1. What is the Adjusted Cost Base Formula?

The Adjusted Cost Base (ACB) is a Canadian tax calculation used to determine the cost of an investment for capital gains tax purposes. It includes the original purchase price plus any expenses, minus any returns of capital.

2. How Does the Calculator Work?

The calculator uses the ACB formula:

Where:

• \( Cost \) — Original purchase price of the investment
• \( Expenses \) — Additional costs associated with the purchase (brokerage fees, legal fees, etc.)
• \( Returns \) — Any returns of capital received from the investment

Explanation: The ACB represents the true cost of your investment and is used to calculate capital gains or losses when you sell the investment.

3. Importance of ACB Calculation

Details: Accurate ACB calculation is crucial for proper tax reporting. It determines your capital gain or loss, which affects your tax liability. An incorrect ACB can lead to overpayment or underpayment of taxes.

4. Using the Calculator

Tips: Enter all amounts in Canadian dollars. Include all relevant expenses and returns. Keep accurate records of all transactions for tax purposes.

5. Frequently Asked Questions (FAQ)

Q1: What expenses can be included in ACB?
A: Brokerage commissions, legal fees, accounting fees, and other direct costs associated with acquiring the investment.

Q2: What are returns of capital?
A: Distributions from a trust or corporation that are not considered dividends or interest, but rather a return of your original investment.

Q3: How does ACB affect capital gains?
A: Capital gain = Selling price - ACB. A higher ACB results in a lower capital gain and less tax payable.

Q4: Do I need to track ACB for all investments?
A: Yes, for all capital property investments including stocks, bonds, mutual funds, and real estate (except principal residence).

Q5: What happens if I don't track ACB properly?
A: You may pay more taxes than necessary or face penalties from the Canada Revenue Agency for incorrect reporting.