Calculating Adjusted Cost Base with Reinvested Distributions / Dividend Reinvestment Plans (DRIPs)

In a non-registered account, the income from a dividend or distribution can be in the form of interest income, dividend income, foreign income, capital gains, or return of capital.  With the exception of return of capital, this income is usually immediately taxable in the year of the distribution.  Often mutual fund investors elect to have distributions automatically reinvested back into the fund.  Similarly, stock owners can enroll in a Dividend ReInvestment Plan (DRIP).

When a distribution is reinvested in additional shares/units, it’s still immediately taxable in the exact same way as it would be if you had received cash.  But additional care must be taken to ensure that the Adjusted Cost Base (ACB) is calculated correctly.  If you neglect to factor the reinvestment into your ACB calculations, you’ll end up paying more than you need to in capital gains taxes when the shares are eventually sold.

When a reinvested distribution occurs, it’s best to think of it as 2 separate transactions:

  1. You receive a cash distribution
  2. You purchase additional shares/units using the cash

Although the cash may never physically pass through your hands or even get deposited into your account, a reinvested distribution is seen as two distinct transactions from a tax standpoint.

For calculating ACB, the reinvestment of the distribution is equivalent to a buy transaction.  The total ACB increases by the amount reinvested as follows:

New ACB = (Previous ACB) + (Total Reinvestment)
        = (Previous ACB) + ((Additional Shares Received) x (Cost Per Share of Additional Shares Received))

A reinvested distribution typically doesn’t involve any brokerage commission or any other transactions costs.  But if you do incur these costs they should be added into the ACB.

Example 1: Let’s assume that you own 1,060 units of XYZ Canadian Equity Fund with a total ACB of $22,684.00 and receive a distribution of $321.16, which is entirely reinvested in 12.95 additional units of the fund.  The ACB would become:

New ACB = $22,684.00 + $321.16
        = $23,005.16

Now, a total of (1,060.00 + 12.95 = 1072.95)  units are owned.

It’s important to recognize that in addition to the ACB adjustment, the distribution is taxable in the year of the distribution.  The taxation of the distribution will depend on whether it’s in the form of interest income, eligible dividend income, non-eligible dividend income, foreign income, capital gains, etc.  The tax breakdown should be included on the annual T3 and T5 slips sent by your financial institution, or you can look up this information yourself.  The ACB adjustment, however, will likely not be provided for you.

If all or a portion of the distribution is in the form of return of capital, an additional adjustment to ACB must be made.  Suppose that 25% of the $321.16 distribution is return of capital.  In this case, the ACB must be adjusted (decreased) based on this amount:

New ACB = $23,005.16  ($321.16 x 25%)
        = $22,924.87

Note that if you’re using a value for return of capital per share, this amount should be multiplied by the number of shares owned before the reinvested distribution (1,060 shares).

Sometimes when you elect to have distributions reinvested, you only receive whole shares, and the remainder is distributed in cash.  This is often the case with a synthetic DRIP at a brokerage.  In this case, only the reinvested portion is added to find the new ACB.

Example 2: Let’s alter the above example such that the $321.16 distribution is reinvested in 12 additional units and you receive $23.56 in cash.  The price per unit would therefore be (($321.16 — $23.56) / 12 = $24.80) and the reinvested amount would be ($321.16 — $23.56 = $297.60).  In this case the ACB becomes:

New ACB = $22,684.00 + ($321.16 $23.56)
        = $22,981.60

Let’s assume again that 25% of the $321.16 distribution is return of capital.  In this case, the ACB must still be adjusted (decreased) based on the amount:

New ACB = $22,981.60  ($321.16 x 25%)
        = $22,901.31

Note that the effect of the return of capital is the same regardless of whether the distribution is received as cash, fully reinvested, or partially reinvested.

When you’re enrolled in a dividend reinvestment plan, extra work is required to accurately track ACB.  This can become a tedious chore, especially when distributions occur monthly.  Many investors choose not to participate in DRIPs simply because of the headaches involved with the ACB calculations.

