The Effect of Stock Splits on Adjusted Cost Base

Occasionally a stock split occurs whereby the number of shares in a corporation is increased.  For example, a 2-for-1 stock split doubles the number of outstanding shares.  Each share is essentially divided into 2, such that each shareholder owns twice as many shares after the split occurs.  All else being equal, the market capitalization will be unaffected, and each share will have a market value equal to half of the pre-split market value.

In terms of adjusted cost base, the total ACB is unaffected.  However, the ACB per share decreases according to the split ratio.  For example, suppose a shareholder owns 100 shares of Royal Bank (RY) with a total ACB of $5,000.  The ACB is ($5,000/100 shares) = $50 per share.  After a 2-for-1 split occurs, the shareholder will receive 2 shares for each share owned, resulting in 200 shares.  The total ACB remains the same at $5,000.  However, the ACB per share is now equal to ($5,000/200 shares) = $25 per share.

Although less common, reverse splits can also occur.  For example a 1-for-2 ratio indicates that the number of shares will be cut in half.  Similarly, the total ACB will remain the same but the ACB per share will increase accordingly.

AdjustedCostBase.ca supports the reporting of splits.  Following the example above, a split transaction can be entered as follows:

Split Transaction Entry

The affect of this transaction on the ACB is shown here:

Split Transactions

The number of shares is increased from 100 to 200, the total ACB remains the same, and the ACB per share changes from $50 to $25.

14 thoughts on “The Effect of Stock Splits on Adjusted Cost Base

  1. Tyler

    Just wondering, if there is a reverse split (say, 2 shares are joined to become 1), and I’m holding 101 shares, I receive cash for the odd share. How does this affect the ACB calculation?

    Thanks.

  2. AdjustedCostBase.ca Post author

    Tyler,

    The single share would be deemed to have been sold, and the proceeds would be equal to the cash received.

    For example, let’s say that you held 101 shares of ZYX with a total ACB of $1,010 (or $10 per share). You receive $15 in cash for the odd share right before a 1-for-2 split. This results in a capital gain of ($15 — $10) = $15. The total ACB then becomes ($1,010 — $10) = $1,000 (still $10 per share). After the split, the total ACB remains $1,000 but the ACB per share is now $20 since there are now 50 shares.

    When entering these transactions on AdjustedCostBase.ca be sure to set the date for the sale of the odd share at least one day before the date of the split transactions. This is because the sale of the odd share occurs pre-split.

  3. Tyler

    Thanks for the quick response, makes sense. Just to make sure, though: do you mean a capital gain of ($20 – $10) = $10?

  4. Jamie

    How do I enter common share consolidation? BCE consolidated shares when they spun off Bell Alliant however I am not sure how to enter this in the calculator.

    jamie

  5. AdjustedCostBase.ca Post author

    Jamie,

    For the Bell Aliant spin-off from BCE in 2006, you’ll find an example calculation in this page:

    http://www.bce.ca/transactions/bell-aliant-regional-communications-income-fund

    “Assume that you own 250 pre-consolidation common shares having an aggregate tax cost of $5,605 and that the value of your unit entitlement and / or the whole and fractional units that were sold on your behalf was $605 (250 x 0.0725 = 18.125 units, with an assumed value of $33.40, for a total of $605). The tax cost of your consolidated common shares would be determined as follows:

    “Calculation of BCE cost – 250 pre-consolidation common shares x 0.915 = 228.75 consolidated common share

    “The tax cost of the pre-consolidation common shares of $5,605 is reduced by $605 as a result of the distribution of the units which distribution is received tax-free. The remaining $5,000 is the tax cost of the 228.75 consolidated common shares and $605 is the tax cost of the units received and / or the whole and/or fractional units that were sold on his or her behalf.”

    For this example, you could enter the following transactions on AdjustedCostBase.ca:

    1. Buy 18.125 units of Bell Aliant for a total cost of $605.38.
    2. Buy 0 units of BCE for -$605.38 (a negative value) (to reduce the ACB to reflect the transfer of capital from BCE to Bell Aliant).
    3. A 228.75-for-250 share split (or 0.915-for-1) for BCE (to adjust the number of shares based on the ratio of consolidation).

    Note that there are further complications for this case, such as fractional units being sold, or cash being received instead of Bell Aliant units for shareholders with less than 150 shares.

  6. RC

    0 share or negative value (sell/buy $) can’t be entered in adjustedcostbase.ca. So spin-off can’t be done by adjustedcostbase.ca.

  7. AdjustedCostBase.ca Post author

    RC,

    Thank you for reporting the issue. You should now be able to input a negative value for buy transactions and record as spin-off as suggested above.

  8. AB

    I’m having a terrible time figuring out what happened after a reverse split of 1:3.

    Before the split I had 78,732 shares for a total ACB of $6,095.49

    After the split: 26,244 shares

    The total ACB should be the same amount – but when I multiply the new shares by the new average price showing in my brokerage (.23) – I am getting $6,036.12

    New Shares * New Avg price = $59.37 lower

    Do you have any ideas what is going on?

  9. AdjustedCostBase.ca Post author

    AB,

    Is it possible this is due to a rounding error?

    Before, the reverse split your ACB per share should have been ($6,095.49 / 78,732 shares) = $0.07742/share. After the reverse split the ACB per share would become 3 times larger – $0.23226/share. If your brokerage is displaying this value rounded to the nearest penny that could explain the discrepancy.

    There are also many other reasons that your brokerage may calculate your ACB incorrectly:

    https://www.adjustedcostbase.ca/blog/can-you-rely-on-your-brokerage-for-calculating-adjusted-cost-base-and-capital-gains/

  10. AB

    Hello,

    Brokerage displays the new total as $6095.49 which it should – as the total wouldn’t change, just share and per share ACB. Brokerage also only shows two decimal points.

    When I enter in the split into the tool on this site as well – it also shows $6095.49 as the new ACB with the correct # of new shares.

    I think when I calculate it manually and it’s coming up as $6036.12 – it’s because there are only two decimal places (.23 instead of .23226)

    For tax purposes though – the ACB never changed – so it should be $6095.49 just like it was before, correct?

  11. AdjustedCostBase.ca Post author

    AB,

    Total ACB should remain the same for a typical split (while ACB per share gets multiplied or divided according to the split ratio).

  12. steve

    Hi,

    I helping a friend, they have a drip for a bank stock for several years. In one transaction I see a normal drip bought of 87 shares with total cost of $4846.69, but then I noticed what appears to be a sold transaction of 87 with the description indicating a TFROUT which I assume is a transfer out to cash. Do I still enter into ACB the bought, how do i handle the transfer out?

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