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 The
Money Management Newsletter: Taxes
and Estate Matters
The ABC for ACB
Calculating the Adjusted Cost Base (ACB)
for tax purposes
By Rob Whipp
Money Management Newsletter
Written April 1997; updated March 2001
For those investors who hold mutual funds outside
their RRSP the following points may help in calculating the Adjusted
Cost Base (ACB) for tax purposes.
 |
Adjusted Cost Base (ACB) is the total
unit cost divided by the total number of units. |
|
The total unit cost and total number
of units have to be re-added and the ACB recalculated after each purchase
and dividend reinvestment. |
|
Dividends that are cashed and not
reinvested do not change the ACB. |
|
A purchase or reinvestment may increase
or decrease the ACB depending on the transaction price. |
|
A redemption will not change the ACB
but the reduction of the total unit cost for a redemption is calculated
as ACB x units sold. It is not the market value of the units sold. |
Below is an example of an ACB calculation for a fictitious
mutual fund:
|
(A)
|
(B)
|
|
(A/B)
|
|
Date
|
Action
|
Total
Unit
Cost
|
Total
Number
of Units
|
Transaction
Price
|
ACB
|
|
1/15/00
|
Purchase
|
20,000.00
|
1,600.000
|
12.50
|
12.50
|
|
3/12/00
|
Purchase
|
10,000.00
|
754.717
|
13.25
|
.
.
|
|
ACB
|
30,000.00
|
2,354.717
|
.
.
|
12.74
|
|
6/28/00
|
Dividend
Reinvest
|
1,835.36
|
135.852
|
13.51
|
|
|
ACB
|
31,835.36
|
2,490.569
|
.
.
|
12.78
|
|
8/20/00
|
Purchase
|
20,000.00
|
1,408.451
|
14.20
|
.
.
|
|
ACB
|
51,835.36
|
3,899.020
|
.
. |
13.29
|
|
11/15/00
|
Redemption ($14.50)
|
4,582.76
|
344.828
|
14.50
|
|
|
ACB
|
47,252.60
|
3,554.192
|
.
.
|
13.29
|
|
12/31/00
|
Dividend
Reinvest
|
1,437.21
|
93.935
|
15.30
|
|
|
ACB
|
48,689.81
|
3,648.127
|
.
.
|
13.35
|
The end of year ACB
is $13.35 per unit as shown by the table.
The end of year total
unit cost is $48,689.81 as shown by the table.
The end of year
market value is $55,816.34 (3,648.127 units x market price of $15.30
at December 31, 2000). This was the unit price at the time of the dividend
reinvestment on December 31.
The redemption on
November 15, 2000 had a market value of $5,000 (344.828 units x market
price of $14.50). In this case you know how many units you redeemed
and you know your ACB to date was $13.29, so you have to calculate your
cost of redemption
by multiplying the number of units sold by the ACB (see point 5 above).
The reduction of the ACB is $4,582.76.
A
T-3 will be received for the two dividends
totaling $3,272.57.
The fund holder is
responsible for reporting the capital
gain on the redemption made November 15, 2000. The taxable gain is
as follows:
| Proceeds
(344.828 units x $14.50 market price) |
$5,000.00
|
| Adjusted
Cost (344.828 units x $13.29 ACB) |
(4,582.76)
|
| Total
Capital Gain |
417.24
|
| Taxable Capital Gain (50% of
Total Gain) |
$208.62
|
* * *
|
|
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Questions about the above send e-mail to:
moneyman@fiscalagents.com
©
1997, Fiscal Agents Money Management Newsletter
25 Lakeshore Road, Oakville, On L6K 1C6.
(905) 844-7700
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