Using AdjustedCostBase.ca can alleviate the pain in tracking ACB caused by frequent and persistent reinvested distributions.  AdjustedCostBase.ca is a free web application that allows you to enter transactions, and the ACB and capital gains are calculated for you.  This saves a lot of time, and allows you to base your decision to enroll in a DRIP on your investing needs rather than your desire to avoid the extra work.

For Example 1 from above, you would add a new “Reinvested Dividend” transaction, setting the appropriate amounts for the reinvested amount and additional shares received:

Reinvested Dividend for Example 1

You could also use a “Buy Transaction” type with a total amount of $321.16 for 12.95 shares and the effect will be exactly the same.  Using a “Reinvested Dividend” transaction, however, makes it easy to see which transactions are related the DRIPs and which are normal purchases.

Next, you would need to create another transaction for the return of capital:

Return of Capital for Example 1

The transactions and resulting ACB after entering these transactions are shown below:

Transactions for Example 1

For Example 2 the transactions would be entered in much the same way, except the “Reinvested Dividend” transaction would be for only 12 shares with a total amount of $297.60.

You may notice the subtle detail that the transaction date for the “Return of Capital” transaction is set the 2014-Sep-02 while the date of the “Reinvsted Dividend” transaction is set to 2014-Sep-03.  This is done to ensure that the return of capital is applied first.  This will not be an issue if the return of capital amount is inputted as a “Total” amount, as opposed to a “Per Share” amount.  But if a “Per Share” amount is used, the number of shares associated with the calculation of total return of capital is 1,060 (not 1,072.95).  Moving the “Reinvested Dividend” transaction a day after the “Return of Capital” transactions ensures that the correct total return of capital will be calculated if you enter if as a “Per Share” amount.  The total return of capital is equal to the return of capital per share multiplied by 1,060 shares.  This also reflects the correct transaction order: first, a distribution occurs, and second, the distribution is reinvested.

 

63 thoughts on “Calculating Adjusted Cost Base with Reinvested Distributions / Dividend Reinvestment Plans (DRIPs)

  1. neilsherri

    Reviewing an old tax year in which I purchased $30,000 mutual fund, 980.2030 units at $30.61 and at year end I received a note from the broker saying there was a Reinvested Dividend of $3.692 units for an amount of $0.00.

    CRA is assessing a capital gain of $142.16 which I will have to pay tax on.

    However I notice when I make the Reinvested Dividend entry of $0.00 with 3.692 units, my ACB drops from $30.61 to $30.49. Shouldn’t a reinvested dividend on which I have to pay capital gains tax increase my ACB, not lower it, since I will pay paying the capital gain tax as assessed?

    Or should I alter the Reinvested Dividend entry to include the amount $142.16 based on the historical unit value of $38.50?

  2. AdjustedCostBase.ca

    The $0.00 amount likely means that you didn’t invest additional cash into the fund, not that the amount of the reinvested dividend is zero. Your brokerage should be able to tell you the amount reinvested, but most likely it’s equal to the fund’s NAV at the time of the reinvestment multiplied by the number of additional units received.

    When a reinvested dividend occurs your total ACB should always increase, however, the ACB per share could either increase or decrease.

  3. jamie

    I am going to calculate the ACB for my parents’ BCE account. Their investing was limited to BCE’s DRP program.

    However, i do not know how they originally entered the program i.e. I don’t have a record of when they purchased the “first” share in order to get started with the DRP, the year it occurred or the value of the initial purchase. Can i still work out the ACB without that information provided i get their first account statement?

  4. AdjustedCostBase.ca

    Your options would include the following:

    1. Use an ACB of zero. This will result in a potentially much higher capital gain than the true value.

    2. Donate the shares. You won’t need to report any capital gains and you’ll be able to report a charitable tax credit equal to the full value of the shares.

    3. Look up the dividend history and use the data in a spreadsheet to backwards calculate the number of shares owned on each distribution date (being careful to account for stock splits). However, if you have no information at all (not even the date of the original purchase or the number of shares originally purchased) it will probably not be possible to reconstruct the necessary information.

