Your adjusted cost base (ACB) is the total amount you've paid for an investment, including the original purchase price plus any fees, commissions, and reinvested dividends. When you sell that investment, your capital gain is the difference between what you sold it for and your ACB. Understanding ACB is critical because it directly determines how much capital gains tax you'll owe. CRA tracks this carefully, and getting it wrong can lead to paying more tax than you should or facing adjustments during an audit. Your ACB isn't just your purchase price. It includes everything you spent to acquire and maintain your investment before selling it. This matters because a higher ACB means a lower capital gain, which means less tax owed. For example, if you bought shares for $5,000 and paid $100 in commission, your ACB is $5,100. If you later sell for $7,000, your capital gain is $1,900, not $2,000. That $100 difference saves you money when your gains are taxed.
Yes. Any fees you paid to buy the investment are added to your ACB. This increases your cost base and reduces your capital gain when you eventually sell, which lowers your tax bill.
Reinvested dividends are treated as new purchases at fair market value on the reinvestment date. They increase your total ACB. Your brokerage or mutual fund statement usually shows these amounts, so you don't have to calculate them manually.
In Canada, CRA requires you to use either average cost basis or specific identification. Most investors use average cost basis, which averages all purchase prices together. Verify your brokerage's default method and make sure it matches what you report to CRA.
Keep purchase confirmations, broker statements, reinvestment statements, fee receipts, and any communications with your financial institution for at least six years after you sell the investment. Digital copies are acceptable.
No. Property tax and mortgage interest are deductible expenses but not part of your ACB. Only the original purchase price, renovations, capital improvements, and acquisition fees add to your ACB for real estate.