ACB calculations

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Post by Westford »

Thanks, Norbert, I get it now. :D
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Post by Mouly »

I'm dealing with a similar issue for someone who has no papers from before 1990 for a purchases made much earlier. It involves a DRIP on BMO stock. For whatever reason quarterly statements from the early 1990s breaks down the stock into two components:
1) Number of shares in the original purchase
2) Number of shares purchased as a result of drip

At some point the statements simplify and only show total stock holdings but I can use the initial information to estimate a purchase date. I know the initial number of purchased shares and I know that in 1990 the investor had increased his number of shares by 120% via the drip (no more direct purchases). Determining an average yield on the stock and working backwards I can estimate a purchase date and then start working forwards. Obviously won't be exact is the best I can think of.

What about all that crystilization of ACBs that occurred in 1994 or so due to the change in cap gain tax rules? Didn't tax returns from that year crystilize ACB and report it? Would digging up returns from that year make it not necessary to have to go back further?
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Post by AltaRed »

Mouly wrote: What about all that crystilization of ACBs that occurred in 1994 or so due to the change in cap gain tax rules? Didn't tax returns from that year crystilize ACB and report it? Would digging up returns from that year make it not necessary to have to go back further?
Quite possibly if the tax return specifically stated that was the case for those specific stocks. Certainly the best thing to first check to simplify your life.

Secondly, is it not possible that BMO themselves might have all those records? It would be worth a call their shareholders relations office to seek help.
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Post by Bylo Selhi »

Mouly wrote:What about all that crystilization of ACBs that occurred in 1994 or so due to the change in cap gain tax rules? Didn't tax returns from that year crystilize ACB and report it? Would digging up returns from that year make it not necessary to have to go back further?
As I recall the taxpayer had to explicitly claim this. After all they may have already used their $500k/$100k lifetime CG exemption on something else.

If they claimed it against their BMO shares then, yes, the ACB would likely be higher.

If they didn't and they had the exemption room then it's too late now to do anything about it.

See also my comments upthread:
Which raises another point. Conventional wisdom is that one should destroy tax returns and supporting records after 7 years. One reason is so that CRA can't use older records against you. In this case, however, that data could be used to the taxpayer's advantage, i.e. to justify a higher ACB, perhaps even crystallizations when the $500k or $100k CG exemptions were in effect. So, it's not always a good idea to destroy such records, especially not those that concern investments.
I'm starting to wonder if destroying tax records after 7 years is such a good idea. I know I used up my CG exemption back then. But how will my executor know in, say, 30 years' time?
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Post by AltaRed »

Bylo, I specifically saved my 1994 tax return for the purposes of showing what ACBs got adjusted. I also save all broker Annual Trading Summaries to indicate what transactions were made each year. The rest of the stuff gets tossed. Thus not much storage space is required.

Too bad the average investor does not do grasp that need.
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Stock Option ACB Question - Weighted or Not?

Post by AltaRed »

Am having a major senior moment... and need some input. Normally if you buy quantities of stock X at 2 different times, the ACB of all the stock is the weighted average of the cost of both purchases.

Does this logic continue to apply when let's say the latter purchase is a pure stock option exercise and sell. Intuitively, I would say that the principle still applies even though that latter purchase was held for a nanosecond... or was it?

Example: Currently hold 1000 shares of X. ACB happens to be $50. This same person decides to exercise and sell 1000 options of X. Grant/option price happens to be $40 and selling price is $60. Is the ACB for the purpose of the exercise and sell $45 ((40x1000 + 50x1000)/2000) and thus the capital gain is $15/share... or does the exercise and sell stand on its own and the ACB of the 1000 shares sold actually $40?
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Post by arnyk »

I think if you exercise the option then the ACB gets blended, but if you just sell (like options trading), then your ACB is just the cost of your option. In the case of exec compensation, I'd suppose that ACB would be zero.
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Post by Norbert Schlenker »

If these are options granted by a Canadian company, then (a) the gain on exercise and sale isn't legally a capital gain even though it's taxed at half rates so (b) there is no effect on ACBs of existing holdings.
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Post by arnyk »

Norbert Schlenker wrote:If these are options granted by a Canadian company, then (a) the gain on exercise and sale isn't legally a capital gain even though it's taxed at half rates so (b) there is no effect on ACBs of existing holdings.
What kind of gain would it be? Or does it matter (as long as it's taxed)?
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Post by Norbert Schlenker »

