The amount in Box 42 of the T3 will be an adjustment to the cost base of the shares reported on the T5008 and will have to be calculated to arrive at adjustments to the otherwise cost of the shares entered in Box 20 of the T5008.
How do you calculate your ACB?
Mutual fund units or shares are identical properties because each property in the group is the same as all the others. You may buy and sell several identical properties at different prices over a period of time. This occurs, for example, when you immediately reinvest your distributions in the mutual fund.
To calculate your capital gain from the units or shares you sell or redeem, you first have to calculate your ACB. To calculate the ACB of the units or shares sold or redeemed, multiply the average cost per unit of all units or shares held immediately before the sale or redemption by the number of units or shares redeemed (see Chart 1).
The average cost per unit or share of your total investment increases or decreases when you purchase new units or shares, or reinvest your distributions, depending on the price when the transaction occurred. Every time you purchase additional units or shares, or reinvest your distributions, you should recalculate the average cost per unit or share. Do this for each of your mutual funds.
If you receive a T3 slip with an amount in box 42 – Amount resulting in cost base adjustment, the ACB of that mutual fund trust identified on the slip will change. If box 42 contains a negative amount, add this amount to the ACB of the units of the trust. If box 42 contains a positive amount, subtract this amount from the ACB of the units of the trust. See the example.
If the ACB of the trust units is reduced below zero during the tax year, the negative amount is deemed to be a capital gain in the year. Enter the amount of the capital gain on line 132 of your Schedule 3. Place a zero on line 131 since there is no actual sale of units. The new ACB of the trust units is deemed to be zero.
For example, Evgeni purchased RST Mutual Fund Trust units for $1,000 in 2010 and received a $200 return of capital in each of the 2012 to 2016 tax years. Because of these returns of capital, totalling $1,000, the ACB of the shares is zero by the end of 2016. In 2017, he received an additional $200 return of capital for the units. Since the ACB of these units is already zero, he must include this $200 in the calculation of his capital gains and losses for 2017.
In the case of shares of a mutual fund corporation, amounts distributed on the shares as a return of capital will reduce the ACB of the shareholder’s shares in a manner similar to that described above. Although any amounts distributed as a return of capital on such shares will not be reported on the T5 slip, you should keep track of such amounts so that you can correctly calculate the ACB of your shares.
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