Adjusted cost base (ACB) is the tax cost of a capital property — for most non-depreciable property, what a shareholder paid to acquire it, adjusted under section 53 of the Income Tax Act for later additions and reductions — and it is what a capital gain or loss on disposition is measured against.
The Act’s own definition is direct: “the cost to the taxpayer of the property adjusted…in accordance with section 53” The gain on any disposition then runs proceeds minus ACB minus selling costs. ACB belongs to the individual shareholder, not the corporation — a point worth holding next to paid-up capital, which is the corporation’s own, entirely separate number.
In a PE deal, ACB decides two practical numbers: how large a capital gain each rollover or minority shareholder reports on closing, and how much of a deferred vendor note can shelter under the capital gains reserve. It is also a recordkeeping exposure a fund should test in diligence — one Ontario firm’s own client guidance warns that the CRA may simply assume a zero ACB on audit if a shareholder cannot document what they paid.
A minority shareholder subscribed for founder-round common shares for $50,000, including $2,000 of legal fees added to cost. On the fund’s acquisition four years later, that shareholder’s block is bought out for $410,000, with $8,000 of the shareholder’s own selling costs. The capital gain is $410,000 − $52,000 − $8,000 = $350,000 — not $410,000, and not $360,000. Getting the $52,000 ACB figure wrong by even the $2,000 of legal fees changes the reported gain by the same amount.
See also: Paid-up capital · Capital dividend account · Lifetime capital gains exemption.
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