How to Change the Adjusted Cost Base (ACB) of a Capital Asset
Snap calculates and tracks the adjusted cost base (ACB) for every non-registered Capital Asset and for Real Assets to produce accurate capital gain tax calculations for you. You can view the taxable capital gains each year by clicking on the blue icon at the top of the Taxable Income column on the Planning page.
At this time, capital losses are disregarded in Snap. You cannot model capital losses even for a single asset. You also cannot offset capital losses against capital gains from other assets or real assets in the same year. And you cannot carry capital losses forward or back to a different year. As a workaround, you can increase the adjusted cost basis of a non-registered asset, use tax deductions, tax credits, or an offsetting new income that represents the tax deduction that is expected each year.
By default, it is assumed that the Cost of the assets entered in the Capital Assets section is equal to the Value of the asset that was entered. While this approach makes sense for the vast majority of cases, there are cases in which you might want to override the Cost.
If you want to adjust the ACB for the Capital Assets you can do so when you're entering the account or anytime after that by returning to the Assets page from Scenario Setup. You can update the Cost for each non-registered asset by clicking the current value and editing it.
You can enter the Cost for an account that consists of all three asset classes. However, the cash and fixed income portions of the non-registered assets generate interest income only in the projections. Equities are the only asset class that can generate capital gains in Snap. The Cost entered here will be taken into consideration for the capital gains calculations, even if there are cash and fixed income portions of the account.
You can access the Portfolio Settings (by selecting Scenario Setup -> Settings -> Portfolio) and further specify the Equity Return Allocation between capital gains, and foreign and Canadian dividend-producing stocks.
Let's use a simple example to illustrate. We have a non-registered account with a $100,000 starting balance and a Cost of $20,000. The asset is split into 0% cash, 80% fixed income, and 20% equity.
If we withdraw $100,000 in the first year, we will realize $40,000 of taxable Capital Gains. (The Total Capital Gain = $100,000 - $20,000 = $80,000, and the taxable capital gain is half of that amount.)
FAQ: Why do I see the message "Cannot model Capital Gains without Equities?"
Note: In the software, in order to allow the entry of the Cost, you must have allocated a percentage to equities, even if it is a very small percentage.