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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

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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© 1997, Fiscal Agents Money Management Newsletter
25 Lakeshore Road, Oakville, On L6K 1C6.
(905) 844-7700





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