# Sold mutual funds - calculating ACB



## yyzvoyageur (Apr 10, 2009)

Doing a family member's taxes. She sold a mutual fund in 2011. BMO sent us a "summary of sale transaction" that lists the proceeds of disposition as well as the adjusted cost base and capital gains/losses. This was from the BMO Monthly Income fund, which distributes a lot of return of capital from my understanding. Would the adjusted cost base value given on the summary of sales transactions account for that return of capital? Apologies for my ignorance. I don't deal with mutual funds myself.


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## Four Pillars (Apr 5, 2009)

I would certainly hope so!


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## CanadianCapitalist (Mar 31, 2009)

I wouldn't trust ACB calculations provided by discount brokers. In my experience, I've found ACB calculations to be rife with errors. YMMV.


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## yyzvoyageur (Apr 10, 2009)

So, unlike ETFs, the ROC has already been deducted from ACB?


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## cardhu (May 26, 2009)

Did the BMO summary actually use the words “adjusted cost base”? That would be unusual because brokers/fund companies have no way of knowing what your ACB is, and furthermore they know that they have no way of knowing, so most brokers/fund companies would go out of their way to avoid using that terminology. Brokers I’ve dealt with for our non-reg accounts refer either to “book value”, or “cost”, neither of which is the same thing as “adjusted cost base”. 

A few years back, I received some ROC in a non-reg account (IB). I don’t recall whether they factored that into their “cost”, but in any event, I don’t trust IB to even get T-slips correct, let alone ACB calcs.


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## Homerhomer (Oct 18, 2010)

Mutual fund companies actually do know the adjusted cost base, and you should be able to get capital gains report based on the actual adjusted cost base, have seen them many times, for the most part they do a pretty good job with that.

Brokers on the other hand don't know it, and pass on the calculations to the investor, if you have trust units you are on your own as far as the calculation of the acb goes.


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## yyzvoyageur (Apr 10, 2009)

cardhu said:


> Did the BMO summary actually use the words “adjusted cost base”? That would be unusual because brokers/fund companies have no way of knowing what your ACB is, and furthermore they know that they have no way of knowing, so most brokers/fund companies would go out of their way to avoid using that terminology. Brokers I’ve dealt with for our non-reg accounts refer either to “book value”, or “cost”, neither of which is the same thing as “adjusted cost base”.
> 
> A few years back, I received some ROC in a non-reg account (IB). I don’t recall whether they factored that into their “cost”, but in any event, I don’t trust IB to even get T-slips correct, let alone ACB calcs.


Yep, that exact term. It lists the mutual fund, the transaction date, the number of units redeemed, the proceeds of disposition, the adjusted cost base, and the capital gain/loss. In this case I'm not sure how long the mutual fund was held, but the monthly distributions were reinvested into additional units, all of which, I would assume is accounted for in the adjusted cost base listed. As a DIY investor, I was surprised to see this information clearly laid out for me.


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## cardhu (May 26, 2009)

Yes, that is surprising, they should know better. Reinvested distributions should certainly be reflected in the stated cost, because they are new purchases. Reinvestment of an ROC distribution, though, should exactly cancel out (ie. ACB first reduced by the amount of the ROC distributed, and then increased by the amount of the new purchase). Perhaps you can get access to a couple years of recent statements, to verify what happens to the stated cost, with each new reinvested distribution. That'd give you some idea whether they are correctly dealing with the ROC component. 

It won't be straightforward, though, since the tax character of distributions is not determined until after year end, once a year. You might find a pattern where the stated cost rises through the year on the assumption of zero ROC, and then gets adjusted downward once the fund releases its tax info. Good luck.


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## Homerhomer (Oct 18, 2010)

yyzvoyageur said:


> Yep, that exact term. It lists the mutual fund, the transaction date, the number of units redeemed, the proceeds of disposition, the adjusted cost base, and the capital gain/loss. In this case I'm not sure how long the mutual fund was held, but the monthly distributions were reinvested into additional units, all of which, I would assume is accounted for in the adjusted cost base listed. As a DIY investor, I was surprised to see this information clearly laid out for me.


As I said above, it's not surprising, mutual fund companies are doing pretty good job reporting capital gains on their funds, you can spend hours calculating it yourself as another poster suggested however at the end you will end up with the same number the company provided to you, and if your numbers are different there is a very good chance your calculations are incorrect.


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## yyzvoyageur (Apr 10, 2009)

Homerhomer said:


> As I said above, it's not surprising, mutual fund companies are doing pretty good job reporting capital gains on their funds, you can spend hours calculating it yourself as another poster suggested however at the end you will end up with the same number the company provided to you, and if your numbers are different there is a very good chance your calculations are incorrect.


Thanks. I've submitted with the numbers they've given.


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## cardhu (May 26, 2009)

Homerhomer said:


> mutual fund companies are doing pretty good job reporting capital gains on their funds, you can spend hours calculating it yourself as another poster suggested however at the end you will end up with the same number the company provided to you, and if your numbers are different there is a very good chance your calculations are incorrect.


As I said above, mutual fund companies have no way of knowing the adjusted cost base … a number produced by a fund company might be close, and it might even be correct ... however, since they don’t have access to all pertinent info, it can’t be relied on to be correct ... only the investor (or someone acting on the investor’s behalf) can know for sure. Of course there is always a possibility that _some_ individual investors could botch their own calcs … but that really depends on who the investor is, does it not? 

YYZ – if your relative has only ever held this fund in a single account, directly with the fund company, and has never had any superficial losses, then there is a good chance you’ll be OK using their number. If they neglected to factor in the ROC, she pays less tax anyway, but still has a decent argument to avoid penalties, in the unlikely event of a detailed audit.


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## Four Pillars (Apr 5, 2009)

cardhu said:


> As I said above, mutual fund companies have no way of knowing the adjusted cost base … a number produced by a fund company might be close, and it might even be correct ... however, since they don’t have access to all pertinent info, it can’t be relied on to be correct


This is just plain wrong. Mutual fund companies look after the book keeping for their own funds. They DO have access to all the pertinent info will calculate the ACB. Yes, it's possible they could have a mistake in their calculations, but for an established company, it's not likely.


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## cardhu (May 26, 2009)

Four Pillars said:


> This is just plain wrong. Mutual fund companies look after the book keeping for their own funds. They DO have access to all the pertinent info will calculate the ACB.


Careful with those absolutes, Eugene ... its not wrong ... I'm not talking about mistakes, although they can and do happen, I'm talking about access to info ... fund companies have access to a lot of info, but they don't have access to ALL pertinent info ... one simple example, a superficial loss that gets added to ACB as a result of a sale by an affiliated third party that the fund company has no way of connecting to the investor. 

And then there are cases where the fund company might have access to the info, but there remains some uncertainty as to whether their systems are programmed to connect the dots ... continuing in the area of superficial loss, even if they do have all the info necessary to connect seller and investor, the question remains ... do they? ... i for one am not confident that they do, and since that sort of ACB adjustment benefits the investor, I'd be inclined not to simply roll over and accept whatever they say as absolute. 

Another example in the same vein might be where an investor holds units in the same fund over multiple accounts, perhaps some with the fund company directly, and others through a handful of brokerage accounts ... you know and I know that ACB is aggregated across all of those accounts ... and the fund company likely knows it as well ... but are 100% of all mutual fund companies equipped to calculate ACB correctly in 100% of such cases? You're apparently confident that they do. I'm not.

Are there cases where the fund company gets the ACB exactly right? Sure, and nothing I've posted implies otherwise. But it ain't absolute.


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