The whole gain is considered a taxable benefit of employment, i.e. it gets lumped in with salaries and wages. If you sell on exercise, you can deduct half of it (dollar limits apply) from net income - line 249 on a T1. If you don't sell, you can elect to defer recognition of the benefit until you sell but, when you sell, half of it comes into income as a taxable benefit from employment, i.e. it's not a capital gain and can't be netted against capital losses.
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Post by AltaRed »

Norbert Schlenker wrote:If these are options granted by a Canadian company, then (a) the gain on exercise and sale isn't legally a capital gain even though it's taxed at half rates so (b) there is no effect on ACBs of existing holdings.
Happens to be a US multi-national, but I believe there is no difference. In the past, former employer has issued a T4 on "exercise and sell" proceeds and a security option deduction is taken on line 249 to effectively 'tax at half rate'. Just never had ownership in same company stock at the same time. Thanks.
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Post by arnyk »

Norbert Schlenker wrote:The whole gain is considered a taxable benefit of employment, i.e. it gets lumped in with salaries and wages. If you sell on exercise, you can deduct half of it (dollar limits apply) from net income - line 249 on a T1. If you don't sell, you can elect to defer recognition of the benefit until you sell but, when you sell, half of it comes into income as a taxable benefit from employment, i.e. it's not a capital gain and can't be netted against capital losses.
Neat, thanks Norbert, learn something new everyday. :D
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ACB calculations - Timing

Post by Springbok »

I am sure that I am not alone in that I have left my ACB calculations until now.

While doing the calculations, some questions came to mind regarding timing. Maybe you could check my thinking and comment?

ACB can be calculated by simply adding all purchases and dividing by number of units or shares held. But, when a portion of a holding is sold during the year, it seems that the the ACB at the time of the sale needs to be known.

This would mean that the acb should really be calculated after each purchase with the date noted. This would allow the CG/Loss to be calculated at that time. This is how I do it - Is this how it is usually done?

I try to avoid re-investment plans in our unregistered account, but when Mutual Funds or other securities reinvest by buying additional units on a monthly or quarterly basis, these changes should also be recorded and calculated at the time, if an accurate ACB is to be calculated for use whenever a sale is made.

Then we come to the T-Slips that we will receive sooner or later. For several funds, some of the payments we have received will receive include Return of Capital. These payments/distributions may have been received monthly or quarterly but we won't know the break down for tax purposes until March or so. ROC should be deducted from ACB, so it would seem that we should really go back and deduct this on a monthly basis in order to determine the proper ACB for a mid year sale? Does anyone do this?

Another twist, is the receipt of "special distributions". These are so special that they are not paid, but represent the CG on trading within the fund during the year - We have to pay the tax on the CG but receive no cash payment. In these cases, the special distribution must be added to the ACB. This distribution is usually effective at year end, but results from CGs the fund might have made throughout the year. As a result, one would think that the "payment" should be prorated and ACB adjusted monthly so that the ACB is current at the time of any sale. Anyone do this?

Our on-line broker quotes our costs (ACBs), but these often seem to be incorrect for one reason or another.
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Re: ACB calculations - Timing

Post by AltaRed »

Springbok wrote:ACB can be calculated by simply adding all purchases and dividing by number of units or shares held. But, when a portion of a holding is sold during the year, it seems that the the ACB at the time of the sale needs to be known.

