I have been meaning to study this, but my brain has not been able to do so because I read a few articles talking about how it was a terrible idea to do a DRIP on your non-registered accounts.

So, I finally got around to learning a few things:

# For capital gains calculations, you need to track your adjusted cost base (ACB)

If you do a Dividend Reinvestment Plan (DRIP) in your RRSP or TFSA accounts, you do not have to worry about this. As your money in there grows tax-free over time, capital gains or dividends are not subject to taxation.

Your RRSP taxes you only when you withdraw from it, and your TFSA never gets taxed.

So You only need to track your ACB in your non-registered or taxable accounts (Margin, brokerage, non-RRSP or non-TFSA).

# What’s an Adjusted cost base?

Adjusted cost base is basically how your stock costs. Since you buy stocks at different times and different prices, you can’t just say: Oh it is \$50 a stock, and I have 5 of them, so they cost me \$250.

Example:

If you bought 5 shares at \$10, then 5 shares at \$7 and you paid \$5 per trade.

You have 10 shares in total.

• 5 shares x \$10 = \$50 cost to buy
• 5 shares x \$7 = \$35 cost to buy

\$50 + \$35 + \$10 = \$95 for your 10 shares that you own

Adjusted Cost Base = \$95 / 10 shares = \$9.50/share

You need to keep track of this ACB in your Margin/non-registered, taxable accounts to accurately report capital gains.

Let’s say you now sold all 10 shares at \$15/share.

• You paid a \$5 commission to sell them

Your capital gain, or profit was:

Sale \$150 – ACB \$95 – Trading \$5 = \$50 net profit or capital gain

You would report taxes on THAT \$50 capital gain.

# Why does this even matter?

It matters when you have to deal with the CRA in reporting these capital gains, and even as you get older and eventually sell your investments to live in retirement.

From what I understood, not keeping track of your ACB means you basically miss out on tracking the COMMISSION fees as part of your costs, and if you are continually trading/buying stocks every quarter, this can be a lot of money.

For \$5 every commission, every trade, that works out to \$60 a year.

Over 30 years, \$60 x 30 = \$1800

Imagine that, on every stock you own, and if you have 50, that’s 50 x \$1800 = \$90K you are NOT accounting for when you report capital gains and paying 25% taxes on, or \$22,500

Ouch.

# How does this apply to Questrade and DRIP?

I was reading an article on the taxation MESS that comes from this if you DRIP your dividends in an unregistered account back into buying more stock.

When I looked into it deeper, I saw that Questrade doesn’t actually charge a commission on DRIPs.

As they don’t charge commissions… you don’t need to even worry about any of this.

The calculation now is:

If you bought 5 shares at \$10, then 5 shares at \$7 and you paid \$5 per trade.

You have 10 shares in total.

• 5 shares x \$10 = \$50 cost to buy
• 5 shares x \$7 = \$35 cost to buy

\$50 + \$35 + \$10 = \$85 for your 10 shares that you own

Adjusted Cost Base = \$85 / 10 shares = \$8.50/share

…and that is what is shown as their average price/cost per share.

If I now sold this stock at \$30, I’d calculate \$30 – \$20.0194 = \$9.9806

\$9.9806 capital gain per share x 824 shares = \$8224.0144

So, moot point. Complete panic I was doing it wrong all these years for nothing.

## Discount Brokerage [ o0soehds ]

Also, my new thing is with any dividends leftover in the account, to avoid even more commissions, I buy ETFs with them.

The only thing I’d have to be careful of, is when I SELL ETFs in my Margin account, I need to account for the commission charged on selling them.

# Other considerations

• Keeping track of your ACB yourself might also be a good idea because apparently ANY brokerage can make a mistake in the calculations…
• Don’t forget to do the same thing when tracking capital loss to make sure you report the correct amount
• You can reconcile your ACB calculations against the tax slips issued by Questrade

# Am I missing something? Was this too easy? I feel nervous.

#### Sherry of Save. Spend. Splurge.

Am my own Sugar Daddy. Am a millionaire at 36 after getting out of \$60K of student debt in 18 months, a little over a decade earlier, using TheBudgetingTool.com. I have worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from \$65K to \$260K with an average lifetime savings rate of 50%. I have 11 side incomes that are on track in 2020 to make me \$50K - \$75K. I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I am all about balance - between time and money, and also enjoying my money. I also post daily on Instagram @saverspender.

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