{"id":487,"date":"2014-10-03T22:02:10","date_gmt":"2014-10-04T02:02:10","guid":{"rendered":"http:\/\/www.adjustedcostbase.ca\/blog\/?p=487"},"modified":"2015-01-05T08:39:11","modified_gmt":"2015-01-05T13:39:11","slug":"order-of-transactions-for-calculating-adjusted-cost-base","status":"publish","type":"post","link":"https:\/\/www.adjustedcostbase.ca\/blog\/order-of-transactions-for-calculating-adjusted-cost-base\/","title":{"rendered":"Order of Transactions for Calculating Adjusted Cost Base"},"content":{"rendered":"

When calculating adjusted cost base<\/a>, it’s important to use the correct ordering of the transactions.\u00a0 In some cases it may not matter – for example, in a sequence of multiple buy transactions, the order within that sequence will not affect the final result.\u00a0 But where buy transactions are interlaced with sell transactions, the order matters.<\/p>\n

The correct order to use is the chronological order.\u00a0 A transactions that occurs first (based on the settlement date if applicable) should be applied towards the ACB first.\u00a0 When transactions occur on distinct dates, there’s a lower chance of confusion.\u00a0 But when multiple trades (or types of distributions) occur on the same date, the ACB calculation process becomes more prone to errors.<\/p>\n

Let’s look at a simple example.\u00a0 Assume that the following transactions take place for BCE, all on Monday, November 3rd, 2014 (with a settlement date of Thursday, November 6th, 2014):<\/p>\n

    \n
  1. At 9:30AM you buy 100 shares at a price of $51.45 per share<\/li>\n
  2. At 11:00AM you sell 25 shares at a price of $52.95 per share<\/li>\n
  3. At 3:30PM you buy 75 shares at a price of $55.25 per share<\/li>\n<\/ol>\n

    In this example we’ll assume that there are no brokerage commissions for simplicity.\u00a0 The correct, chronological order of the transactions is: 1, 2, 3.\u00a0 The ACB will be calculated as follows, assuming that your ACB for BCE is initially zero before these trades occur:<\/p>\n

    \n\r\n\r\n
    <\/th>\nSettlement Date<\/th>\n Transaction<\/th>\n Shares Bought or Sold<\/th>\nPrice Per Share<\/th>\nShare Balance<\/th>\nACB<\/th>\nACB per Share<\/th>\nCapital Gain (Loss)<\/th>\n<\/tr>\n<\/thead>\n
    1.<\/td>\n2014-11-06<\/td>\nBuy<\/td>\n100<\/td>\n$51.45<\/td>\n100<\/td>\n$5,145.00<\/td>\n$51.45<\/td>\n\u2013<\/td>\n<\/tr>\n\r\n
    2.<\/td>\n2014-11-06<\/td>\nSell<\/td>\n25<\/td>\n$52.95<\/td>\n75<\/td>\n$3,858.75<\/td>\n$51.45<\/td>\n$37.50<\/span><\/strong><\/td>\n<\/tr>\n\r\n
    3.<\/td>\n2014-11-06<\/td>\nBuy<\/td>\n75<\/td>\n$55.25<\/td>\n150<\/td>\n$8,002.50<\/td>\n$53.35<\/td>\n\u2013<\/td>\n<\/tr>\n<\/tbody><\/table><\/div>\n

    With the correct transaction order, a capital gain of $37.50 occurs from the sell transactions.<\/p>\n

    Now, let’s mix up the transaction order as follows: 1, 3, 2.\u00a0 Now the two buy transactions will now be factored into the adjusted cost base before the sell transaction.\u00a0 This results in the following:<\/p>\n

    \n\r\n\r\n
    <\/th>\nSettlement Date<\/th>\n Transaction<\/th>\n Shares Bought or Sold<\/th>\nPrice Per Share<\/th>\nShare Balance<\/th>\nACB<\/th>\nACB per Share<\/th>\nCapital Gain (Loss)<\/th>\n<\/tr>\n<\/thead>\n
    1.<\/td>\n2014-11-06<\/td>\nBuy<\/td>\n100<\/td>\n$51.45<\/td>\n100<\/td>\n$5,145.00<\/td>\n$51.45<\/td>\n\u2013<\/td>\n<\/tr>\n\r\n
    3.<\/td>\n2014-11-06<\/td>\nBuy<\/td>\n75<\/td>\n$55.25<\/td>\n175<\/td>\n$9,288.75<\/td>\n$53.08<\/td>\n\u2013<\/td>\n<\/tr>\n\r\n
    2.<\/td>\n2014-11-06<\/td>\nSell<\/td>\n25<\/td>\n$52.95<\/td>\n150<\/td>\n$7,961.79<\/td>\n$53.08<\/td>\n($3.21)<\/strong><\/span><\/td>\n<\/tr>\n<\/tbody><\/table><\/div>\n

