Adjusted Cost Base: Keep Investment Records
Record purchases, commissions and reinvested distributions, then allocate each partial sale among the units.
Published 2026-07-21
Selling an investment held for years in a taxable account raises a deceptively banal question: what did it cost? The adjusted cost base gets rebuilt piece by piece, and every forgotten piece means overpaying tax. Successive purchases add up, commissions included; reinvested distributions, already taxed in the year they were paid, are purchases in their own right, and omitting them amounts to paying tax twice on the same money; partial sales are allocated against the average cost of all identical units, never the lot of one's choosing; foreign-currency positions convert at the relevant dates' rates. The broker's displayed cost base serves as a starting point, never as truth — transfers and reinvestments sometimes missing, the disclaimer sitting on the statement itself. This article details each component, the reconstruction of a neglected history and the ten-minutes-a-quarter register that spares the archaeology.
Record every purchase with its fees
An investment's adjusted cost base is built purchase by purchase, and each line includes the amount invested plus the commission paid. That commission is part of the tax cost: forgetting it inflates the taxable gain by exactly that amount. The register is kept from the first transaction, on a simple spreadsheet: date, number of units, unit price, commission, running total cost. Reconstructing that register ten years later, when the sale happens and the return demands it, takes far longer and is often impossible if the account changed brokers in the meantime.
Add the reinvested distributions
Every reinvested distribution constitutes a new purchase, and it raises the adjusted cost base by the amount reinvested. Forgetting these reinvestments is the most common and most expensive error: a fund held fifteen years with quarterly reinvested distributions accumulates sixty invisible purchases, and neglecting that total amounts to declaring a gain well above the real one, hence paying tax that was not owed. Reinvested distributions appear on the annual tax slips, which are kept for that precise reason, well beyond the usual retention periods.
Allocate the cost on partial sales
A partial sale does not attach to specific units: the tax cost is calculated on the average of all units held. Selling thirty units out of a hundred uses thirty percent of the accumulated total cost, and the remaining cost stays attached to the seventy units left. That averaging mechanism surprises those who believe they can sell the most expensive units first. It also requires keeping the register current after each sale, failing which the next sale starts from an erroneous cost and the error propagates through every subsequent return.
Convert currencies at the exact dates
An investment denominated in a foreign currency requires conversion to Canadian dollars at two moments: at purchase, at the purchase day's rate, and at sale, at the sale day's rate. Using the same rate at both ends erases the currency effect, which is nevertheless fully taxable. That conversion uses the rates published by the central bank, kept with each transaction. The broker's statement is not always enough: many present positions in the original currency and do not track the Canadian tax cost, leaving that responsibility entirely to the account holder. Keeping the conversion source alongside the number saves arguing about it years later.
Quebec scenario: compare before confirming
Selling 200 units of an ETF held nine years in his taxable account puts an engineer in Sainte-Julie before a deceptively simple question: what did these units cost? The honest answer demands a reconstruction he had never done. The purchases first: seven lots at different prices, commissions included in cost, each purchase adding to the total. The reinvested distributions next, the classic trap: every automatic reinvestment is a purchase, already taxed the year it was paid; forgetting it in the cost means paying tax twice on the same money, and nine years had accumulated forty-three of them. The partial sales last: his 2019 sale had to be allocated against the average cost base of all units, not the lot of his choosing, a method that recalculates the cost of what remains. A former U.S. position adds the currency layer: each purchase converted at its own date's rate, not the rate on the day of sale. His broker does display a cost base, but the disclaimer at the bottom of the statement says what matters: institution transfers and some reinvestments can be missing — the figure gets verified, not presumed. Three evenings of statements later, his file holds up and his declared gain drops $1,900 against the unverified number. The file now updates at every transaction: ten minutes a quarter, against three evenings of archaeology.
Checklist
- Log every purchase with its commission
- Add every reinvested distribution to the cost
- Allocate partial sales against the average cost
- Convert currencies at the right dates' rates
- Treat the broker's figure as a starting point
- Check for missing transfers and reinvestments
- Update the register every quarter
- Rebuild neglected histories once
- Keep the statements beyond the sales
Frequently asked questions
Why do reinvested distributions count toward my cost?
Because every automatic reinvestment is a purchase, already taxed in the year it was paid: leaving it out of the cost base means paying tax twice on the same money. Years of monthly reinvestments amount to dozens of purchases to trace — or to log as they happen.
How does a partial sale affect the remaining cost?
It is allocated against the average cost base of all identical units, never the lot of your choosing: the method recalculates the cost of what remains after every sale. Foreign-currency positions add conversion at the relevant dates' rates, purchase by purchase.
Can I trust the cost base my broker displays?
As a starting point, not as truth: institution transfers, reinvestments and corporate actions are sometimes missing — the disclaimer sits on the statement itself. Keep your own record, ten minutes a quarter, or rebuild it once and for all and maintain it afterward.