I have a question about the adjusted cost base when one has the same security in different accounts. I have read that the ACB reported on one’s income tax return must be based on the average cost across all accounts. However, I doubt that my bank-owned broker has the smarts to do that. So, on the T5008 Statement of Securities Transactions slip, the cost base is probably wrong. Can I just override that on my income tax return? By the way, the reason for my question is that my broker, without my permission, changed my investment account to a managed account, so I was unable to trade. It took my broker three months to find a person competent to fix this, so the short-term solution was to open a second account.
You are correct that the ACB for reporting a capital gain or loss should be based on the average cost across all non-registered accounts that hold that security. So, if you have more than one non-registered account at the same broker or multiple accounts with different brokers, you’ll need to calculate the average cost manually. You can leave out any shares held in registered accounts, as they do not count toward the ACB for tax purposes.
And yes, you can override the ACB provided on your T5008 slip when you file your return. Just be sure to keep your records so you can back up your numbers should the CRA ask any questions. I’ve amended ACBs before and never had an issue.
The good news is that calculating your average cost is straightforward.
As an example, say you hold 100 shares of Bank of Montreal BMO-T in Account A with an ACB of $80 a share, and 200 shares of Bank of Montreal in Account B with an ACB of $100 a share.
First, add up your total cost for all shares, which is $28,000 ($8,000 plus $20,000). Next, divide by the total number of shares you own, which is 300 (100 plus 200). This produces an average cost for tax purposes of $93.33 a share. (You should also include brokerage commissions in your total cost and subtract commissions from proceeds when you sell.)
Keep in mind that when you sell a portion of your shares, your ACB per share doesn’t change. If you were to sell, say, 100 shares of BMO at $110 a share, you would report a capital gain of $1,667, calculated as your sale proceeds of $11,000 (100 times your sell price of $110) minus your cost of $9,333 (100 times your average cost of $93.33). The ACB of your remaining 200 shares would still be $93.33.
I look forward to your weekend column in The Globe and Mail as you always give perspectives I find very helpful as a DIY investor. So, thank you, but you haven’t been in the Saturday paper for a few weeks and I miss you. Question: I recently bought my first ever exchange-traded funds, the BMO S&P 500 Index ETF (ZSP) and the iShares Core S&P 500 Index ETF XUS-T, as you have previously recommended. Are there any ETFs that trade in Canadian dollars and provide exposure to international markets? I hope you return soon to The Globe.
Thank you for your kind feedback. Please don’t put up any missing person posters if my column doesn’t appear on a particular Saturday. Sometimes, I take a week off, or my column gets held until Monday if the Saturday paper is tight for space. To make sure you don’t miss anything, consider bookmarking my author page. All of my columns are archived there for convenient access.
Now, to answer your question, there are many low-cost international ETFs that trade in Canadian dollars. One example is the Vanguard FTSE Developed All Cap ex North America Index ETF VIU-T. It holds 3,784 companies primarily based in Asia, the United Kingdom and European Union, and it charges a reasonable management expense ratio of 0.23 per cent.
Another option is the iShares Core MSCI EAFE IMI Index ETF XEF-T. Those acronyms, by the way, stand for: Morgan Stanley Capital International; Europe, Australasia and the Far East; and Investable Market Index. XEF’s management expense ratio is a tick lower, at 0.22 per cent, but it holds fewer stocks (2,573) and does not include any exposure to South Korea. Those are just two of the many options available.
One final note: You mentioned that you own both ZSP-T and XUS. Both of these ETFs invest in the S&P 500 Index, so you’re not increasing your diversification by owning both. You don’t necessarily have to sell either one since you’ve already purchased them, but when buying ETFs in the future, try to avoid duplicating your exposure. This will reduce your trading commissions (unless your broker offers free ETF trades) and make it easier to manage your portfolio.
E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.