Manage Adjusted Cost Base (ACB)Show Table of Contents
Adjusted Cost Base (ACB) represents the amount an asset cost an owner to acquire, and is referenced when calculating taxes.
When creating an estate asset in EstateExec, you should enter its Value at Death and its Original ACB (see below). Using those numbers, and other information such as asset type and intended distribution, EstateExec will normally calculate other associated numbers, such as Deemed Proceeds, ACB at Death, and ACB Now. EstateExec will also automatically track ACB and allocate it accordingly for any transfers and distributions you define.
Please note that calculating ACB can be complex under certain circumstances, so you are advised to seek help from a tax professional if you are dealing with complex or unusual situations (and see below for cautions when dealing with annuities).
When entering an asset into the system, you should enter the asset's ACB immediately prior to the death as its Original ACB. You may not initially know this amount, and you can enter it later at any time, but it will be required for calculating the decedent's final tax return. See Determining ACB for help in determining Original ACB, and note that you can just set Original ACB to an asset's value at death for personal use items.
The Canada Revenue Agency treats most estate assets as if they had been sold at death so that any capital gains (i.e., deemed proceeds) can be taxed on the decedent's final return.
EstateExec automatically calculates these deemed proceeds as the difference between an asset's Value at Death and its Original ACB. However, if an asset is distributed to a spouse, you can elect to defer its deemed disposition, changing this calculation. It's normal to elect these deferments, but doing so can make the asset's deemed proceeds and ACB values somewhat abstruse, particularly if only a portion of the asset is distributed to a spouse. See Spousal Considerations below for deferral instructions.
ACB at Death
The ACB at Death represents an asset's ACB after any deemed disposition. EstateExec will normally calculate the ACB at Death for you, depending on asset type and distribution intentions (so as you define distributions, this number may change). For most assets, the ACB at Death will be the asset's Value at Death. ACB at Death is not shown in the Assets table by default, but as with all tables, you can control which columns are shown using the table's menu in the top right.
An asset's current ACB can change under certain circumstances:
- Cash & Bank Accounts: The cost base of cash is the value of the cash, so the cost base of a bank account is always the current account balance.
- Transfer: If you transfer value from one asset to another, the associated portion of the asset's current ACB is also automatically transferred (but note Spousal Considerations below).
- Distribution: When you distribute an asset to an heir, the associated portion of the asset's current ACB is automatically allocated to that distribution (you can see the adjusted cost base allocated to a distribution in the ACB column on the Distributions tab). See also Spousal Considerations below.
- Sale or Discard: If you sell or discard an asset, the asset's value and ACB automatically drop to nothing, since the asset is no longer in the estate.
- Purchase: If you purchase an asset for the estate, its value and adjusted cost base at death will be null, since the asset was not part of the estate at death. The initial ACB Now will be set to the purchase price.
- Repayment: When the recipient of an estate loan repays some or all of the principal, the ACB of the loan asset will be reduced proportionately with the repayment amount.
- Other Transactions: Other types of transactions may also affect an asset's cost base. For example, income deposited into an asset (such as a stock dividend reinvestment) will increase the asset's cost base. Of course, the impact of any such changes are governed by the overall cost base treatment of the asset itself (for example, if the transaction occurs within an RRSP being rolled over to a spouse, no change to the RRSP's $0 cost base will occur). These types of issues can get complex, so please keep in mind the cautionary words above.
When the estate is completely settled, no assets should remain in the estate, and thus the value and adjusted cost base "now" of all listed assets should be nothing.
If an asset is intended for distribution to a spouse, you can defer taxes on its capital gains by electing not to step up its ACB at death (for information on spousal deferments in general, see Guide: Spousal Deferment).
Within EstateExec, you can indicate you are deferring an asset's deemed disposition when you create a distribution for a surviving spouse. Within the distribution dialog, when you select a surviving spouse as the heir, a Deferment checkbox will appear, and EstateExec will offer to automatically adjust the asset's cost base appropriately (as with any distribution, be sure to leave the date blank until you actually make the distribution).
Alternatively, you can manually calculate and then record these deferments via the Edit | Asset Cost Base menu from the Assets tab, but if you do this, be sure to create a corresponding distribution at some point, and then within the distribution dialog, check the box that says Do Not Modify Cost Base at Death (since you already made the modification directly).
Note that if you transfer an asset before distributing it, EstateExec will be unable to automatically calculate spousal elections for the transferred amount. To effect a spousal deferment for a transferred amount, before making the transfer you should manually edit the asset's ACB at Death to reflect the transfer's original cost base. When you then make the transfer, the receiving asset will receive the associated original cost base of the transfer, rather than the stepped-up cost base. If you subsequently distribute the entire receiving asset to the spouse, everything will be calculated correctly. However, if you subsequently make a partial distribution from the receiving asset, you will need to be careful to associate the desired cost base with the partial distribution.
You can manually override EstateExec's ACB estimates. On the Assets tab:
- Select the asset by clicking its row selector checkmark in the leftmost column.
- Click the Edit | Asset Cost Base menu.
- Enter the desired amounts in the dialog that appears and click the "OK" button.
- As always, whenever you want to save your estate changes, click the "Save All" button in the top right corner.
Sometimes you can make so many changes that it gets a little confusing as to what the cost base should be. If the numbers don't look right, in the ACB dialog you can click the Troubleshoot link and press the Reset button to have EstateExec recalculate the ACB at Death and ACB Now, based upon the Original ACB, the Value at Death, and any transactions (including spousal distributions) that impact ACB.
Note that changing an asset's cost base will not affect previously defined transfers or distributions marked done.
EstateExec cannot automatically determine deemed proceeds and ACB at Death for certain asset types (such as Annuity), and so for those, when you select the type, you will be presented with a dialog to manually enter the Original ACB and ACB at Death. You can later change this via the Manual Override steps listed above.
In addition, it is best practice to examine and adjust an annuity's ACB as needed after making any non-distribution transactions, since the impact of such transactions depend on a myriad of factors beyond EstateExec's scope.
See Adjusted Cost Base (ACB) for more information about ACB definition and taxation rules.