Adjusted Cost Base: Why Box 20 on Your T5008 Can Be Wrong
Importing a T5008 into tax software feels like the end of a job rather than the start of one. The slip lands, box 20 carries a cost figure, the software subtracts it from the proceeds and prints a capital gain. The CRA’s own page for the slip says that number may not be your adjusted cost base, and that correcting it is the filer’s job, not the broker’s:
“The amount in box 20 may or may not reflect your adjusted cost base (ACB) for the purpose of determining the gain or loss from the disposition of the security. You are required to make the adjustments, as needed, to the amount indicated in box 20, at the time of determining and reporting your gain or loss from the disposition.”
That is from the CRA’s T5008 slip page for individuals. This piece picks up where our slip by slip guide to filing investment income left off, which mapped each box to its line on the return and flagged box 20 without unpacking it. Here is the unpacking: what an adjusted cost base is, how the averaging rule builds it, and a worked example where accepting the slip as filed manufactures $202 of gain that never happened.
What actually goes into an adjusted cost base
The CRA’s capital gains definitions page puts it in one sentence. ACB is “usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees.”
Two consequences follow, and they pull in opposite directions. A buying commission goes into the ACB, raising it. A selling commission does not: it is an outlay and expense on the disposition, subtracted separately in the gain formula:
“Proceeds of disposition minus (Adjusted cost base plus outlays and expenses on disposition) = Capital gain”
Fifty percent of that gain is taxable. (The proposed two-thirds rate on gains above $250,000 was deferred and then cancelled in March 2025.)
One average, not lots
The rule that trips people up is buying the same holding more than once. CRA Guide T4037 calls these identical properties: “The most common examples of identical properties are shares of the same class of the capital stock of a corporation or units of a mutual fund trust.”
For those, the guide is explicit: “You may buy and sell several identical properties at different prices over a period of time. If you do this, you have to calculate the average cost of each property in the group at the time of each purchase to determine your ACB.” The arithmetic is a weighted average, total cost of everything purchased divided by the total number owned.
Canada does not let you pick lots. There is no first in, first out and no choosing which shares you sold, unlike the lot selection US filers may be used to. One average per identical property per taxpayer, spanning every non-registered account you hold rather than just the one that issued the slip. Two things follow: selling does not move the average, because “dispositions of identical properties do not affect the ACB”, and the same stock held at two brokers belongs to one pool.
The averaging rule, worked
Take a hypothetical investor buying one Canadian stock in a non-registered account, with flat $10 commissions.
| Step | Transaction | Change in the cost pool | Shares held | ACB pool |
|---|---|---|---|---|
| 1 | Buy 100 at $40.00 plus $10 commission | +$4,010.00 | 100 | $4,010.00 |
| 2 | Buy 50 at $50.00 plus $10 commission | +$2,510.00 | 150 | $6,520.00 |
| 3 | Sell 60 at $55.00, $10 commission | -$2,608.00 | 90 | $3,912.00 |
After the second purchase the pool is $6,520.00 across 150 shares, an average of about $43.47 a share. The second buy raised the average even though every share from the first buy is still held. That is the averaging rule working at the moment of each purchase.
Now the sale. Proceeds are 60 shares at $55.00, or $3,300.00. The ACB attached to those 60 shares is 60/150 of the pool, or $2,608.00. The $10.00 selling commission comes off as an outlay. So the capital gain is $3,300.00 less $2,608.00 less $10.00, which is $682.00, and the taxable capital gain at the 50% inclusion rate is $341.00.
The 90 shares still held carry $3,912.00 of ACB, the same $43.47 average as before the sale. Selling changed the size of the pool, not the per-share cost.
What the slip might have said instead
Suppose box 20 on this investor’s T5008 carried only the first purchase’s cost for the shares sold, 60 at $40.10, or $2,406.00. That is what a book cost field can look like when part of the history is missing from the account.
Run the same formula on it. Proceeds of $3,300.00 less $2,406.00 less the $10.00 outlay gives a reported gain of $884.00 rather than $682.00. The difference, $202.00, is gain the investor never earned, taxed anyway because nobody adjusted the slip. An unadjusted box 20 can miss in either direction, and understating the gain is the direction that invites a reassessment.
Three things that move an ACB after the purchase
Return of capital. When part of a fund distribution is a return of your own capital, it lands in box 42 of the T3 slip. Guide T4037 says the amount there “represents a change in the capital balance of the mutual fund trust identified on the slip”. A positive amount in box 42 is subtracted from the ACB of those units, a negative amount is added. Ignore that for a few years and the ACB you file with is too high. The guide also sets a floor: if the ACB is reduced below zero during the year, “the negative amount is deemed to be a capital gain in the year from a disposition of the property at that time”, and the ACB is deemed to be zero.
Reinvested distributions. A DRIP purchase is a purchase. The reinvested amount buys units, and their cost joins the total cost in the average. Skip them and you pay tax on the distribution in the year it is paid, then again as inflated capital gain when you sell.
Superficial losses. When the superficial loss rules deny a loss, the CRA says the person who acquires the substituted property “can usually add the amount of the superficial loss to the adjusted cost base of the substituted property”. The denied loss is not destroyed, it moves into the cost base. The conditions, and what counts as substituted property, are set out in our guide to the superficial loss rule in Canada.
Why box 20 drifts from your real number
This is not a criticism of brokers. It describes what a book cost field can and cannot see. A broker knows what happened inside its own account, so if you hold the same stock at two institutions, each box 20 is computed blind to the other’s purchases while the CRA’s averaging rule spans both. Shares transferred in from another institution can arrive with missing or incorrect book cost, and box 20 can even be blank. The adjustments above happen between purchase and sale, where a field tracking purchases in one account may not follow.
Which is why the CRA’s wording is what it is. You are required to make the adjustments, as needed. In practice that means keeping a running pool of your own, from every trade confirmation and every T3, so that at sale time there is a number to check the slip against. Our ACB tracker does that arithmetic per holding, including the averaging on each purchase, if you would rather not rebuild it in a spreadsheet.
If it is all inside a TFSA or RRSP
None of this applies to holdings in a TFSA, RRSP, FHSA or RESP. There is no ACB to track and nothing from those accounts goes on Schedule 3. Adjusted cost base is a non-registered problem only.
The slip is a starting figure
The CRA says as much on the page that explains it. Keeping the pool as you go makes the work small. Reconstructing it years later out of old statements does not. Either way, the number that belongs on Schedule 3 is yours to produce.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Adjusted cost base, averaging, T5008 box 20, T3 box 42 and superficial loss rules verified against Canada Revenue Agency pages and Guide T4037 as of September 4, 2026.