This would mean that the acb should really be calculated after each purchase with the date noted. This would allow the CG/Loss to be calculated at that time. This is how I do it - Is this how it is usually done?
This is what I do via Quicken (can be done via spreadsheet as well). I think this would be a fundamental focus of CRA and not one to be screwed around with.
I try to avoid re-investment plans in our unregistered account, but when Mutual Funds or other securities reinvest by buying additional units on a monthly or quarterly basis, these changes should also be recorded and calculated at the time, if an accurate ACB is to be calculated for use whenever a sale is made.
Yes, I do, and again I consider this another focus area for CRA not to be messed with.
Then we come to the T-Slips that we will receive sooner or later. For several funds, some of the payments we have received will receive include Return of Capital. These payments/distributions may have been received monthly or quarterly but we won't know the break down for tax purposes until March or so. ROC should be deducted from ACB, so it would seem that we should really go back and deduct this on a monthly basis in order to determine the proper ACB for a mid year sale? Does anyone do this?
Edited for accuracy: If I have to, i.e. a sale during a calander year, I will backward adjust only according to what is provided in a broker's annual trading summary. If no sale during calender year, or failing montly data provided in a broker's annual trading summary, I simply record lump sum on Dec 31 per T slip. I don't go searching for specific website data on this.
Another twist, is the receipt of "special distributions". These are so special that they are not paid, but represent the CG on trading within the fund during the year - We have to pay the tax on the CG but receive no cash payment. In these cases, the special distribution must be added to the ACB. This distribution is usually effective at year end, but results from CGs the fund might have made throughout the year. As a result, one would think that the "payment" should be prorated and ACB adjusted monthly so that the ACB is current at the time of any sale. Anyone do this?
Never had the situation, but I would do the same as my previous response (only as provided by annual trading summary or Tslip).
Our on-line broker quotes our costs (ACBs), but these often seem to be incorrect for one reason or another.
I have not experienced discrepancies of this nature, but do not pay much, if any, attention to broker provided ACB data. CRA expects each investor to be responsible for his/her own data and thus I keep my own records.
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Re: ACB calculations - Timing

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Springbok wrote:I try to avoid re-investment plans in our unregistered account, but when Mutual Funds or other securities reinvest by buying additional units on a monthly or quarterly basis, these changes should also be recorded and calculated at the time, if an accurate ACB is to be calculated for use whenever a sale is made.
Ditto.
Springbok wrote:Then we come to the T-Slips that we will receive sooner or later. For several funds, some of the payments we have received will receive include Return of Capital. These payments/distributions may have been received monthly or quarterly but we won't know the break down for tax purposes until March or so. ROC should be deducted from ACB, so it would seem that we should really go back and deduct this on a monthly basis in order to determine the proper ACB for a mid year sale? Does anyone do this?
Yes. Each distribution should be entered in your records (e.g. Quicken) with its proper characterization. E.g. you got $100 cash, 70% ROC, 30% interest -> you have two transactions in Quicken, $70 ROC + $30 interest
Springbok wrote:Another twist, is the receipt of "special distributions". These are so special that they are not paid, but represent the CG on trading within the fund during the year - We have to pay the tax on the CG but receive no cash payment. In these cases, the special distribution must be added to the ACB. This distribution is usually effective at year end, but results from CGs the fund might have made throughout the year. As a result, one would think that the "payment" should be prorated and ACB adjusted monthly so that the ACB is current at the time of any sale. Anyone do this?
I'm entering it at year end when it's declared.
Springbok wrote:Our on-line broker quotes our costs (ACBs), but these often seem to be incorrect for one reason or another.
At TDW, you can override the ACB for each security. Starting this year (?) they've announced that they'll properly adjust the ACB for ROC distributions. My Quicken file is my Bible, not what TDW shows on my account.
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Re: ACB calculations - Timing

Post by Bylo Selhi »

adrian2 wrote:At TDW, you can override the ACB for each security. Starting this year (?) they've announced that they'll properly adjust the ACB for ROC distributions. My Quicken file is my Bible, not what TDW shows on my account.
Ditto. However, I've overridden ACBs on TD when they differ from what I have in Quicken (e.g. when I've transferred-in a security from another account and TD based ACB on current NAV.) Now that TD claims better accuracy, including ROC and hopefully also special distributions, it will be useful to compare their ACB values with Quicken's every year after all the T-slips arrive. Discrepancies could be an indication of a data entry error into Quicken or an internal error in the product (or in TD's accounting.)

Trust, but verify ;)
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Post by Arby »

I manually enter all transactions into an Excel spreadsheet for each stock and fund. I normally calculate ACB only at yearend, however before I place a sell order, I'll do an ACB calculation to determine the capital gain/loss.

The portfolio tracking feature on WebBroker Select (aka GlobeGold) provides a transaction history and calculates Avg Cost for each stock/fund, which is useful if you have DRIPs. I use WebBroker Avg Cost as a check on my Excel calculations. Unfortunately the Avg Cost calculation doesn't take ROC into account.
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Re: ACB calculations - Timing

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Springbok wrote:Then we come to the T-Slips that we will receive sooner or later. For several funds, some of the payments we have received will receive include Return of Capital. These payments/distributions may have been received monthly or quarterly but we won't know the break down for tax purposes until March or so. ROC should be deducted from ACB, so it would seem that we should really go back and deduct this on a monthly basis in order to determine the proper ACB for a mid year sale? Does anyone do this?
I haven't read the whole thread so please excuse any duplication. The trading activity section of my monthly account statements from both TDW and RBC indicate the amount, if any, of RoC in each fund distribution received.

