It’s been four years since we released our white paper, As Easy as ACB. The paper provided investors with step-by-step instructions on how to track the book value of their ETFs, using the free online resource, Adjusted Cost Base.ca. We were the first to admit that the title of our paper was misleading – tracking your ACB is about as easy as reciting the alphabet backwards.
Adjusted Cost Base.ca has further simplified the ACB tracking process by offering an upgrade to their basic features for $49 per year. The main benefit for premium subscribers is the ability to import all phantom distributions and return of capital for their ETFs, saving precious time and possibly avoiding an overpayment of taxes.
Source: Adjusted Cost Base.ca
The service allows you to import up to ten years of data (you can download any missing information from the Canadian Depository for Securities (CDS) website, using their tax breakdown service). If there were any unit splits (such as for the iShares Core S&P/TSX Capped Composite Index ETF’s 4-for-1 unit split on August 8, 2008), these will also need to be inputted manually.
At a premium
After upgrading to premium subscriber status, the process for importing ETF tax information was very straight-forward. To illustrate the steps, I’ve included an example below for the iShares Core MSCI EAFE IMI Index ETF (XEF). The example assumes that 2,000 units of XEF were purchased for $53,300 on January 15, 2016.
Step 1: Click on Auto Import Tax Information for ETFs / Funds / Trusts
Source: Adjusted Cost Base.ca
Step 2: Search for the ETF Tax Report
After choosing the 2016 tax year from the drop-down menu, enter XEF as the ETF symbol and then click on Search. Once the search results appear, click on the fund name.
Source: Adjusted Cost Base.ca
Step 3: Apply the Transactions
Once you’ve reviewed the return of capital and non-cash (phantom) distribution information, click on Apply Transactions. If you held the ETF during other tax years, repeat Steps 1 through 3, changing the tax year each time in Step 2.
Source: Adjusted Cost Base.ca
2016 results
The return of capital transactions have now been automatically included (decreasing the ACB by $2.26 and $1.06 respectively). The reinvested capital gains (phantom) distribution has also been included, increasing the ACB by $219.88. If the investor had forgotten to adjust their cost base for this non-cash distribution, they would eventually pay an extra $58.85 in tax (assuming an Ontario resident in the highest marginal tax bracket [$219.88 × 50% × 53.53%]). The additional cost of the premium service would have easily paid for itself in this scenario.
Source: Adjusted Cost Base.ca
Is it worth the extra cost?
As always, there will be a small percentage of investors that will cringe at the thought of paying $49 annually for information that is available for free online. Based on the feedback I receive from DIY investors, most of them will find this service to be totally worth the fee.
Why do you use the date of settlement instead of the date of purchase? The price of a stock or ETF most likely will have changed two business days later when the trade settles.
@noob – If you purchase an ETF, the cost is the price you paid when you placed the trade.
The settlement date is used for foreign currency transactions (to determine the date of the FX rate).
Hi Justin,
Regarding Mark’s question dated April 18,2019 at 3:44 pm (above)
I looked everywhere without success for your reply to Mark’s question as this would help me greatly.
Would appreciate your recommendation on this.
Thank you
@Gisele (and Mark): Although the brokerages have improved their return of capital updates, I would recommend investors still track their own ACB (using the cds.ca website and process outlined in our white paper, or via adjustedcostbase.ca’s service). The reinvested distributions must also be obtained from the cds.ca website – the T3 slip does not contain this information.
I recently caught a large reinvested distribution brokerage reporting error on ZDB which impacted many of our PWL clients (the T3 slip is currently being amended), so you can never rely on any brokerage to do this accurately every year.
Hi Justin,
I’ve read the Whitepaper on tracking ACB. With a Couch Potato / CPM model portfolio (ZDB/VCN/XAW), the two things to worry about are Return of Capital and Reinvested Capital Gains.
At tax time, my brokerage provides a T3 Summary with Return of Capital broken down by ETF. This seems pretty clear. Any reason why this number cannot be trusted? Then all that is left to do is figure out Reinvested Capital Gains. Is there any way to calculate that using the T3 summary as well, or is the CDSinnovations.ca database the only way to determine accurately? Or can reinvested capital gains be accurately calculated from the T3 Summary as well?
Just curious as there are certainly thousands of investors in these ETFs and I would imagine only a very small portion of them are tracking reinvested capital gains correctly.
Thanks!
Hi Justin,
With the bank of Canada daily noon rate change this year, what should I be using instead when doing the ACB calculations (daily exchange rate or Canadian Effective Exchange Rate (CEER)? The daily noon rate is only up to date until April 2017. Do I then also need to go back and update my transactions to use the same exchange rate method?
@SterlingF: For any 2017 transactions, use the daily exchange rate lookup: https://www.bankofcanada.ca/rates/exchange/daily-exchange-rates-lookup/
You may note that the average of these 249 daily rates during 2017 equals the 2017 average annual rate of 1.2986.
The new exchange method is not available pre-2017, so you do not need to go back and update your past transactions.
Not sure about other discount brokers or even when it started, but TD DI calculates automatically ACB in “average cost” field. For a Canadian preferred share in US$, AX.PR.U, it subtracted automatically the ROC part and I did not have it for the full year.
@dodoi: I would be even more skeptical of the ACB of US$ securities at any Canadian discount brokerage (most of them are totally incorrect). DIY investors need to learn how to track their own ACB (you can’t trust your brokerage, and they may not have all the information necessary to accurately track it).
Justin, I agree, it’s totally worth the annual fee. Not only does it save a lot of time, but eliminates the possibility of mistakes when entering the data manually.
@Grant: Was the return of capital zero point zero zero zero five zero cents per share, or zero point zero zero zero zero five cents per share? ;)