    Also, in your case you may want to look at BCE’s online ACB calculator:

    http://www.bce.ca/investors/shareholder-info/transactions-and-cost-base

  5. Rick Friesen

    Hi . I recently sold shares which I had had in a drip program for many years( maybe 20). There was at least one -1 for 3 stock split, name changes over time, etc. I have record of what I paid initially and most statements of new shares added due to the drip monthly or later quarterly. To get my ACB, would I just add up all the money that went into buying the new shares in the drip over the years(from these statements), plus the original cost, and divide that by the total number of shares I have at the end, regardless of splits ? thanks, Rick

  6. AdjustedCostBase.ca

    Rick,

    Yes, you should be able to do that, as long as:

    – There were no sales up until this point
    and
    – The distributions did not include any return of capital and there were no non-cash distributions

  7. Willi Koenen

    Under Dec. 2015 distribution information for the BOM ZWB ETF there was a (presumably re-investment) of 0.130 per unit in addition to the 0.073 paid in cash). The respective amount shows up as a higher than actual received payment on the monthly Tax information I received with the T3 for the Jan 7/16 distribution but is not segregated between the actual cash payment of 0.073 for Dec/15 and this “phantom” amount. Reading the DRIP info above, where there are additional shares issued without an actual payment as proof of distributed value, here there is however no correspondent increase to the amount of UNITS held. So do I just increase the ACB by the respective amount for which my only documentation is the T3 slip which doesn’t provide any information to support that amount of revenue I did not receive, yet have to pay taxes on it. So how can I prove to the Tax people my action of increasing the ACB to reduce my Capital Gains/increase Capitital Loss when selling the units, which did not change in amounts? In other words how can I prove that I only received 0.073 per unit and that the rest was re-invested without increase in Units.
    Looking at it from the customers side, there also is no specific sudden change in the unit price to support such a re-investment by the fund to prove there was an actual re-investment made (without issuing corresponding units!!!!!

    On very important point to consider: Were is the proof that unit owners actually did received value????

  8. AdjustedCostBase.ca

    Willi,

    ACB in general cannot be calculated from your T-slips. It needs to be backed up by your transaction records. The same goes here, and the non-cash distribution should be equal to the difference between all the taxable income and return of capital reported on your T-slip, and the amount of cash distributions received. I would think this alone would be sufficient proof, but also, the CRA can refer to the distribution tax breakdown that each ETF must report.

    Further information about phantom distributions can be found here:

    http://www.adjustedcostbase.ca/blog/phantom-distributions-and-their-effect-on-adjusted-cost-base/

    http://www.adjustedcostbase.ca/blog/streamlined-import-of-return-of-capital-and-phantom-distributions-and-for-exchange-traded-funds-etfs-publicly-traded-mutual-funds-and-trusts/

  9. Rob

    The examples you gave were for Canadian stocks and mutual funds.

    What about $US stocks, mutual funds and $US Investment Savings Accounts (ISA’s) held in a $US margin account?

    Do you do you enter the DRIP distribution as “Reinvestment Income” (and/or “Return as Capital” if applicable) into adjustedcostbase.ca?

    Or do you have to do something different to take into account the $US/$Cdn exchange rate applicable at the time the DRIP distribution was made?

    I have a $US ISA held in a $US Margin Account. Trying to figure out how to calculate its ACB.

    Any insight would be most welcome/

  10. AdjustedCostBase.ca

    Rob,

    AdjustedCostBase.ca has been updated to allow you to enter reinvested dividend transactions in a foreign currency. Thank you for your suggestion.

    You can enter the reinvested dividend in the same way as described here (a reinvested dividend is equivalent to a purchase for the purpose of calculating ACB):

    http://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-with-foreign-currency-transactions/

    Note that a distribution considered to be return of capital in a foreign country is generally considered to be fully taxable in Canada.

  11. Rob

    Many thanks for the update. That was fast1

    I have already used it to calculate my ACB for my $US ISA held in a $US Margin Account. It appears to work great.

