My broker's book value doesn't match my adjusted cost base

Yours. And that is genuinely inconvenient, so it is worth understanding exactly where the two numbers separate and how far apart they can get.

What your broker is showing you

“Book value” on a Canadian brokerage statement is the institution’s record of what you paid. Most brokers do make some adjustments, and many do handle return of capital reasonably well these days.

The problem is not that brokers are careless. It is that they are structurally unable to see the whole picture:

Transferred-in units. Move a position from one institution to another and the receiving broker often has no reliable cost information. Some record the transfer-day market value. Some show zero. Some ask you to supply it and take your word.

Multiple accounts at different institutions. Adjusted cost base is calculated per security across all your non-registered holdings, not per account. Hold the same fund at two brokers and neither one can compute it, because neither can see the other.

Timing of the characterisation. A fund does not know its final return-of-capital figure until its year-end accounting is done, which is why T3 slips arrive so late. Your broker’s book value may be updated on a lag, or on estimates that get revised.

Amended slips. Common with complex distributions. If a slip is revised after your broker has already adjusted, the correction may or may not propagate.

None of these are edge cases. The first one alone affects everybody who has ever consolidated accounts.

Where the drift comes from

The mechanism is simple and relentless. Every dollar of return of capital reduces your adjusted cost base by that amount, per unit.

Say you bought at $20 and the fund has returned $1.50 per unit annually for three years. Your cost base is now $15.50, not $20. If you sell at $18:

• Using book value of $20: you report a $2 loss per unit.
• Using the real cost base of $15.50: you report a $2.50 gain per unit.

That is a $4.50 per unit swing, and on a thousand units it is $4,500 of misreported income. Over a decade on a high-payout fund the gap gets considerably wider than that.

Note that the error runs both ways. Report the unadjusted figure and you may overpay — claiming a loss that was actually a gain sounds like it helps you, but if you have been reporting inflated cost bases you have been understating gains, and that is the CRA’s to find and yours to settle with interest.

Whose obligation it is

The taxpayer’s. Unambiguously. Brokers issue T3 and T5 slips reporting what was distributed and its characterisation; they do not certify your cost base, and the fine print on your statement almost certainly says the book value is for information only.

That is a slightly uncomfortable division of labour — the fund knows the return of capital, the broker knows your trades, and you are the only party expected to combine them — but it is the one that exists.

What to actually do

Start now rather than reconstructing later. This is the single highest-value habit in non-registered dividend investing. A spreadsheet with one row per event is enough.

For every transaction record: date, units, price, commission. For every distribution record: date, total received, per-unit amount, and — once the T3 arrives — how much of it was return of capital.

Reinvestments are purchases. Every DRIP execution is a buy at that day’s price and changes your average cost. Five years of monthly reinvestment is sixty transactions. This is where people give up, and it is why starting from the first payment matters so much more than it sounds.

Do it per security, across all non-registered accounts. Not per account.

Wait for the T3 before finalising anything. Trust-structured funds — which most Canadian ETFs are — report later than corporations, often around the end of March, and amendments are common. Filing in early March and amending in May is a self-inflicted wound.

Registered accounts need none of this. Inside a TFSA, RRSP, RESP or FHSA, cost base is irrelevant. If tracking is the part you cannot face, that is a genuine argument for holding high-return-of-capital funds in a registered account.

A reasonable middle path

If you have already lost the thread on a long-held position, you have three options: reconstruct from statements and fund distribution histories, which is tedious but usually possible; pay an accountant to do it, which is often cheaper than the tax consequence of guessing; or make a documented good-faith estimate, keep the working, and be consistent.

What you should not do is use the broker’s book value because it is on the screen and hope it matches. On a fund paying return of capital, it almost certainly does not.

The cost base calculator shows the size of the adjustment for a single holding, and how dividends are taxed in Canada covers where return of capital fits among the other kinds of distribution income.