Properties of a group are considered to be identical if each property in the group is the same as all the others. The most common examples of identical properties are shares of the same class of the capital stock of a corporation or units of a mutual fund trust.
You may buy and sell several identical properties at different prices over a period of time. If you do this, you have to calculate the average cost of each property in the group at the time of each purchase to determine your adjusted cost base (ACB). Dispositions of identical properties do not affect the ACB.
The average cost is calculated by dividing the total cost of identical properties purchased (this is usually the cost of the property plus any expenses involved in acquiring it) by the total number of identical properties owned.
Any amount reported in box 42, "Amount resulting in cost base adjustment," of the T3 – Statement of Trust Income Allocations and Designations slip represents a change in the capital balance of the mutual fund trust identified on the slip. This amount is used when calculating the ACB reported on Schedule 3, Capital Gains (or Losses), for the property in the year of disposition. For more information and an example of the calculation, see Information Sheet RC4169, Tax Treatment of Mutual Funds for Individuals.
If box 42 contains a negative amount, add this amount to the ACB of the units of the trust identified on the T3 slip.
If box 42 contains a positive amount, subtract this amount from the ACB of the units of the trust identified on the T3 slip.
If the ACB of the trust units is reduced below zero during the tax year, the negative amount is deemed to be a capital gain in the year. The ACB of the trust units is deemed to be zero. Enter the amount of the capital gain on line 13200 of your Schedule 3. Place a zero on line 13199, since there is no actual sale of units.
Generally, the following properties are not considered identical properties:
- securities acquired under an employee option agreement that are subject to the benefit deferral or are designated and disposed of within 30 days
- certain employer shares received by an employee as part of a lump sum payment upon withdrawal from a deferred profit sharing plan
As a result, the ACB averaging rule described above does not apply to these types of securities. Each of these securities will have its own ACB determined in the usual way.
You also use this method to calculate the average cost of identical bonds or debentures you bought after 1971. However, the average cost is based on the principal amount for each identical property, that is, the amount before any interest or premiums are added.
A bond, debenture, or similar debt obligation that a debtor issues is considered to be identical to another if both of the following conditions are met:
- the same debtor issues both securities
- all the attached rights are the same
The principal amount of individual debt obligations being the same is not enough for such debts to be considered identical properties. They must still meet the two conditions listed above.
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