Q – I am able to calculate the ACB (adjusted cost base) when I add new stocks/ units. But how do I adjust the ACB for ROC (return of capital)? Does ROC decrease my book cost? Also, is a “distribution” different from an ROC for taxation and ACB calculations? Thank you. – Stella

A – Distribution is the broad term that covers payments from an ETF, mutual fund, REIT, limited partnership, etc. For tax purposes, a distribution may be broken down into several components, including dividends, capital gains, interest, foreign income, and return of capital. These should be broken out on the reports you receive at tax time from your broker or the company that manages the security.

If a distribution includes return of capital, that amount should be deducted from your cost to produce a new adjusted cost base. So, if you paid $10 for a security and you received $0.50 in ROC, your adjusted cost base will now be $9.50. This will increase your capital gain (or reduce a capital loss) when it comes time to sell the security.

If at any time the ACB drops below zero, the difference is taxed as a capital gain.

Finally, remember this only applies to non-registered accounts. You don’t need to worry about ACB in RRSPs, TFSAs, etc. – G.P.