Adjusted Cost Base (ACB) in Canada: How to Track It and Avoid Overpaying Tax
This sits under how to invest in Canada. The taxable half of a gain, once the ACB is right, is the capital gains guide. A loss you want to keep has to survive the superficial loss rule. The year-end sequence is the tax-loss harvesting calendar. The filing habit is tax record keeping.
- Capital gain or loss = proceeds of disposition − ACB − outlays to sell. CRA's own share example is $6,500 − ($4,000 + $60) = $2,440.
- Identical properties use average cost. A sale does not change the average of the units you still hold. You cannot pick a high-cost lot of the same fund the way a US tax-lot system allows.
- Reinvested distributions raise ACB. A positive amount in box 42 of a T3, return of capital, lowers it. If ACB falls below zero, the negative amount is a capital gain and ACB resets to zero.
- CRA's corporations "what's new" page says the proposal to raise the inclusion rate from one-half to two-thirds was later cancelled. CRA's capital-losses page prints one-half from 2001 through 2025.
- A T5008 and a brokerage "book value" are inputs. They often omit return of capital and a transfer from another broker. The worksheet is yours.
What is adjusted cost base?
CRA's definitions page says ACB is usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees. The cost can also include capital expenditures, such as additions and improvements. You cannot add current expenses, such as maintenance and repairs, to the cost base. For a cottage or a rental building that distinction is the whole argument with CRA. For an ETF, the moving pieces are commissions, reinvested distributions, and return of capital.
To calculate the gain or loss, CRA says you need three amounts: proceeds of disposition, ACB, and outlays and expenses to sell. Subtract the ACB and the selling costs from the proceeds. On the calculating page, the worked share sale is 400 shares of a public corporation sold for $6,500, with a $60 commission and an ACB of $4,000: $6,500 − ($4,000 + $60) = $2,440. That $2,440 is the capital gain, not the taxable gain. The inclusion rate is a second step.
If the security is in another currency, CRA says to convert proceeds at the exchange rate on the sale, ACB at the rate when you acquired the property, and selling costs at the rate when you incurred them. One year-end rate applied to every line is not the method. The broker's Canadian-dollar slip can be the conversion. If you moved USD cash yourself, keep the rate you actually used.
How do you average identical properties?
CRA's special-rules page says properties are identical when each one in the group is the same as the others. The common examples are shares of the same class of a corporation, and units of a mutual fund trust. You calculate the average cost of each property in the group at the time of each purchase. Dispositions of identical properties do not affect the ACB of what remains. The average is the total cost of identical properties purchased, usually including expenses to acquire them, divided by the number you own.
The same page says a mutual fund's box 42 on the T3, "Amount resulting in cost base adjustment," changes the capital balance and is used when you report the ACB on Schedule 3. If that adjustment pulls the ACB below zero during the year, the negative amount is deemed a capital gain, you report it on line 13200, you enter zero on line 13199 because there was no actual sale, and the ACB is deemed to be zero.
| Event | Effect on ACB | Where it shows up |
|---|---|---|
| Buy, including a commission | Add the cost and the commission. Recalculate the average. | Trade confirmation. Not optional. |
| Reinvested distribution | Add the amount you reinvested. You bought more units. CRA says to recalculate every time. | T3, and the DRIP line on the statement. The cash you never saw still raised the cost. |
| Return of capital (T3 box 42, positive) | Subtract it. You received your own capital back. | T3 box 42. A T5 return of capital on a mutual-fund corporation share is not on the slip the same way. CRA says you track it yourself. |
| ACB driven below zero | The negative amount is a capital gain that year. ACB becomes zero. | Schedule 3, line 13200, with no proceeds on line 13199. |
| Sell part of the holding | The units sold take the average with them. The average of what remains does not change because of the sale. | Schedule 3. A broker "book value" that uses a different lot method is a warning, not a filing position. |
| Superficial loss denied | If you are the person who acquired the substituted property, CRA says you can usually add the denied loss to the ACB of that property. | The superficial loss page. Inside a TFSA or RRSP the bump is generally useless. |
Table as of October 2026. Sources: CRA definitions for capital gains, CRA's identical-property rules, CRA's mutual-fund tax treatment, and CRA's capital-losses page on superficial losses. ETF units that are identical to each other follow the same average-cost arithmetic. CRA has not published a list of which ETF pairs are identical to each other. That test is the superficial-loss page, not this one.