    P.S. You may want to write a post explaining how to use it for others. (Or add to your original post above).

  12. velle

    Hi,
    I’ve had BMO full drip shares for quite some time now and have never tracked ACB. I’d like to get back and start investing again. To track ACB, I’ve been going through computershare to look at past divident and payment transactions. When I first owned the share, I didn’t select to reinvest the divident and so I used to get cheques in the mail. Do I account for these cheques (paymnet) in ACB? Pardon if I sound confused…I am!

    Thanks

  13. AdjustedCostBase.ca

    Velle,

    Dividends paid in cash should not affect ACB, unless a portion is in the form of return of capital. Assuming all the BMO distributions are in the form of eligible dividends, only any reinvested portion will factor into determining ACB.

  14. Bob Abrams

    Thanks much for your article AdjustedCostBase.ca

    Here are my questions.
    Back in 1996 I invested 3K in a drip which had continued to this year. The company has been bought out this year and my only option is to receive a disbursement check which will amount to approximately 36K.
    I’ve declared and re-invested the dividend income yearly and I don’t think I bought any additional shares on my own (although possible).
    The other issue is the management company changed 5 years ago so they don’t have anything prior. I know I have many of the 1099’s but doubtful that I’d have them all the way back to 1996.
    The new management firm said I could pay them for a “Prior agent statement”.
    So here are my questions.
    1. If I have the same taxman is it likely he’d have that info? I’d buy the statement if needed.
    2. How can I figure out the cost basis and what type of tax hit should I be prepared for.

  15. Richard

    Hi, guys, i hope some of you can help me out with my REITs ACB calculation. Much appreciated!

    My REITs situation is a bit different, because not all the dividend goes to buy the share and i have some leftover cash, and I don’t know how to calculate the cash part.

    Fort instance,
    I had 100 units of one REIT, i bought it 100 X 8(per share), plus commission of 10 dollars, my ACB is 100 X 8+10 = 810
    then came the dividend, 0.1 dollars per share, so the dividend is 10 dollars, with this 10 dollars, 9 was used to buy 1 share and 1 dollars left in the balance. How do i calculate the ACB now? it would be easy if all of the dividend goes to buy share.

    Also in my T3, for that dividend of 10 dollars, they broke it down to 3 (21), 5(26) and 2 (42 also meant ROC). I just got so confused with all these number. If any of you can tell me how the cash goes, and how to use ROC in T3, I would be much appreciated.

  16. Richard

    Sorry, i didn’t read this article carefully enough. thanks for this awesome article.

    now i know how to calculate my ACB, so my scenario above is:

    New ACB is: 100 X 8 + commission + 9 – 2
    If the commission is 10 dollars, the total is: 810+9-2= 817. And my ACB per share is 817/11= 74.27

    Correct me if i am wrong. Thanks again everyone!

  17. AdjustedCostBase.ca

    Richard,

    Please refer to Example #2 above, which shows a case where only some of the cash from a distribution is reinvested. In cases like this only the reinvested portion increases ACB and only that amount should be inputted for a Reinvested Dividend transaction on AdjustedCostBase.ca. In your example your total ACB would increase by $9 as a result in the reinvestment.

    If a portion of the distribution is ROC then that amount would decrease ACB. When a distribution is fully ROC and fully reinvested then the effect on ACB cancels out, however, in your example only part reinvested and only part is ROC. In addition to the $9 increase in ACB as a result of the reinvestment, there would be a decrease in ACB of $2, for a net increase of $7.

    This example can be inputted into AdjustedCostBase.ca as follows:

    1. Return of Capital: $2 total
    2. Capital Gains Dividend: $3 total
    3. Reinvested Dividend: $9 total for 1 share

    If inputting the return of capital amount as a per share value, you’ll need to ensure that this transaction is ordered before the reinvested dividend transaction.

  18. AdjustedCostBase.ca

    Richard,

    That’s correct, the ACB following the distribution and reinvestment would be $817 in total or $74.27 per share.