I too enter each month's activity into Quicken and let it continually update the ACBs.
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Post by like_to_retire »

Does anyone do this?
Yes, I keep track of all the things you mentioned, just like everyone else does - you have to.

I wait until year end before I enter the ROC portion. I go back and correct any inaccuracies in my calculations if there's been a sell during the year.

I just use a spreadsheet I've created for myself.

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Re: ACB calculations - Timing

Post by Norbert Schlenker »

BruceCohen wrote:The trading activity section of my monthly account statements from both TDW and RBC indicate the amount, if any, of RoC in each fund distribution received.
I don't think that's possible, Bruce. The trusts and funds that make such distributions don't disclose the breakdown until after year end. Maybe the brokers are making some sort of guess during the year - say based on previous years' experience - but it can't be better than a guess.
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Post by Springbok »

like_to_retire wrote:
Does anyone do this?
Yes, I keep track of all the things you mentioned, just like everyone else does - you have to.
That particular question related to going back and entering the monthly ROC amounts - I am not sure we HAVE to do this or that everyone else does ;), but, it seems it does make the ACB more accurate if there is a mid year sale and should likely be done.

The problem is to get the information. As an example, Brompton still only have data up until DEC 2005 on their website. This an example of a fund where there is both monthly ROC and an end of the year CG adjustment which should or should not be prorated, if there is a mid year sale.

Image
I wait until year end before I enter the ROC portion. I go back and correct any inaccuracies in my calculations if there's been a sell during the year.

I just use a spreadsheet I've created for myself.

ltr
I try to do the same, but unfortunately, the data is not available at year end - I will have to do it in Spring when we return from sunnier climes!
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Re: ACB calculations - Timing

Post by Springbok »

BruceCohen wrote:
I haven't read the whole thread so please excuse any duplication. The trading activity section of my monthly account statements from both TDW and RBC indicate the amount, if any, of RoC in each fund distribution received.

I too enter each month's activity into Quicken and let it continually update the ACBs.
Bruce,
BMO Investorline does not indicate ROC or any other breakdown of monthly distributions - Not sure how they could, because this info is not even available from the funds themselves. (See example above - no 2006 data yet).

I used to use Quicken but found it was too "regimented" for me - I prefer the free format of a spreadsheet. I also tried the portfolio Tracker that came with Quicktax - Gave up on that too - it required me to do everything twice - for my wife & I (we split everything)
Last edited by Springbok on 14 Jan 2007 15:41, edited 1 time in total.
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Post by like_to_retire »

I try to do the same, but unfortunately, the data is not available at year end - I will have to do it in Spring
Yeah, for sure.
By "end of the year", I meant before tax filing time. Granted a trust waits until the eleventh hour before producing the tax information on their site, but in reality you only need it before you file to fine tune the cost base.

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Post by AltaRed »

like_to_retire wrote:By "end of the year", I meant before tax filing time. Granted a trust waits until the eleventh hour before producing the tax information on their site, but in reality you only need it before you file to fine tune the cost base.

ltr
I often have to wait until about April 15th to make the final adjustments on any ACB (if a sale is involved) to make ROC monthly adjustments. But that really isn't a big deal when 99.9% of the tax return is done by then anyway. One of the benefits of a software program over pencil and eraser.
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Re: ACB calculations - Timing

Post by IdOp »

Springbok wrote: Another twist, is the receipt of "special distributions". These are so special that they are not paid, but represent the CG on trading within the fund during the year - We have to pay the tax on the CG but receive no cash payment. In these cases, the special distribution must be added to the ACB. This distribution is usually effective at year end, but results from CGs the fund might have made throughout the year. As a result, one would think that the "payment" should be prorated and ACB adjusted monthly so that the ACB is current at the time of any sale. Anyone do this?
I believe this is incorrect. Capital gains, whenever they may occur, do not increase your cost base. It is the re-investment of a distribution that increases your cost base. Therefore the cost base should be increased at the time of the reinvested distribution. This is really similar to a mutual fund year-end capital gain distribution, except that there is an additional immediate consolidation to restore the number of units (convenient for stock-exchange traded securities!).
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