Average price and adjusted cost base

When you buy a security, such as a stock or ETF, the original price you paid is often referred to as the cost basis. If you bought shares at different prices, the price you’ve paid per share is shown as the average price (shortened to Avg. price in the Edge platforms).

When you view the average price, add any reinvested amounts (through a DRIP or distributions, for example), and any fees, the final amount calculated is known as the adjusted cost base (ACB).

Adjusted cost base (or basis) is an income tax term that refers to the change in an asset’s (such as a stock) book value. This normally stems from changes in average price due to additional purchases (plus reinvested amounts and commissions).

ACB is commonly used in taxable accounts (such as non-registered Margin accounts) during tax time when calculating capital gains or losses.

Other factors may also influence your ACB, such as corporate actions, Return of capital (ROC), or other direct distributions of additional shares (such as in a bond ETF, or certain mutual funds).

In many cases during asset transfers between different financial institutions, the outgoing institution will not include the average cost or ACB. Please check out the section further down for more information.

• You buy 100 shares of XYZ stock at $10 per share, for a total of $1,000
• The following January, you buy 100 additional shares of XYZ for $9 per share for a total investment of $900
• A few months later, you buy 100 more shares of XYZ at $11 per share for a total investment of $1,100

Let's assume that there are no other factors, such as dividends to account for.

Given these 3 purchase prices, your ACB for tax purposes will be: .

• $1,000 (first purchase) + $900 (Second purchase) + $1,100 (third purchase) = $3,000
• Total investment in stock XYZ: $3,000

$3,000 (total investment including commissions) / 300 (shares purchased) = $10.00 (Adjusted cost base)

If you were to sell your 300 shares for $12 each, your capital gain would be $2.00 per share, for a total of $585. Once we deduct the commission from the sale transaction ($5 in this example), your total net profit would be $600.

Since Questrade offers $0 commission trades on stocks and ETFs, let’s introduce a second example to see how fees impact your ACB.

How costs factor into ACB

Let’s say you buy 10 options contracts worth $300 each. Your ACB for tax purposes would be:

• $300 x 10 options contracts = $3,000
• 10 contracts x $0.99 commission per contract = $9.90
• Total investment to buy the contracts: $3,009.90

$3,009.90 (total investment including commission) / 10 (contracts purchased) = $300.99 (Adjusted cost base)

If you were to later sell those 10 contracts for $360 each, you would subtract your adjusted cost base of $300.99 from your sale price to get a capital gain of $59.01 per contract, for a gross profit of $590.10. Once we deduct the commission from the sale transaction ($9.90 in this example), your total net profit would be $580.20.  

Transferring securities like stocks, ETFs or mutual funds to Questrade may also have an impact on your ACB.

In many cases, the outgoing financial institution will not include the ACB information when the transfer is processed. If you’re looking to maintain accurate records, we can help manually adjust this with a simple request and some supporting documentation.

For Margin accounts, the ACB may need to be updated to reflect the true, accurate cost of your securities from when they were purchased at the other institution.

To request an update of your Avg. price/ACB, you will need to provide the most recent statement from the outgoing financial institution the shares were transferred from. Please upload your statement under the appropriate Margin account as a Transfer account document.

Please note that the statement needs to contain both:

• The matching account number from the original broker to broker transfer and
• The currency and price of the shares when they were purchased
  

After uploading your statement, you can contact our customer support team for your request via email at support@questrade.com, chat, or phone at 1.833.588.6914.

Please note that this request may take up to 3 business days to be processed and for your Avg. price to update on your Questrade platforms. Your statements with your adjusted cost base are updated automatically the following month.

Corporate actions such as stock splits (or consolidations) can also have an effect on your ACB.

For example, when a company splits its shares 5:1, your ACB is normally automatically adjusted for you by 5:1 on your Questrade platforms and statements.

In rare cases after a split, if your ACB does not update accurately, please contact our customer support team with your request via email at support@questrade.com, chat, or phone at 1.833.588.6914.

We can help update your ACB figures manually in the event that these do not update after a specific corporate action.

Many other corporate actions, such as spin-offs or mergers and acquisitions, may also have an impact on your ACB. Since many of these cases can be unique to the circumstances around your security, we recommend consulting the investor relations team or website of the specific stock or ETF affected. During these corporate actions, you are provided documents that outline your rights and potential obligations as a shareholder.

If you have questions about the corporate action, please contact the investor relations team of the security.

Feel free to explore our article on the tax considerations for your Margin account as well for more information.

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.