At some point in the mid 1970s, I purchased several hundred shares of Toronto-Dominion Bank through a financial institution that is now defunct. I transferred the shares to my discount broker, where they have been enrolled in a dividend reinvestment plan for more than a decade. I now have several thousand shares but no clue what they cost me. Any thoughts on how to figure it out?
I've heard from many readers over the years with the same problem: They've lost their trading records – or never bothered to keep them in the first place – and are now unable to determine their adjusted cost base (ACB). This makes it impossible to calculate their capital gain for tax purposes when they decide to sell their shares.
"It does seem to be quite common," said Jason Weinstein, founder of adjustedcostbase.ca. "A lot of people don't necessarily think ahead of time about the tax consequences when they sell."
As tempting as it might be to "fudge the numbers" and come up with a guesstimate of the ACB, this is not recommended, Mr. Weinstein said. If the Canada Revenue Agency (CRA) asks you to justify your ACB and you're unable to do so, it could reassess your tax return and possibly charge you interest or penalties, he said.
A CRA spokesperson told me: "Taxpayers are required to maintain the books and records that are necessary to establish their tax liability. When records are misplaced or missing, the taxpayer is responsible for obtaining any other information source to establish their tax position. They may be able to obtain appropriate records from sources where the documents originated."
So what's an investor to do?
A good first step is to collect as much information as possible from the financial institutions involved. Discount brokers make client transaction histories available on their websites for free, but the information typically goes back only a few years.
For older trading records, you may need to pay a research fee that – according to one discount broker I spoke to – ranges from about $40 to $200, depending on the age and complexity of the records requested.
For a stock held in a DRIP at the discount broker, obtaining trading records will allow you to determine the amount of dividend income that was reinvested. The reinvested amount counts toward the ACB of the shares so, even if you don't know the original purchase cost, you'll at least be able to establish a partial ACB. Similarly, if the DRIP was with the company's transfer agent, you can ask the institution for whatever records are available.
What if you have the original purchase records but no documentation of subsequent dividend reinvestments? "In such a case you could set the ACB equal to the value of the original purchase," Mr. Weinstein said.
"This will still result in claiming a higher capital gain – or lower capital loss – than the true amount but it's still better than using an ACB of zero."
Another option is to assemble all the necessary data – including historical trading prices, dividends and stock splits – and then use a spreadsheet to determine the amount of capital that was reinvested while the shares were enrolled in the DRIP, he said. You can find historical data on websites such as Yahoo Finance and often in the investor relations section of the company's website.
What if you can't come up with any information at all about your shares and have no idea what the ACB should be? You still have a couple of options, Mr. Weinstein said.
You could set the ACB at zero, in which case the capital gain would be equal to the sale proceeds of the shares. This will overstate your actual gain, but the CRA likely won't challenge it because an ACB can't be less than zero.
Alternatively, you could donate your shares to a registered charity. This has two advantages: You'll avoid capital gains tax, and and you'll receive a non-refundable charitable donation tax credit for the value of the securities. (For more on donating securities to charity, click here.)
The best approach, of course, is to keep your transaction records. That will save you a lot of work – and stress – come tax time.
The Globe and Mail