How to Calculate Adjusted Cost Base (ACB) in Canada
Your adjusted cost base is what the CRA considers you to have paid for an investment — and it is the number that decides how much of your sale is taxable. Get it wrong and you will overpay tax or understate a gain. The single most common mistake is using the price you paid for a particular share instead of the average across every share you own.
Adjusted cost base is what you paid for a property plus the costs to acquire it, such as commissions and legal fees. When you own several units of the same investment bought at different times, you must use the average cost per unit across all of them — not the price of the specific ones you are selling. Reinvested distributions raise your ACB; return of capital lowers it.
What adjusted cost base actually means
The CRA’s definition is short: adjusted cost base is “usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees.” It sits at the centre of every capital gains calculation:
So your ACB is not just the purchase price. It is the purchase price plus what it cost you to buy, and it moves over time as you buy more, receive certain distributions, or make improvements. Every dollar you correctly add to your ACB is a dollar you are not taxed on later. For how the resulting gain is then taxed, see our guide on how to calculate capital gains tax in Canada.
What goes into your ACB
Increases your ACB:
- The purchase price of the investment.
- Commissions and fees to buy — brokerage commissions, legal fees, and similar acquisition costs.
- Reinvested distributions in a mutual fund or ETF (DRIP). You already paid tax on these amounts, so they raise your cost base. Missing them is the most expensive common error.
- Capital improvements, for real estate — a new roof or an addition, but not ordinary repairs. Our guide to capital gains on property covers this in detail.
- A denied superficial loss, which gets added to the ACB of the property you repurchased. See the superficial loss rule.
Decreases your ACB:
- Return of capital (ROC) distributions. These are not income — they are your own money handed back, so they reduce what you are considered to have paid. Common in REITs and some ETFs, and reported in Box 42 of a T3 slip.
- Selling part of a holding reduces the total ACB proportionally (the per-unit average stays the same).
Not part of ACB: the commission you pay to sell. That is an “outlay or expense” and comes off your proceeds instead — same effect on the gain, different line.
If you have a DRIP or hold ETFs that pay return of capital, your ACB is not what your brokerage statement says you paid. Brokerages often do not track reinvested distributions or ROC adjustments across accounts, and the CRA holds you responsible for the right number. Overstating a gain because you ignored years of reinvested distributions is a real and common way to overpay.
The averaging rule for identical properties
This is where most people go wrong. The CRA is explicit: if you buy and sell the same type of property over time — publicly traded shares, units of a mutual fund — “you have to calculate the average cost of each property in the group at the time of each purchase to determine the adjusted cost base.”
In other words, you cannot choose which shares you are selling. There is no picking your highest-cost lot to minimise the gain, as US investors sometimes can. In Canada, every identical share you own is blended into one average.
Here is the CRA’s own example. You buy the same company’s shares twice, then sell some:
| Transaction | Cost | Shares | ACB per share |
|---|---|---|---|
| 2001 purchase: 100 shares at $15 | $1,500 | 100 | $15.00 |
| 2006 purchase: 150 shares at $20 | +$3,000 | +150 | — |
| New average cost | $4,500 | 250 | $18.00 |
| 2008 sale: 200 shares at $18 | −$3,600 | −200 | $18.00 |
| Remaining | $900 | 50 | $18.00 |
| 2025 purchase: 350 shares at $21 | +$7,350 | +350 | — |
| New average cost | $8,250 | 400 | $20.63 |
Source: CRA Guide T4037, Capital Gains. Note that the 2008 sale uses the $18.00 average — not the $15 or $20 you actually paid — and that selling does not change the per-share average for what is left.
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Reinvested distributions: a worked example
If you hold a fund that reinvests its distributions, each reinvestment is a purchase and nudges your average cost up. The CRA’s example, using a mutual fund trust bought in 2001:
| Transaction | Cost | Units | ACB per unit |
|---|---|---|---|
| 2001 purchase at $18.00 per unit | $15,000.00 | 833.3333 | $18.00 |
| 2001 reinvested distributions at $19.55 | +$1,170.00 | +59.8466 | — |
| New average cost | $16,170.00 | 893.1799 | $18.10 |
| 2002 reinvested distributions at $20.63 | +$1,455.30 | +70.5429 | — |
| New average cost | $17,625.30 | 963.7228 | $18.29 |
| Sale of 400 units at $18.29 | −$7,316.00 | −400.0000 | $18.29 |
| Remaining | $10,309.30 | 563.7228 | $18.29 |
Source: CRA Guide T4037. Two reinvestments moved the cost base from $18.00 to $18.29 per unit — on 963 units that is roughly $280 of cost base. Over a decade of DRIP, the same effect runs to thousands.
How to keep track without losing your mind
- Keep every trade confirmation and T3/T5 slip. The CRA expects you to prove your ACB, and brokerages routinely fail to carry the right figure — especially if you have ever transferred an account.
- Record ROC (Box 42) every year. It is easy to miss and it silently lowers your cost base. If your ACB is ever driven below zero, the negative amount generally becomes an immediate capital gain.
- Track each holding separately, but pool across accounts. Identical shares of the same company held in two different non-registered accounts are still one pool for averaging.
- Ignore registered accounts. ACB is irrelevant inside a TFSA, RRSP or FHSA — there is no capital gains tax there, so there is nothing to track.
- Do it yearly, not at sale. Reconstructing fifteen years of DRIP the week before you file is how people give up and guess.
You can confirm the rules in the CRA’s Guide T4037, Capital Gains. If you inherited the property rather than bought it, your starting cost base is different — see capital gains tax on inherited property. Once you have your number, run it through our capital gains tax calculator or browse the rest of our free financial calculators.
Frequently asked questions
Take what you paid for the property and add the costs of acquiring it, such as commissions and legal fees. If you own several identical units bought at different times, divide the total cost of the whole pool by the number of units to get the average cost per unit — that average is your ACB.
No. Canada requires averaging across identical properties, so every share of the same company is pooled into one average cost. Specific-lot identification, which some US investors use, is not available for Canadian tax purposes.
Yes. A reinvested distribution is treated as a purchase of additional units, so it increases your total cost base. You have already paid tax on that distribution, and adding it to ACB is what stops you being taxed on the same money twice.
Return of capital is a distribution of your own invested money rather than income, commonly paid by REITs and some ETFs and shown in Box 42 of a T3 slip. It reduces your adjusted cost base, which increases your eventual capital gain. If ACB falls below zero, the negative amount is generally treated as a capital gain right away.
No. Gains inside registered accounts are not subject to capital gains tax, so adjusted cost base has no effect there. Track ACB only for non-registered (taxable) holdings.
You still have to report a reasonable, supportable figure — the CRA places the burden of proof on you. Reconstruct it from trade confirmations, annual statements and tax slips, and keep the working. Guessing low overstates your gain and overpays tax; guessing high risks a reassessment.
Last updated: July 2026 · Rules and examples verified against CRA Guide T4037.
This article is general information, not tax advice. ACB rules have many special cases — inherited and gifted property, partnerships, flow-through entities, foreign currency, and property that changed use all follow additional rules not covered here. Confirm your situation with the Canada Revenue Agency or a qualified tax professional before filing.
