# Can Adjusted Cost Base be negative



## Brian K (Jan 29, 2011)

I have had some ETF's for a while now and some of the returns paid are Return of Capital - (ROC) and in some cases are pretty significant. From what I understand, ROC is accumulated and deducted from the Cost Base to give the Adjusted Cost Base (ACB). Upon sale of this particular ETF the ACB would get deducted from the Proceeds and Capital Gains is reported and then taxed.
So if the ETF is held long enough, it could reduce the ACB to zero and then go negative. So if [(Proceeds - ACB) = Cap Gains] this would increase the Capital Gains and offset the possibility of a loss and could increase the Cap Gain. 
So the equation becomes:

Proceeds - ACB = Gain/Loss
(# of shares * $/share) + Fees - ROC) - (# of shares * $/share + Fees) = Gain or Loss or in numbers

[(100*$12 + $10)] - [(100 * $10) + $10 - $1200)] = $1210 - $1000+$10-$1200) = $1210 - (1010-1200) = 1210 - (-190) = $1400.

Assuming Sale $/share = $12 and purchase was $10 and Fees in and out were $10.

My question is: Can the ACB go negative due to ROC being eventually higher than purchase price?
I hope I explained myself properly.

(I also see that the ROC is being reported on the T3 slips although there is no tax implications - just being reporting to CRA.)


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## AltaRed (Jun 8, 2009)

As I understand it, at the point ROC results in an ACB of zero, if one is ever in that position, the ROC actually is reported as capital gains on one's tax return. IOW, you cannot go below zero.


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## scorpion_ca (Nov 3, 2014)

http://www.adjustedcostbase.ca/blog/return-of-capital-and-how-it-affects-adjusted-cost-base/

http://www.adjustedcostbase.ca/blog/can-my-adjusted-cost-base-be-negative/


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## james4beach (Nov 15, 2012)

Brian K said:


> My question is: Can the ACB go negative


No, zero is the minimum.



> (I also see that the ROC is being reported on the T3 slips although there is no tax implications - just being reporting to CRA.)


This number has been unreliable on T3 slips in the past. You're right that it has no tax implication on the return, it's for information purposes, but is not the best source of that information. See the annual tax characteristics document published by iShares, this one
http://canadianmoneyforum.com/showthread.php/82409-iShares-2015-tax-characteristics-document

I'd suggest taking a look at your broker's statements or the online view. They report a cost base and in most cases they're pretty accurate. So you may look at that to see if it matches your own ACB calculations.


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## Brian K (Jan 29, 2011)

Thanks for the great info Scorpion and James. Very helpful.

The answer according to the blogs is that if the ACB eventually goes to $0.00, any future ROC payments are taxed as Capital Gains in the year received. If the ACB is positive, the ROC is accumulated as a future capital gain.

James - I find the ACB that my broker(s) are reporting is inconsistent. Sometimes ROC is included in their ACB calc and sometimes it is not. Actually I was just on the phone with CIBC yesterday to find out why my ACB is way different than what they were reporting. Turns out they included the ROC in the ACB only for 2015 and not since 2009 when I bought the ETF. They will correct that. From what I have seen, the ROC must be causing some brokers who try to track the ACB some grief. Also, one year I had the ROC reported on a T slip in some box that made it taxable. I didn't include it in my income because it was ROC and just included it in my ACB calc but CRA reassessed because it was in a taxable box and it was taxed - so I removed it from my ACB for that year. 

Again thanks for the info.


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