My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Friday, March 25, 2011

Confessions of a Tax Accountant-Week 4-Tracking the ACB of your Securities and Income Trust Units

Just to change it up this week, instead of blaming the March 31st issuance of T3’s and T5013’s for the fact that as of today I still have only received approximately 22% of my client’s income tax returns; I will blame last weeks March break, and the fact clients were too preoccupied with their families to worry about submitting their income tax returns.

During the past week, two issues arose that I would like to discuss in more detail.

Tracking your Adjusted Cost Base

This week, one of my staff members emailed me that he could not complete a client’s tax return because he was missing the adjusted cost base (“ACB”) on several of my clients stock dispositions during the year. He advised me that the underlying issue was that the client had transferred brokers twice over the last few years and consequently, the client, not to mention the brokers, have lost track of the original ACB on several stocks.

This email raises two issues:

  1. There is no consistency amongst the various Canadian brokerages in regard to tracking clients ACB's in their trading and margin accounts. A few institutions attempt to track their clients ACB's, but most just provide the current stock price and no historical cost base information.
  2. Once securities have been moved amongst brokerages; for those institutions that actually attempt to track the ACB, it is a total "crap shoot" whether the monthly statements from your new broker will reflect an accurate ACB .
It is thus imperative, that you maintain the original acquisition costs of all security purchases. Since every brokerage firm in Canada provides a yearly transaction summary, all you have to do is keep that one yearly capital transaction summary in a file. If you can manage this small filing task, you will have a historical ACB for all your stock purchases; really not an arduous task.

I have not even broached the topic of foreign holdings, for which the tracking of the ACB is a nightmare in most cases. In the few circumstances brokers even consider tracking such, often the wrong exchange rate is used, or worse yet, the brokerage converts the initial cost at the same rate as the current years sale.

A related issue that arose this week is the tracking of the ACB for income trusts units. Where you own an income trust unit (this issue will diminish going forward as many income trusts have converted to corporations) you receive a T3 and box 42 of the T3 denotes the return of capital (“ROC”) you have received each year from the income trust. In order to determine the proper ACB of a trust unit sold or alternatively, converted to a corporate share (the old ACB of your trust share in most cases will be your new ACB for the corporate share, as most conversions were done on a tax deferred rollover basis) you must reduce what you actually paid for the trust units by the ROC reported in box 42 each year. Many clients do not track the historical return of capital (luckily in many cases they can be found on the Internet) or even know when they purchased the units initially (which is problematic even when you can find the ROC for prior years).

So the moral of the ACB story is; a little record keeping goes a long way.

[Bloggers Note: In my Confessions of a Tax Accountant blogs, I will discuss real income tax issues that arise, but embellish or slightly change facts to protect the innocent, as the saying goes.]

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

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