ACB (Adjusted Cost Base)
The Adjusted Cost Base (ACB) is the cost of an asset for tax purposes, used to calculate capital gains or losses when the asset is sold. The ACB starts with the original purchase price and is adjusted for acquisition costs, capital improvements, and return of capital distributions.
For publicly traded securities, the ACB is calculated using the average cost method: if you buy the same stock at different prices over time, the ACB per share is the total cost of all shares divided by the total number held. Brokerage commissions are added to the ACB when buying and subtracted from proceeds when selling.
For real estate, the ACB includes the purchase price, land transfer tax, legal fees, and the cost of capital improvements (a new roof, renovations that increase value) — but not routine maintenance. Tracking your ACB accurately is essential, as errors can lead to overpaying or underpaying capital gains tax.
How it works
When you own the same security across multiple purchases, the average cost method blends every purchase into a single per-unit ACB — each new buy recalculates the average, and that blended figure, not any individual purchase price, is what's used to calculate your gain or loss when you eventually sell any portion of your holding.
One of the most common ACB mistakes is forgetting that reinvested distributions — dividends or capital gains automatically reinvested through a DRIP — increase your ACB. Those distributions are taxed as income in the year they're paid, and if you don't add them to your ACB, you effectively pay tax on the same money twice: once as a distribution, and again as an inflated capital gain when you eventually sell.
For real estate, your ACB includes the purchase price, land transfer tax, legal fees, and the cost of capital improvements like a new roof or a major renovation — but not routine maintenance or repairs, which don't add to the property's cost base. Because real estate ACB calculations are a common audit focus, keeping receipts for every improvement over the years you own the property is essential.
Example: Averaging cost across two purchases
You buy 100 shares at $20 each ($2,000 total), then later buy another 100 shares at $30 each ($3,000 total). Your total cost is $5,000 for 200 shares, so your ACB is $25 per share — not $20 or $30.
If you later sell 100 of those shares, the gain or loss is calculated using the blended $25 ACB, regardless of which specific shares you originally think of as being sold.
Frequently asked questions
Do reinvested dividends or distributions affect my ACB?
Yes — every reinvested distribution increases your ACB, and failing to track this leads to overpaying capital gains tax later because you'll appear to have a larger gain than you actually realized.
Does the CRA automatically track my ACB for me?
No. Brokers report partial cost information, but you're responsible for maintaining accurate ACB records yourself, especially after account transfers, inheritances, or holding foreign securities.
What costs can I add to my ACB when buying real estate?
The purchase price, land transfer tax, legal fees, and capital improvements like a new roof or renovation all count, but routine maintenance and repairs do not increase your ACB.
Related Terms
Capital Gains
A capital gain arises when you sell a capital property — such as stocks, mutual funds, ETFs, real estate (other than your principal residence), or cryptocurrency — for more than its adjusted cost base (ACB).
Inclusion Rate
The inclusion rate determines what portion of a capital gain is included in your taxable income.
Principal Residence Exemption
The Principal Residence Exemption allows you to eliminate all or part of the capital gain when you sell your home, provided you designate it as your principal residence for each year you owned it.