rate when the broker file provides one, and at the trade-date rate otherwise. The rule that matters more than the choice is consistency. Use the same convention for the purchase and the sale, because mixing them books an exchange gain or loss that never happened.

Example 9, a U.S. stock bought and sold. You buy 100 shares at US$50.00 with a US$5.00 commission, US$5,005.00 in total, on a settlement date when the Bank of Canada rate is 1.3500. Your ACB is C$6,756.75. You sell all 100 at US$70.00 on a settlement date when the rate is 1.3000. Proceeds are US$7,000.00, or C$9,100.00, and the US$5.00 sale commission is an outlay of C$6.50. The gain is $9,100.00 minus $6,756.75 minus $6.50, which is $2,336.75. Had the dollar not moved, the gain would have been larger; the currency swing is simply part of the result. The guide to USD trades and ACB covers the cash pool that U.S.-dollar balances create, and Norbert's gambit covers the conversion trade itself.

The superficial loss rule, registered plans, and transfers

Section 54 also defines a superficial loss. A loss is superficial where, in the period from 30 days before to 30 days after the sale, you or an affiliated person acquires the same or an identical property and still owns it at the end of that period. Affiliated persons include your spouse or common-law partner, a corporation you control, and, in CRA's view, the trusts behind your own registered plans. An adult child, a sibling or a parent is not an affiliated person, so their purchase does not trigger the rule. Subparagraph 40(2)(g)(i) deems the loss to be nil, and paragraph 53(1)(f) adds the denied amount to the ACB of the replacement property. The loss is deferred, not destroyed.

Example 10, a loss sale and a repurchase inside the window. You hold 100 units with an ACB of $10,000 and sell them all at $60 for $6,000, an economic loss of $4,000. Twelve days later you buy 100 units back at $60. The loss is denied for the year, and the $4,000 is added to the ACB of the new units, which becomes $10,000. When you eventually sell without repurchasing, the full loss comes through. The superficial loss guide covers the 61-day window, partial repurchases, and how the rule reaches across accounts.

The one case where the loss is gone for good is a repurchase inside a registered plan. If you sell at a loss in a non-registered account and your RRSP or TFSA buys the identical security within the window, the loss is denied, and there is no tracked ACB inside the plan for the addback to attach to. Automatic events can trigger this without any decision on your part, including reinvested distributions and pre-authorized purchases.

Example 11, transfers in kind. Moving 100 shares from one non-registered account to another in your own name is not a disposition. The ACB travels with the shares, whatever the receiving broker books. Contributing the same 100 shares in kind to a TFSA or RRSP is a deemed disposition at fair market value. If the shares cost $8,000 and are worth $9,000, you report a $1,000 gain. If they are worth $6,000, the $2,000 loss is denied and cannot be recovered, because the shares now sit in a plan with no ACB. The practical rule is to sell a losing position for cash, wait out the window, and contribute the cash.

From ACB to your capital gain on Schedule 3

Proceeds of disposition is the amount you receive on a sale before any selling costs. For a securities sale it is normally the figure your T5008 carries in Box 21. Outlays and expenses are the costs of making the sale, chiefly the commission. Check whether your broker reports Box 21 gross or net of that commission, because some report it net. If yours does, do not enter the commission as an outlay as well, or you deduct it twice. On Schedule 3 you enter proceeds, ACB, and outlays for each disposition, with proceeds on line 13199 and the resulting gain or loss on line 13200. Capital gains allocated by a trust arrive on a T3 and go on line 17600, and capital gains dividends from a T5 go on line 17400. Our guide to reporting a T5008 on Schedule 3 works a full example.

What no slip reports, and only you can track, is the list that makes ACB work at all. Pooling across accounts and brokers. Purchase commissions. Reinvested units and fractions. The reinvested portion of distributions. Superficial-loss addbacks. The exchange rate on each settlement date. Splits, consolidations and reorganizations. Each one changes the total, and each one is your responsibility under CRA's own T5008 instructions, which say you "are required to make the adjustments, as needed." The guide to T5008 Box 20 and Box 21 goes through both boxes in detail.

Nine common ACB mistakes

1. Filing the broker's book cost as ACB. CRA disclaims Box 20, and so do the brokers. Questrade says the amount "may or may not represent the actual adjusted cost base." TD tells clients the Box 20 figure may be unsuitable for tax filing and may need adjusting when they calculate their ACB.
2. Averaging per account instead of per taxpayer. Section 47(1) pools identical properties of the taxpayer, across every non-registered account at every broker.
3. Forgetting return of capital. Box 42 lowers ACB every year it appears, and an unadjusted ETF or REIT holder carries an inflated cost base for a decade.
4. Ignoring reinvested distributions. They raise ACB, and missing them means paying tax on the same gain twice.
5. Using FIFO or picking lots. Those are U.S. cost basis methods. Canada requires the weighted average under s. 47(1), and you cannot choose which units you sold.
6. Converting at the wrong rate, or mixing dates. Each leg is converted at the Bank of Canada daily rate for its own date, to four decimals, with the same date convention on both legs. One rate for the whole year is not the rule.
7. Watching only the 30 days after a loss sale. The window also covers the 30 days before it, and it counts purchases by your spouse and your registered plans.
8. Letting ACB go negative. Section 54 says it cannot. The shortfall is a deemed gain under s. 40(3).
9. Leaving out employer shares and option premiums. The employment benefit already taxed on your T4 is part of an ESPP or RSU share's ACB, and s. 47(3) can deem shares acquired under an employee plan not identical to your other shares, so they may form their own pool. Option premiums fold into the cost base or proceeds of the shares under their own rules, covered in the guide to options and ACB.

When "ACB" means something else

The same letters carry three other meanings, and searchers land on all of them. None of these is the securities ACB this guide covers.

Life insurance. A life insurance policy has an "adjusted cost basis" defined by a formula in s. 148(9). Roughly, it is premiums paid less the net cost of pure insurance under Regulation 308. It governs the taxable portion of a policy withdrawal or surrender, and it has nothing to do with s. 47 averaging.

Real property and rental property. Here ACB is the purchase price plus the costs of acquiring the property, such as commissions and legal fees, plus capital improvements. CRA's rental income definitions are explicit that "you cannot add current expenses, such as maintenance and repair costs, to the cost base of a property." Depreciation does not reduce ACB either. Capital cost allowance reduces undepreciated capital cost, a separate figure that produces recapture or a terminal loss on sale. A change of use, for example turning a home into a rental, can trigger a deemed disposition under s. 45, and the principal residence rules are in Folio S1-F3-C2.

The U.S. "cost basis." American rules allow first-in-first-out, specific identification of lots, and have a wash-sale rule. None of that applies to a Canadian return. Canada averages, and its superficial loss rule differs from the wash-sale rule in both the window and the treatment of the denied loss.

How ActiveACB calculates ACB

ActiveACB rebuilds every one of these steps from your broker's raw transaction export instead of trusting a book cost. Buys, sells, reinvestments and distributions from every account you upload flow into one averaged pool per security, U.S.-dollar legs are converted at the Bank of Canada rate for their own dates, superficial losses are detected and added back automatically, and return of capital and reinvested distributions for over 200 Canadian ETFs are applied from verified issuer data. The output is the ACB, proceeds and outlays for each disposition, ready for Schedule 3. The full rule set is in the methodology. Run your own broker export through the ACB calculator. Your first calculation is free.

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