You buy 100 units for $2,000 and pay a $10 commission. Cost is $2,010. Average is $20.10. Later you buy 100 more units for $3,000 with no extra commission. Total cost is $5,010. You own 200. Average is $25.05. You sell 50. The ACB of the sale is 50 × $25.05 = $1,252.50. You do not get to assign the sale to the $20.10 units. The 150 units you still hold stay at $25.05. If the T3 later shows $200 of return of capital, subtract $200 from the pool. The new total cost is $5,010 − $1,252.50 − $200 = $3,557.50, still across 150 units, which is $23.72. These dollars are arithmetic so the sequence is visible. They are not a fund's distribution and not a tax result.
What does the inclusion rate do after the ACB is right?
The capital gain is not the tax. CRA's capital-losses page, in the section on the 2025 return, says the inclusion rate for 2025 is 50 percent, and its table prints one-half from 2001 through 2025. CRA's "what's new for corporations" page says the federal government deferred a proposal to raise the rate from one-half to two-thirds, and that it was later announced that this proposed increase was cancelled. This page does not invent a 2026 bracket. The taxable half, and the alternative minimum tax that can still apply to a large gain, are the capital gains guide and the AMT guide.
A gain inside a TFSA or an RRSP is not a capital gain on your T1. You do not track ACB there for Schedule 3. You do track it in a non-registered account, including units you later transfer. Transferring a loser into a TFSA is a disposition at fair market value. If the superficial-loss rule denies the loss, the ACB bump lands in an account that will not use it. The TFSA contribution guide is that transfer.
Why is the T5008 not the worksheet?
CRA's slip instructions say to enter the ACB in column 3 of Schedule 3, and that if the ACB does not appear on the slips you consult your own records of what you paid, plus expenses to acquire the units. A T5008 often carries a proceeds figure and a book value the broker computed from trades it saw. It does not always include a return of capital from a T3, a reinvested distribution from before you arrived, or the cost on a transfer from another firm. Two brokers can show two book values for the same units. You file one average.
Eligible dividends and interest are not ACB events. They are income in the year, on the T3 or T5. Return of capital is the piece that looks like income in a yield screenshot and is capital on the slip. The longer version of that mix is dividends versus growth in a taxable account. Foreign currency in the cash balance is a separate property from the ETF. Do not fold a USD gain into the fund's ACB.
Frequently asked questions
Do I track ACB inside a TFSA or RRSP?
Not for your own capital gain. Those accounts do not report your personal gain or loss on Schedule 3. Track ACB in non-registered accounts, and track it on the way into a registered account if the transfer is a disposition. A broker's registered "book value" is a performance number, not a tax number.
Can I sell the shares I bought at the highest price?
Not if they are identical. CRA says you use the average cost of the group, and a disposition does not change the average of what you still own. You can choose which fund to sell. You cannot choose which lot of the same fund to sell.
Does a reinvested distribution get taxed twice?
The distribution is income, or a capital gain allocated by the fund, in the year you receive it, including when it is reinvested. Adding it to ACB is what stops you from paying tax on that same amount again as a gain when you sell. Skipping the add is how people overpay. The T3 is the character. The statement is the units.
What if box 42 is larger than my ACB?
CRA says the negative amount is a deemed capital gain in that year and the ACB becomes zero. You have not sold. You still report the gain. Further return of capital after the reset starts from zero and can create another gain. This is common with funds that pay out more cash than they earn.
Should I trust the book value on a transfer?
Treat it as a starting clue. Ask the old broker for the cost they sent, then rebuild from confirmations if the number does not match your DRIP and your T3 history. A transferred book value that ignores return of capital will understate the gain later. The record-keeping guide is the folder.
Is the 2026 inclusion rate two-thirds?
CRA's corporations page says the proposed increase was later cancelled. The capital-losses page prints one-half through 2025. Use the capital gains guide for the filing position, and read Schedule 3 for the year you actually file. Do not apply a two-thirds rate because an old "what's new" box still describes the deferral.
Sources
- CRA: definitions for capital gains, including adjusted cost base
- CRA: calculating your capital gain or loss, including the $6,500 share example
- CRA: identical properties, average cost, and box 42
- CRA: capital losses, inclusion rate through 2025, superficial loss
- CRA: what's new for corporations, proposed inclusion-rate increase cancelled
The worksheet is the gain. The return is the tax.
Schedule 3 does not rebuild your ACB for you. The 2026 tax guide is the filing side of the same folder.
Get the 2026 Tax Guide — $49 CAD
