Adjusted Cost Base (ACB)
Tax cost of a property (shares, assets) used to calculate the capital gain at sale. Capital gain = sale price minus ACB. A higher ACB means a smaller gain and less tax to pay.
Definition
The adjusted cost base (ACB) is the tax cost of a property.
In French-language Quebec documentation, you’ll see prix de base rajusté (PBR) used for the same concept.
For corporate shares, the ACB generally corresponds to the amount you paid to acquire or subscribe for them, adjusted for certain later tax events: Section 85 rollovers, estate freezes, returns of capital, capital dividends received, or other adjustments provided for under the Income Tax Act.
When you sell your shares, the capital gain is calculated simply: sale price minus ACB. The higher your ACB, the smaller your taxable gain, and the less tax you pay. That’s why knowing your ACB precisely is a foundational step in any pre-sale planning.
Why ACB matters in a business sale
Many SME owners founded their business 15, 20, or 30 years ago by subscribing for shares at a nominal amount — sometimes as little as $100. If the business is worth $2 million today and the ACB has stayed at $100, the capital gain is $1,999,900.
That’s the amount the inclusion rate applies to, and that’s the amount the Lifetime Capital Gains Exemption (LCGE) will reduce.
The ACB doesn’t necessarily stay at the original amount. If you carried out a tax rollover to transfer your shares to a holding company, the amount elected in the rollover becomes the new ACB of the shares received in exchange.
If you crystallized the exemption, your ACB was stepped up to fair market value at the time of the crystallization. Every restructuring can shift your ACB.
A common problem: many owners don’t know their ACB with certainty. Incorporation documents go back decades, rollovers were handled by former accountants, and files are incomplete.
Reconstructing an accurate ACB can take significant research — but it’s essential. Without a documented, defensible ACB, you can’t model your tax payable, and you can’t negotiate with full information.
What every seller should know
- Your ACB rarely equals what you’ve “invested” in the business in the broader sense (time, sweat, reinvested money). It’s strictly the tax cost recognized by the CRA and Revenu Québec.
- If you carried out a Section 85 rollover, the ACB of your new shares equals the amount elected in the tax form, not the fair market value of the property transferred.
- Ask your accountant to provide a detailed, documented calculation of your ACB before starting the sale process. That document becomes the foundation for all tax planning.
- If you hold several share classes (common, preferred, freeze shares), each has its own ACB. The overall capital gain calculation has to account for each class separately.
This content is informational. Consult a tax specialist for your specific situation.