    As you can see, the capital gain of $37.50 from the sell transaction is now transformed into a capital loss of $3.21.\u00a0 Factoring the incorrect transaction ordering into the ACB calculations results in an incorrect capital gain.\u00a0 Note that the final ACB and ACB per share are also incorrect.\u00a0 When the balance of the shares are eventually sold, the total capital gain (or loss) will remain the same in the case, regardless of the transaction order.\u00a0 However, the allocation of capital gains or losses over time will differ.<\/p>\n

    Please also note that the above calculations assume the transaction are on capital account, as opposed to income account.\u00a0 If you consistently have a large number of transactions for a security on a single day, the CRA may deem the transactions to be on income account due to a high transaction frequency, fast turnover rate, and short period of ownership.\u00a0 In this case, you cannot claim the gains and losses as capital gains and losses, and adjusted cost base does not apply.<\/p>\n

    In cases where frequent trading occurs and where a capital loss has occurred, the superficial loss rule may apply.\u00a0 In this case, all or part of the capital loss may be denied.<\/p>\n

    When using AdjustedCostBase.ca<\/a> for calculating ACB, it’s also important to pay attention to transaction order.\u00a0 For transactions with distinct dates, the ordering will be handled automatically – transactions with earlier dates will be factored into the ACB before transactions with later dates.\u00a0 But users will need to be careful in cases where multiple transactions occur on the same date for a particular security.<\/p>\n

    By default, transactions for the same security with identical dates will be ordered in the same order the transactions were entered on AdjustedCostBase.ca.\u00a0 So the easiest thing to do is to enter the transactions in the order they occur.\u00a0 But users are also able to rearrange the transaction order after the transactions have been inputted.<\/p>\n

    Let’s look at the example above, inputted into AdjustedCostBase.ca, with the incorrect transaction order (1, 3, 2):<\/p>\n

    \"BCE<\/a><\/p>\n

    In this case a capital loss of $3.21 occurs.\u00a0 AdjustedCostBase.ca provides you with the ability to correct the transaction order.\u00a0 In the case where multiple transactions occur on the same date for a particular security, an “Order” column will appear in the transaction list, with arrows allowing you to move transactions up or down.<\/p>\n

    To correct the transaction order, we can click on the down arrow for transaction 3 (or, it could be corrected by clicking on the up arrow for transaction 2).<\/p>\n

    \"Arrows<\/a><\/p>\n

    After doing so, the adjusted cost base and capital gain are corrected:<\/p>\n

    \"BCE<\/a><\/p>\n

    When using AdjustedCostBase.ca, the simplest thing to do is to add transactions occurring on the same day in the order they occur (i.e., enter the first transaction first).\u00a0 This way, the transaction order will be correct from the get go, and you won’t need to rearrange the order afterwards.<\/p>\n

    You’re only able to change the order among transactions that occur on the same day, for the same security.\u00a0 The order for transactions occurring on different days is determined based on chronological order.\u00a0 Also, if an options transaction is opened and closed on the same day, the closing portion must occur after the opening portion (you will not be allowed to move the closing portion such that it’s earlier than the opening portion).<\/p>\n","protected":false},"excerpt":{"rendered":"

    When calculating adjusted cost base, it’s important to use the correct ordering of the transactions.\u00a0 In some cases it may not matter – for example, in a sequence of multiple buy transactions, the order within that sequence will not affect the final result.\u00a0 But where buy transactions are interlaced with sell transactions, the order matters. […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-487","post","type-post","status-publish","format-standard","hentry","category-advanced-acb-topics"],"_links":{"self":[{"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/posts\/487","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/comments?post=487"}],"version-history":[{"count":9,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/posts\/487\/revisions"}],"predecessor-version":[{"id":693,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/posts\/487\/revisions\/693"}],"wp:attachment":[{"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/media?parent=487"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/categories?post=487"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/tags?post=487"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}