“As easy as ACB: Understanding and tracking adjusted cost base with ETFs” is eligible for CE credits, see Accreditation details for more information

Course summary: Justin Bender of PWL Capital and Dan Bortolotti of PWL Advisors explain ACB reporting for ETFs. Note, some of the external sites mentioned in this course cater primarily to IIROC registrants.

Why you should track your ACB

One of the most complicated and tedious tasks investors must do is calculate the adjusted cost base (ACB) for each security in their taxable accounts.

Your ACB is the original cost of your investment, adjusted upwards for any new purchases (lump-sum buys, reinvested dividends, or reinvested capital gains distributions) and downwards for any sells or return of capital (ROC) distributions.

While calculating your ACB is complex and time-consuming, it’s extremely important. If you neglect to adjust your ACB upwards, you’ll pay too much tax when you sell the security. If you neglect to adjust it downwards, you’ll pay too little. Although the latter may sound appealing, the Canada Revenue Agency is not likely to share your enthusiasm.

Reporting your ACB would be easier if your brokerage kept the records for you. Unfortunately, they do not always do this accurately. They are not entirely to blame: because your ACB must be calculated for identical securities across all taxable accounts, no single brokerage can see the entire picture. (See “Identical property,” below.)

Because individuals are ultimately responsible for the accuracy of their ACB reporting, we’ve put together this course to make it easier for ETF investors.

We recommend you complete this task every March, before you file your personal tax return. This will allow ETF providers enough time to report the tax breakdown of their funds’ distributions.

Gathering your account transactions

Your first step is compiling all the required information from your monthly or quarterly non-registered account statements. (It’s not necessary to track your ACB for securities held in RRSPs and other registered accounts.

Focus on the account activity section of each statement: this will include any buys or sells that took place during the calendar year, as well as any reinvested dividends (DRIPs).

In the sample statements below, there were three relevant transactions for the iShares S&P/TSX Capped REIT Index Fund (XRE) in 2012:

How to obtain an ETF’s tax breakdown

The next step is to obtain the tax breakdown for all ETF distributions received during the calendar year. We’ll continue with our example from above using the iShares S&P/TSX Capped REIT Index Fund (XRE).

CDSinnovations.ca is an automated system that allows Canadian ETF issuers to post tax breakdowns for their distributions. You can download monthly, quarterly and annual return of capital and reinvested distribution breakdowns to assist you in calculating your adjusted cost base. When you visit the website, click the following links on the navigation bar at the left of the screen:

Click the link Display tax information for year 2012 and accept the conditions on the Terms of Access Disclaimer and Legal Information page.

You will then be brought to the Mutual Fund and Limited Partnership Tax Breakdown Posting page. You can sort the funds in alphabetical order by clicking on the Security Name heading. Scroll until you find the ETF you’re looking for and click on the Excel icon to the right of the name.

Statement of Trust Income Allocations and Designations

On this statement, there are three key pieces of information you’ll need in order to calculate and track your ACB:

  1. Record Date
  2. Total Non Cash Distribution ($) Per Unit
  3. Return of Capital

We recommend printing a copy of this spreadsheet for your records.

Statement of Trust Income Allocations and Designations – XRE (2012)

Source: CDS Innovations Inc.

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