1. What is Adjusted Cost Base?

The Adjusted Cost Base (ACB) is the cost of an investment for tax purposes, including purchase price, commissions, and adjusted for return of capital distributions. It represents the tax basis used to calculate capital gains or losses when the investment is sold.

2. How Does the Calculator Work?

The calculator uses the ACB formula:

Where:

• \( Purchase\ Price \) — Original cost of the investment in CAD
• \( Commissions \) — Brokerage fees and transaction costs in CAD
• \( Return\ of\ Capital \) — Distributions classified as return of capital in CAD

Explanation: The ACB calculation adjusts the original purchase cost by adding expenses and subtracting non-taxable distributions to determine the true tax basis.

3. Importance of ACB Calculation

Details: Accurate ACB calculation is essential for determining capital gains tax liability when selling investments. It ensures proper tax reporting and helps minimize tax burden by accurately tracking investment costs.

4. Using the Calculator

Tips: Enter all values in Canadian dollars (CAD). Purchase price and commissions should be positive values, while return of capital reduces the ACB. Ensure all values are accurate for proper tax reporting.

5. Frequently Asked Questions (FAQ)

Q1: Why is ACB important for investors?
A: ACB determines the capital gain or loss when selling an investment, which directly affects tax liability. A higher ACB results in lower capital gains and less tax.

Q2: What happens if return of capital exceeds purchase price?
A: If return of capital reduces ACB below zero, the excess is treated as a capital gain and is taxable in the year received.

Q3: Are dividends included in ACB calculation?
A: Regular dividends do not affect ACB. Only return of capital distributions reduce the ACB of the investment.

Q4: How often should I update my ACB?
A: ACB should be updated whenever you receive return of capital distributions or make additional purchases of the same security.

Q5: What records should I keep for ACB tracking?
A: Maintain records of all purchase confirmations, commission statements, and distribution statements showing return of capital amounts.