Thursday, 18 May 2017

Financial Basics 12 - Keeping Track of Adjusted Cost Base

This post is about why and how to keep track of the adjusted cost base (ACB) of your ETFs in your taxable account. 


Just to make doing your taxes even more painful? Seems that way!

Updated May 2017 as the ACB spreadsheet has been enhanced to include foreign exchange input for transactions in foreign currency. 
Updated December 2016 to add another link in the Other Info section and update the RCGD table to include 2015 and 2016.

When you sell a stock, mutual fund or ETF, you must declare if there has been a capital gain or loss and pay tax on the capital gain. This is reported on form schedule 3, a portion of which is shown in the picture below (CRA Link here). Stocks and ETFs are reported in section 3. 

You will note that you have to report the proceeds of dispositions (what you sold it for), the adjusted cost base, any expenses incurred and then the gain or loss. The gain is the proceeds minus cost base minus expenses and if this is negative it is known as a loss.

The Adjusted Cost Base is the average price you have paid for the stock or fund up to the date you make the sale. In addition to the averaging of all the purchases, there are also adjustments to be made to the average price.  The first is known as Return of Capital and the second applies only to ETFs and is known as the Reinvested Capital Gains Distribution.

Here's a good introductory article from the Globe and Mail on the subject The ABCs of tracking your ACB

Chapter 3 of the T4037 Capital Gains publication has a few pages on calculating the adjusted cost base. You will note in this section that the CRA reference ACB as a cost per share, whereas on schedule 3 the adjusted cost base you enter on that form is the cost base for all the shares you sold.

I have put together a spreadsheet to make the process of keeping track of ACB easier for you. It's not a difficult calculation, but a nicely formatted spreadsheet will make it easier and consistent. There is a blog post on the spreadsheet - Adjusted Cost Base Tracking Spreadsheet or you can download it directly here

You will find many references on how to do this, but I have tried to simplify it as much as possible to reduce the number of entries and time required to keep track of the ACB. 

Here's my process

Remember from above that you need to capture all the required transactions for a single stock or fund in the same place to calculate the ACB for that stock or fund.  

1. Enter all the purchases of units on the date they occurred. If you are doing a monthly purchase plan for a mutual fund, then just sum up all the transactions at the end of the year and make one entry for all the units and an average price per unit. 

Here's an example for an ETF. Choose 'Buy' in the first column and enter the number of units, average price per unit and transaction fee.  

2. If you have dividend reinvestment (usually for mutual funds) then enter all of these at the end of the year. You can add up the number of units and value of the distributions from the trading summary provided by your trading account institution. I download my transaction history for the year and add them up in a spreadsheet. 

Here's an example for a years worth of monthly reinvestment. On the third row entered below, I added up the number of shares and the amount ($) invested for the 12 transactions from the annual transaction history and entered the total number of units and average price per unit. 

3. If you have any "Return of Capital" in box 42 on your T3 slips, then find out which funds those are for and make that entry. Return of Capital reduces your ACB. 

Choose "ROC" in the first column and enter the amount. 

4. This step applies to ETFs. If your ETF returned capital gains to you on the T3 slip, then the ETF likely has had a "Reinvested Capital Gain Distribution" (RCGD). You need to look up the RCGD, and enter this as an RCGD event on the date it occurred, which is almost always at the end of the year. Often this amount is close to the capital gain amount reported in box 21 of your T3, but it is not the same and in some (rare) cases can be quite different. You should check all your ETFs for this value, even if they did not distribute a capital gain. 

See the section at the bottom of this post on Finding Your RCGD Values for helpon how to find these values for your funds.

The value will be $/unit. Choose "RCGD" in the first column of the spreadsheet and enter the $/unit value. The spreadsheet will multiply the $/unit time the number of units you hold and adds this to your ACB. 

5. Enter sales of units on the day they occurred. Select Sell in the first column and enter the number of units, price per unit and transaction fee. 

6. If the transactions are for funds or stocks listed in a foreign currency, then put the exchange rate for that day in the inputs. You can get exchange rates from Bank of Canada here.  All calculations and reporting are done in Canadian Dollars. 

For a Sell record, the information under the "Schedule 3" section will be reported. This is the information you will need to file your taxes. Note that the ACB reported here is why we went to all this effort to track and calculate it. 

If the sale is during the year and you have re-invested transactions (for mutual funds) you will have to split the years re-investments into those that occurred prior to the sale and those after. See rows 4 and 6 in the example below. The Sell was on July 15th so the re-investments up to June 30th were entered before the sell and the ones for the remainder of the year, were entered afterward. 

If you do foreign exchange using Norbert's Gambit, you can use the spreadsheet to track gains or losses from this by entering the trades and exchange rates. When buying DLR in $Cdn the forex is 1.0, when selling DLR.U in $US then enter the forex as the days exchange rate from bank of Canada.  

Finding Your RCGD Values

If you received a capital gain for an ETF, go to the ETF website and look for "reinvested distribution" amongst the distributions for each fund or for the Tax Information or Tax Parameters for the funds.  

For BMO: Go to the BMO ETF page here. In the search box type in the ticker of the fund you are looking for, ie ZUE. Scroll down and click on Tax & Distributions. Scroll down more and select the year for which you are interested. Then look for the Reinvested Distribution Per Unit column. The value will be in $/unit. In the example below the RCGD values is 0.28 $Cdn/unit.

BMO publishes a Tax Parameters pdf for all their funds. The RCGD distribution is not included in this document.

For iShares: Go to ishares canada website here.  Click on Resources and then Tax Information Centre or this link here.  Look for Distribution Characteristics document for the year of interest. This document has all the tax characteristics for all iShares funds, including the RCGD.  Look for the Reinvested Distribution Per Unit column. In the example below the RCGD for XBB in 2016 is 0.03404 $Cdn/unit.

More Info

The Canadian Couch Potato has a good blog post on tracking ACB for ETFs including more details on the Reinvested Capital Gain Distribution - Calculating Your Adjusted Cost Base With ETFs

The CCP has a recent article on distribution of capital gains from ETFs, that you should consider before buying a large quantity near the year end. Making Sense of Capital Gains Distributions

In addition to your funds website for historical information on distributions, you can get information on T3 and T5 information at the CDS innovations database. 

Below is a list of a few select ETFs, with "y" marked if RCGD was reported in specific years. You should check the fund website yourself for this information. 

RCGD Distributions by year

Disclaimer:  These posts are not fully comprehensive financial advice.  You should seek your own qualified investment, tax and legal advice.


  1. Hi Steven, excellent post. I am just learning about how to calculate ACB for my ETFs and your spreadsheet/explanation is one of the best on the net. Thanks!

  2. Does it matter whether I use my brokerage's T3 tax slip or the CDS innovations database to determine ROC? I noticed a difference between the two

    1. I'm no expert as to why these would be different. The distributions could be done more than once through the year, so you would need to use your share holdings on the record date(s) of the distributions to use with the value from CDS. I just checked one of mine and they match. Personally, I use the T3 slips as these are supposed to be correct. If you still have a difference and it is significant to you, then I suggest you consult an accountant.