Adjusted Cost Base (ACB)

The adjusted cost base (ACB) is the cost of a capital property for income tax purposes, adjusted over time to reflect capital improvements, additional investments, or return-of-capital distributions. For a business owner selling shares, the ACB is typically the amount originally paid for the shares plus any subsequent contributions of capital — not the current market value.

When shares or assets are disposed of, the capital gain is calculated as: proceeds of disposition minus ACB minus selling expenses. A higher ACB reduces the taxable gain; a lower ACB increases it. For shares held since a business was founded, the ACB is often very low relative to the current value — sometimes just the nominal cost at incorporation — meaning most of the sale proceeds represent a capital gain subject to the 50% inclusion rate.

The ACB is also relevant when a seller has received dividends that were a return of capital rather than income, when property was acquired through a rollover under section 85, or when shares were acquired from a family member — each scenario can adjust the ACB in ways that affect the eventual tax on sale.

See also: Capital Gains, LCGE, Section 85 Rollover, QSBC.