Adjusted Cost Base (ACB)
What it is:
How it works/Example:
Let's assume Company XYZ buys a factory building for $1,000,000. If Company XYZ spends $500,000 to enlarge the building and bring older parts of the building up to code, then the adjusted cost base (ACB) on the building would equal $1,000,000 + $500,000 = $1,500,000.
ACB per unit = (initial investment + additional contributions + reinvested distributions - previous redemptions) / units owned
Why it matters:
In our example, if Company XYZ sells the factory for $2,000,000, the taxable gain is $2,000,000 - $1,500,000 = $500,000 rather than $2,000,000 - $1,000,000 = $1,000,000.