  19. Pingback: Ask the Spud: Can I Make Taxable Investing Easier? | Canadian Couch Potato

  20. Sam

    Sorry to ask a dumb question, but what date would you pick for the “buy” date of a dividend which is reinvested in a mutual fund (when does the “transaction” happen)? I am new to investing and new to mutual funds and never new that just selling some losing mutual funds would involve me in all this. FYI my T5 is describing Capital Gains Dividends.

  21. AdjustedCostBase.ca

    Sam,

    I would use the distribution payment date for a reinvested distribution. Note that the exact date probably won’t make any difference in your calculations as long as there are no sales around that time.

  22. Sam

    Thanks very much for your reply. Would you add up all the reinvested dividends from the time you owned the funds till you sold them? I’m surprised that the mutual fund co. doesn’t keep track of the ACB of such funds for us. My mom’s accountant seems to be using the book cost as the ACB for her mutual funds but I thought this was a different thing.

  23. AdjustedCostBase.ca

    Sam,

    Adding up all reinvested dividends to calculate ACB may work in some cases, such as when there are no sales over that period of time, but in general, ACB needs to be calculated incrementally.

  24. Rob

    Sam,

    In my experience, most mutual find companies do keep track of the ACB taking into account reinvested dividends for its customers. Considering the cost of most mutual funds that is the least they can do. Just phone them.

    If you bought your mutual find through a broker etc, you broker can also provide you with the most up to date ACB.

    Or you can calculate the ACB yourself using this website.

  25. Willi Koenen

    From my experience as of late that is correct (relating to relatively recent new investments). Unfortunately not every party has done so many years ago. Trouble is when you move your account from one party to another, for example even from one subsidiary of, say, a Bank to another as I have done twice. All the receiving party has on file are the present units and and the current price. So they have no way to provide you with the correct ACB, the reason, at least my Bank states that ACB qouted by them is not guaranteed.
    From my first investment ever and for any security: I created a relatively simply spreadsheet and entered every transaction as it occurred, making appropriate changes when I receive T3 slips as during the year all I received were funds in cash or re-invested including applicable number of shares or units without any breakdown between, say Dividends and Capital Gains, Foreign Revenue, Foreign Tax paid, etc. and particularly Return of Capital, as the latter can for some funds be quite a high percentage, all of which affects the ACB. Another method is investing into some software. i.e. I also use Quicken from Intuit where I also enter the data and make appropriate changes after I receive my T3 (Canada). And comparing Quicken so far it always concurs with my one calculation but for quite a few securities I hold the info I receive from my Bank as to ACB is incorrect – in some cases by quite a lot – new securities purchased via my latest brokerage party I use are dead on. Yes keeping your info up-to-date yourself is work intensive, but a lot easier than trying to determine the correct ACB after holding a security for a long, long time with lots of monthly re-investments including sales &/or purchases during that time.

  26. Roberto

    If this is a reinvested dividend, wouldn’t I also need to have a third line recording Capital Gains Dividends in either example, in order to keep track of Capital gain or loss?

  27. Tom

    Hi,

    I have had shares in a DRIP for many years and have traced the ACB. In Jan 2016, I removed 73 shares from the DRIPand put them in my brokerage account. I then sold these 73 shares in Oct 2016.

    Do I need to make an entry in ACB and if so, what kind of entry?

    Many thanks for this tool, it has been a godsend.

  28. Tom

    I forgot to mention that these 73 shares were my original investment. Not sure if that matters.

    Tom

  29. AdjustedCostBase.ca

    Roberto,

    If a reinvested distribution consists entirely of capital gains, it can be inputted into AdjustedCostBase.ca as a Reinvested Capital Gains Distribution transaction. Or, if only a part of it consists of capital gains, you can use a combination of a Buy transactions along with a Capital Gains Dividend transaction. Also note that a capital gains distribution doesn’t affect ACB, but rather results in an immediate capital gain. As such, you don’t necessarily need to input this into AdjustedCostBase.ca as it will appear on your T-slips, however, you can choose to do so in order to get an accurate picture of your total capital gains for the year.

