Adjusted Cost Base Explained
What adjusted cost base is, what adds to it and reduces it, a worked averaging example, and the mistakes that make investors pay tax twice.
The short version
- Your adjusted cost base (ACB) is what CRA lets you subtract from the sale price to work out your capital gain. Higher ACB, smaller gain, less tax.
- For shares, ETFs and funds, ACB is the average cost of all identical units you own, across all your non-registered accounts, including commissions, in Canadian dollars.
- Reinvested distributions and notional (phantom) distributions add to ACB; return of capital reduces it. Below zero, the excess is a capital gain.
- Your broker's T5008 often shows the wrong cost or none at all. The ACB is your responsibility, not the broker's.
- For property, ACB is the price plus land transfer tax, legal fees and capital improvements, not repairs.
Adjusted Cost Base Explained
ACB is the most boring number in investing and one of the most valuable. Every dollar you can legitimately add to it is a dollar of gain you don't pay tax on. Every reinvested distribution you forget to add is a dollar taxed twice: once when it was paid, again when you sell. Brokers track it badly, CRA expects you to track it well, and the rules are simpler than they look.
What Goes Into ACB
| Event | Effect on ACB | Effect on units |
|---|---|---|
| Buy, including commission | Adds cost plus fees | Adds units |
| Reinvested distribution (DRIP) | Adds the amount reinvested | Adds units |
| Notional or phantom distribution (T3 box 21, not paid in cash) | Adds the amount | None |
| Return of capital (T3 box 42) | Reduces ACB | None |
| Sell | Reduces ACB by average cost times units sold | Reduces units |
| Stock split or consolidation | No change to total ACB | Changes units, so cost per unit changes |
| Inherited or gifted shares | Starts at market value on the date received (usually) | Adds units |
Track it automatically in the adjusted cost base calculator. The slips involved: the T3 and the T5.
Years of trades and a T5008 that makes no sense?
List your purchases, sales and distributions. The assistant rebuilds the average cost, shows the gain on each sale and what goes on Schedule 3.
Worked Example
Buy 100 shares at $40 plus $10 commission ($4,010). Later buy 100 more at $60 plus $10 ($6,010). You now own 200 shares with an ACB of $10,020, or $50.10 each. Sell 150 at $70, less $10 commission: proceeds $10,490, ACB of the shares sold 150 × $50.10 = $7,515, capital gain $2,975, half of it taxable. The 50 shares left keep an ACB of $50.10 each. Selling "the cheap ones first" isn't allowed in Canada; identical shares are always averaged. Tax on the gain: capital gains calculator.
Mistakes That Cost Investors
- Trusting the T5008. Box 20 (cost) is often blank or uses the broker's own records, which miss transfers in from other brokers.
- Forgetting reinvested distributions, so the same money is taxed twice.
- Ignoring return of capital on REITs and some ETFs, which overstates ACB and understates gains; see ETF taxes.
- Not averaging across accounts. The same ETF at two brokers is one pool.
- U.S. dollars. Convert each purchase and sale at the exchange rate on its own date; see stock investment taxes.
ACB for Property
For a cottage, rental or land, ACB is the purchase price plus land transfer tax, legal fees and other acquisition costs, plus capital improvements (a new roof, an addition, a septic replacement), but not repairs or maintenance. For rentals, CCA claimed doesn't reduce ACB; it's recaptured separately. See repairs vs capital, cottage capital gains and capital gains tax. Losses and the 30-day rule are on capital losses.
Adjusted Cost Base Questions
What is adjusted cost base in Canada?
The cost of an investment or property for tax purposes: what you paid, plus commissions and other acquisition costs, adjusted over time for reinvested distributions, return of capital and similar events. It is subtracted from the sale proceeds to calculate a capital gain or loss.
How do I calculate the ACB of shares?
Add up the cost of all identical shares you own, including commissions, in Canadian dollars, and divide by the number of shares. Each purchase changes the average; each sale removes shares at the current average.
Does return of capital reduce ACB?
Yes. Return of capital reduces your ACB. If the ACB would go below zero, the negative amount is a capital gain in that year and the ACB resets to zero.
Do reinvested dividends increase ACB?
Yes. Reinvested dividends and distributions are taxed when paid, and the amount reinvested is added to your ACB so it is not taxed again when you sell.
Is the cost on my T5008 slip correct?
Not always. Brokers may not know your full purchase history, especially after transfers. You are responsible for reporting the correct ACB.
How do I calculate capital gains on stocks?
Proceeds of sale, minus selling costs, minus your adjusted cost base (the average cost of all the shares you owned, including commissions). Half of the gain is added to your income.
Sources: CRA, Completing Schedule 3; Guide T4037, Capital Gains. Checked October 2026. Inherited and gifted property usually starts at fair market value, but transfers from a spouse and some other cases roll over at the original cost; check your situation. T3 box numbers are as currently printed.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.