Adjustable Cost Base (ACB) is way to track the cost of an investment asset and used in determining capital gains or losses upon deposition of a property. ACB can represent a whole number of how much has been invested into one asset. This ACB is also split into Building + Land when claiming Capital Cost Allowance (CCA) of the building portion of an asset.
What increases the ACB?
If there are major capital improvements to the property (adding a swimming pool, other major renovations), this will increase the building ACB and is required when claiming Capital Cost Allowance.
Welcome Tax, Legal Fees and other costs associated in acquiring the asset will all go towards the total ACB. In the case where Capital Cost Allowance (CCA) is being claimed, these fees will be split between building and land.
How is the ACB calculated?
ACB is calculated using the following formula, ACB = initial investment + additional contributions.
When calculating ACB to determine the Capital Cost Allowance (CCA) deduction, the ACB must first be broken up into building and land (land is not included when deducting CCA)
Example of ACB when selling:
ACB is the primary tool used by the Canadian Revenue Agency (CRA) when determining how much you will pay in capital gains tax upon the deposition of an asset.
- You bought a condo for $300,000.
- After Welcome taxes, legal fees and other expenses, the final cost to acquire that asset was $305,000.
- After 3 years you create a new capital expense and do some major renovations costing $45,000
- After the renovations are completed, the ACB has been increased to $350,000
- 2 years later you decide it's time to sell the condo which sells for $400,000 after all fees.
- Capital gains on your investment is then calculated as (400000 - 350000)/2 = $25,000.
- Because the asest was held for more than 12 months, only 50% of of the final profit of the sale is subject to capital gains.
This is a very basic example and there are many other factors which will affect the final calculation of the ACB, including if you have been claiming ongoing depreciation of the building.