  30. AdjustedCostBase.ca

    Tom,

    You would need to account for the original purchase, the increases in ACB resulting from each of the dividend reinvestments and the sale when calculating your capital gain. However, the transfer of your shares to another account belonging to you should not result in a deemed disposition and as such no ACB accounting for the transfer should be needed.

  31. Tom

    Thanks. Another question…When I fill out my Schedule 3 and enter the ACB, would that be the ACB immediately prior to the sale or the ACB shown after the sale? This is probably a stupid question but I’m a bit frazzled.

  32. AdjustedCostBase.ca

    Tom,

    On Schedule 3 the ACB should be the ACB for the shares that were sold immediately prior to the sale (number of shares sold x ACB per share).

  33. Ala

    My husband and I own DRIP of BNS together. In addition I own the DRIP of BNS myself. Could you please let me know how to keep track of ACB for my husband and also for myself using adjustedcostbase.ca.

    Thank you
    Ala

  34. Joe M

    Hi, if I have a small position on a stock paying a small dividend quarterly, but not enough cash to buy any new share (for example, the stock pays a $25 distribution yet it is currently priced at $50.00/share and thus not additional shares can be purchased), in order to accurately maintain my ACB, should I be making an entry for the $25 distribution? Or is the ACB only adjusted and entries made when actual additional shares are purchased? Thank you
    Joe M

  35. AdjustedCostBase.ca Post author

    Joe,

    Your ACB will only change based on the amount reinvested in additional shares, not on any cash amounts received (provided that the distribution does not consist of any return of capital). So there should be no change in ACB if a dividend is received entire in cash.

  36. Natacha

    Hi – If you receive a stock distribution of a different company in which you had 0 shares prior to this distribution, what is the ACB of those shares? Is it presumed to be $0 or FMV?
    Thanks

  37. AdjustedCostBase.ca Post author

    Natacha,

    The tax treatment for a spin-off can vary on a case by case basis so it’s best to check this by looking on the company’s web site, searching for press releases, checking sedar.ca, or contacting the company’s investor relations department.

    If the distribution of the new shares is done on a tax-deferred basis, then typically your ACB would be reallocated between the original company and the spin-off company based on the relative fair market values of the two (your ACB would not equal the FMV of the shares in this case).

    If the new shares are taxable as a distribution, then your ACB would likely be equal to the FMV of the shares received, which should also be equal to the taxable amount of the distribution.

  38. AdjustedCostBase.ca Post author

    Kashmoth,

    Normally the decrease in ACB from the ROC should be offset by the increase in ACB resulting from the reinvestment, resulting in no net change in ACB.

    However, in the special case where your ACB has reached zero, the ROC will be taxable as a capital gain in the year of the distribution (and the reinvestment would subsequently increase the ACB).

  39. Pingback: Why we're going to sell all our mutual funds - RodyWord

  40. Julio Esteban

    Lately I’ve noticed that many dividend payments are supposedly reinvested in a DRIP but there is a clear indication that the dividends purchase 0 shares. I was told that the dividends go to adjust the purchase price but, here again, I have not noticed any change in the price I paid for the shares. What i’m I missing?

  41. AdjustedCostBase.ca Post author

    Julio,

    This sounds like it may be a phantom distribution:

    https://www.adjustedcostbase.ca/blog/phantom-distributions-and-their-effect-on-adjusted-cost-base/

    All else being equal, in theory a distribution will cause the market value to decrease by the amount of the distribution. If the distribution is a phantom distribution, then in theory the market value will then increase by the same amount, resulting in zero net change. But in reality, market prices fluctuate for many reasons, so it can be difficult to see this effect.

  42. Angi

    (1) re: Example 1: I couldn’t figure out how did you arrive 12.95 additional units of the fund. The received distribution amount is $321.16. Total owned 1060 units with a total original ACB of $22,684.00, to my calculation the cost of per unit is $21.40 ($22,684.00/1060), therefor $321.16/$21.40 = 15.01 units. Now, a total of units are owned should be: 1060 + 15.01=1075.01 instead of 1072.95 (1060+12.95). Correct me if I am wrong, am I missing something here?

