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What happens when ACB hits 0 in a NR account?

SheltieLover

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#1

Hi Elisabeth,

How does MRA handle the tax scenario when the cost base gets to zero for an investment?  Does it then begin calculating capital gains taxes?

admin

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(Last modified: by admin)
#2

This will happen with investments that provide Return of Capital distributions (ROC). These distributions reduce the Adjusted Cost Base (ACB) of the investment. The ROC distributions are tax free until the ACB reaches zero, then the ROC distribution are taxed as capital gains.

You can enter a ROC yield for mutual funds and ETFs in MRA. The TIME MACHINE keeps track of the ACB starting from the book-value it has for the investment (you enter it manually or get it automatically from Wealthica). It will treat the distribution either as tax-free or capital gains based on the ACB it calculates. The ACB is reduced by the ROC distributions and any selling of the investment, and increased by any additional buying or re-investment of distributions. Only if the ACB is zero will it add to your realized capital gains on which it will calculate taxes.