What did you really pay? Your cost base decides your tax.
When you sell, the CRA taxes the difference between the sale price and your adjusted cost base (ACB). Getting the ACB right is half the job.
How it works, in three steps
- 1Start with what you paid, including commissions and fees.
- 2Average it as you buy more. If you buy the same investment at different prices, you do not track each purchase on its own. Your ACB per share is the total you paid divided by the total number of shares.
- 3Adjust it over time. Reinvested dividends raise your ACB, because you already paid tax on that money. A return of capital lowers it.
When you sell, your gain is the sale price minus your ACB for the shares sold, minus selling costs.
A simple example
You buy 100 shares for $5,000 ($50 each), then 100 more for $7,000 ($70 each). Your ACB is $12,000 for 200 shares, so $60 per share.
You sell 100 shares at $80, receiving $8,000. The ACB for those shares is $6,000, so the gain is $2,000, not the $3,000 you would get by matching them to the $50 purchase.
Does this matter to me?
It matters most if you
- Have bought the same investment more than once
- Reinvest dividends automatically
- Moved investments between brokers or accounts
Be careful if
- You rely only on your broker's "book cost", which can be wrong after a transfer
- You hold the same shares in more than one regular account (the averaging rule is about the identical shares you own, not one account at a time, so your broker's figure may cover only part of them)
- You get return-of-capital distributions and do not track them
The honest catches
- Keep your own records. Save trade confirmations and year-end statements. If the CRA asks, you have to show what you paid.
- A return of capital is not income, but it lowers your ACB. If it ever takes your ACB below zero, the shortfall is taxed as a gain.
- Foreign currency matters. For US shares, convert the purchase and the sale into Canadian dollars at the rate on each date.
This is education, not tax, legal or investment advice. Talk to a licensed Canadian chartered professional accountant or certified financial planner before you act.
Turn your cost base into a tax estimate
Work out your gain, then enter it with your income and province to see the tax.
Open the Capital Gains Tax Calculator