    (2) How do I calculate the ACB for the DRIP shares which accumulated for many years?

    (3) Does the DRIP shares need to be added on to the original shares were purchased when you calculate the ACB? I know how much I paid for the original shares which I purchased in different years.
    Thanks!

  43. AdjustedCostBase.ca Post author

    Angi,

    The number of units you receive from a reinvested distribution is a known value that you would get from your brokerage statement. Generally it should be approximately the market value at the time of the reinvestment, which is unrelated to your ACB.

    The process outlined above needs to be repeated for all reinvestments that occur over many years.

    Your ACB will increase by the amount reinvested.

  44. stuart

    I thought I made a post yesterday wrt to no warnings of Superficial loss rule application when multiple portfolios are merged and the result is multiple reinvestments and sales all occuring within the +/- 30 day window. I can’t find it now. Is there some special treatment regarding buys which are reinvestments (and technically out of my control) or is the program simply missing these?

  45. Adonis

    After reading the examples, I am not sure I fully understand how to enter my DRIPs into adjust cost base, so hopefully someone can help.

    My brokers’ transaction history reports:

    Dividend/Interest: 258.44$
    Reinvest: 16 shares, total -256.32$.

    To enter this properly into adjust cost base, am I supposed to make two transactions like this (call this case A)

    Transaction 1) Reinvested dividend, 16 shares, value 256.32$
    Transaction 2) Return of capital: 258.44$

    Or perhaps I am supposed to enter two transactions as follows (case B)?

    Transaction 1) Reinvested dividend, 16 shares, value 256.32$ (there are no commissions for DRIPs with this broker)
    Transaction 2) Return of capital: 2.12$

    Perhaps neither of these are correct, after all my brokers do not report a return of capital, so maybe I am supposed to do case C:

    Transaction 1) Reinvested dividend, 16 shares, value 256.32$

    In scenario C, I assume I ignore all interest paid that is not reinvested when entered the transaction details in Adjust cost base.

    Thanks for anyone willing to help.

  46. AdjustedCostBase.ca Post author

    Adonis,

    In general you would only need to input a transaction for the reinvested amount – a Reinvested Dividend transaction for 16 shares for a total of $256.32 in your example.

    If any portion of the distribution consists of return of capital, you would need to add a Return of Capital transaction. This is based on any portion of the full dividend (the reinvested amount plus the amount received as cash) that is deemed to be return of capital. Similarly, any portion of the distribution that consists of capital gains can be inputted as a Capital Gains Dividend transaction.

    If the dividend consists entirely of other forms of income such as eligible/non-eligible dividends, interest income or other income, then only the Reinvested Dividend transaction is necessary. These other forms of income do not impact ACB (but result in taxable income for the year of the distribution that should be reported on your T-slips).

  47. Terry

    We have read the information about incomplete records but don’t know how to proceed in the following situation. We have recently sold CIBC shares as executors for a relative who passed away. The original share certificate of 100 shares was purchased in 1989 and we have the original purchase receipt. She joined the dividend reinvestment plan right away but we have no records from 1989 to 1993. Can we enter the original purchase information from 1989 in the adjustedcostbase database and then start entering quarterly data starting in 1994? How should we proceed with this? Thanks.

  48. AdjustedCostBase.ca Post author

    Terry,

    If you only input the transactions for the reinvested dividends starting in 1994, your final share balance will be too low. At the very least I would suggest inputted an extra Reinvested Dividend transaction in 1994 for the number of shares missing (the difference between the final share balance and 100 shares plus the number of shares obtained from 1994 onward) for an amount of $0. This will give you the correct final share balance, and will guarantee that your capital gain is not under-reported (it will be greater than it should be, however).

