Question re Calculating Adjusted Cost Base in Canada

ivamaeFebruary 22, 2009

I have a few dividend stocks and am new to this.

I have arranged for the dividends to be re-invested.

This brokerage only re-invests full shares - rest of the dividend is added to cash.

When calculating the adjusted cost base, do I add in the whole dividend or just the portion that buys complete extra shares.

The remainder is added into my cash account with the broker.



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Someone will jump all over me if I'm wrong - and rightfully so. I don't think it's any different in Canada than in the US. Your cost basis is the price per full share as your brokerage only reinvests full shares. If the dividend amount doesn't buy full shares, the overage/shortage goes to money market or cash and does not figure into the stock purchase or the cost basis for any shares purchased.

I have one stock where the dividends are routinely reinvested - and I get partial shares, no matter how small the portion of the share. Therefore, it is incumbent on saving your brokerage statements which will indicate your cost basis for each share purchased - the money market or cash portion of your account will capture the part of the dividend reinvestment that was insufficient to buy full shares.

In a word, you don't have to do any recalculating of the cost basis. If part of your dividend is not actually applied to buying stock, it doesn't factor into any cost basis for that stock.

    Bookmark   February 22, 2009 at 11:49AM
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I thought this was what made sense but wanted to be sure.

I don't want to pay double tax.

Thamks for your help.


    Bookmark   February 22, 2009 at 12:09PM
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Hi Iva Mae,

Let`s say that your dividend is $15.00.

Current share price is $10.00.

Your income to be reported this year is $15.00 (unless in an RRSP). If on a Canadian company, (held outside of an RRSP) each dollar grossed up to $1.45 for tax reporting (as your broker`s report will indicate ... and 18. (something) percent of that figure will be deducted from the tax that you owe, according to the dividend tax credit, again, it will be reported on the tax report from your broker.

Let`s say that you owned 10 shares at $5.00 per share before, total $50.00.

Now, you own 11 shares at $50.00 former price plus $10.00 current price is $60.00 ... which amount you need to keep track of in order to calculate adjusted cost base when you sell.

The $5.00 extra was added to current cash ... and used to buy pancakes at the Shrove Tuesday supper.

ole joyful

    Bookmark   February 25, 2009 at 5:20AM
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