    Another suggestion I have is to contact CIBC’s investor relations department to see if they can provide information on historical dividends and DRIP purchase prices:

    https://www.cibc.com/en/about-cibc/investor-relations/contact-us.html

  49. Frank

    I’ve been with the BMO DRIP since 2007 and sold most of it in 2019.
    Luckily the Computershare website keeps an online history record of every transaction that was made by me.
    The question I have is on 2 occasions I have had 1 share certified ,mailed to me which I then signed over to family members to get them started on DRIP plans. This method skips the steps of buying 1 share and then certifying in the person’s name by a brokerage.
    How does this effect my ACB? I am now 1 share shorter but I did not sell it.
    What I thought I should do is just readjust the ACB/share by dividing the existing number of shares by the ACB at the time of that the 1 share was certified.
    Thanks for the great amount of knowledge on your site!

  50. AdjustedCostBase.ca Post author

    Frank,

    The effect will depend on whether you are deemed to have acquired and immediately sold the share, or the share is immediately passed on without acquiring and selling it. In the latter case there are no consequences to your ACB. In the former case this is equivalent to a purchase of the share followed by a sale.

  51. CHESS

    I have recently just found out I have gotten a dividend pay from MGM of 0.10 CENTS! I did not do any drips or whatever unless its by default? Bet not. Anyways I supposed adding it on transaction would be just doing:

    Security: MGM
    Transaction: Capital Gains Dividend
    Date: The Settlement Date
    Capital Gains Dividend Amount: 0.10 TOTAL (right? NOT Per Share)

  52. AdjustedCostBase.ca Post author

    CHESS,

    The distribution from MGM is likely taxable to you as foreign income. Therefore you should not input any transaction for this distribution into AdjustedCostBase.ca as it should not impact your ACB.

    Only distributions that consist of return of capital, capital gains and/or phantom distributions will impact capital gains and ACB. Or, if the distribution is reinvestment this will impact ACB. Distributions consisting of other types of income including eligible or non-eligible dividends, interest income and foreign impact have no impact on ACB and therefore do not need to be accounted for (unless the distribution is reinvested).

  53. Dylan

    Hi,

    The brokerage I am using does not have an option to automatically reinvest dividends (DRIP) so I will be receiving the dividends in cash and likely reinvesting manually after the divident has been received in cash. How do I go about inputting this into the ABC software would it be the following:

    Transaction 1: Capital Gains Dividend for the amount of cash dividend received
    Transaction 2: Buy transaction for the amount of cash dividends received and used to purchase additional units

    Thanks!

  54. AdjustedCostBase.ca Post author

    Dylan,

    In most instances you would only need Transaction 2.

    In the case of ETF’s / funds that distribute return of capital or incur phantom distributions, then further accounting is necessary (this is the case regardless of whether the cash received is reinvested).

  55. Dylan

    Thanks!

    Does this mean that the initial dividend received in cash is technically not taxed then as long as it is at some point reinvested back into more shares? If it is not reinvested and I just leave it as cash are there any tax implications?

  56. AdjustedCostBase.ca Post author

    Dylan,

    No, the dividend is taxed (unless it consists of return of capital). The taxation of a distribution is the same regardless of whether it is received in cash or reinvested.

  57. Dylan

    Gotcha, but how would I input this using the ABC tool? For example say a stock I hold just paid out dividends and I received it in cash today would I need to input a transaction?

    Sorry for all the questions appreciate everything you do here!

  58. AdjustedCostBase.ca Post author

    Dylan,

    There’s no need to input any transactions in that case. If a distribution doesn’t consists of return of capital, phantom distribution and is not reinvested then there will be no impact on ACB. The distribution may be taxable but the taxable amounts should be accurately reported on your T-slips.

  59. Natasha

    Hi,

    We buy company shares at about 50% of their market value. This advantage is added as revenu on our T4 slips. Since the tax has already been paid on 50% of the purchased shares, how do I account for this in the ACB when calculating our capital gain. Should I be entering the BUY as [purchase price + 50% purchase price] to account for the revenu already taxed.

  60. AdjustedCostBase.ca Post author

    Natasha,

    This can be inputted as a Buy with a total amount equal to the amount you paid plus the amount of the taxable benefit you received (this total amount should equal the approximate fair market value of the shares).

Leave a Reply

Your email address will not be published. Required fields are marked *