ACB changed when transferring securities

jmcgmckinnon

I transferred 9 position from one quicken investment account to another investment account. Seven of the nine positions transferred with the correct ACB but two had incorrect ACB. Any ideas would be appreciated. Thanks

jmcgmckinnon

Thank you again sir. Yes, in Canada the ACB is the average of all purchases. So it does look like the Canadian tax rules are used and remain the same in the same account but are changed during the transfer action using FIFO.

Jim_Harman

ACB is Adjusted Cost Basis, right? 

Was the cost basis correct in the old account?

Check the old account to see if there are any Placeholder transactions for the problem securities. Make sure Placeholders are visible by going to Edit > Preferences > Investing transactions and checking Show Hidden Transactions if it is not already.

jmcgmckinnon

Thanks for the reply Jim. Yes, the adjusted cost base in the account from which the securities were transferred were correct it is just after the transfer the ACB changed.

Jim_Harman

Did you use Quicken's Shares transferred between accounts macro transaction to move the shares, or did you rely on downloaded transactions from the FI? 

With the Shares transferred between accounts, you should see one Removed transaction in the old account and one Added for each tax lot in the new account.

Generally the best method is to use the Shares transferred and delete any downloaded transactions related to the move. 

Make sure the basis you see online at the new institution matches the old FI's data and get them to resolve any differences.

jmcgmckinnon

Thanks again Jim. Yes, I used the Quicken Share transfer option. I never download transactions from the FI and enter everything manually, have for years. The ACB at the FI agrees with the ACB in the original Quicken account. I never changed FI and just opened a new account at the same FI.

q_lurker

So what else has been happening with the cost basis over time? 
RtrnCap entries? 
Use of Average Cost Basis for mutual funds? 
Are these multi-lot holdings?  If so, are some lots correct and others not?
Spinoffs?
A trading stock where over time you have bought and sold and bought again?  

jmcgmckinnon

These are just single stocks. If any of those other events were concerns, they would have adjusted the cost base in the original quicken account, which they did not.

Jim_Harman

If you haven't already, you could back up your data, then try a File > File operations > Validate and repair with the Rebuild Investing lots option selected.

If that doesn't fix it, compare the tax lots for each of the problem securities before and after the transfer. To see the tax lots, click on Holdings then click on the plus sign next to the security name. If something is wrong with a post-transfer lot, you can edit the corresponding Added transaction to fix it. 

jmcgmckinnon

Already tried the "Rebuild investing lots" option. Will try the second idea. Tx.

jmcgmckinnon

Hi Jim, checking out in the originating account there were 5 buys and one sell of the specific security. In the account where the transfer was made to, it only indicates the three transactions, none of which are accurate. Tx.

Jim_Harman

We are not looking at the buy and sell transactions, we are looking at the remaining tax lots before and after the transfer. How do they compare?

If the sell closed out 2 of the lots, there would only be 3 lots left.

jmcgmckinnon

Sorry, don't really follow. Not sure what tax lots are. I am in Canada so maybe that is different?

Jim_Harman

Aha. In the US when you buy say 30 shares of a security and then 50 more at a different price, you and the broker track the lots separately. These are tax lots and each keeps its own cost basis.

If you later sell 40 shares, you get to specify which shares you sold when computing the capital gains tax. There is no averaging, except optionally for mutual funds. 

I'm not sure how this works in Canada, or in Canadian Quicken.

jmcgmckinnon

Thanks Jim, that is probably it. I assume the Canadian version calculates the ACB the way it is done in the US and not the way it is done in Canada. Thanks for all your help.

Jim_Harman

If you just need one value for the post transfer cost basis, you can enter a single Added transaction to account for it.

jmcgmckinnon

Thanks. Not sure what I will do yet. Just trying to get Quicken to confirm how they calculate ACB in Canadian Quicken.

jmcgmckinnon

After chatting with the Quicken rep I think I know what the problem is. Quicken seems to calculate the ACB in the Canadian version to comply with the Canadian tax rules but when one transfers shares, it reverts to the US rules. Quicken did not confirm this but it seems very likely this is the problem. Quicken suggested I purchase the Home and Business version which they claim works better. What a surprise.

q_lurker

Does the Canadian tax policy require average cost basis on stock sales?  As noted, US tax law does not.  

In US Quicken using the Average Cost option for a security, if you buy a security 5 different times, and then sell some of those shares, Quicken will compute the cap gains based on the average cost/share of those 5 purchases.  The program will also operationally sell off the oldest of those shares.

If you then transfer the remaining shares to a different account (as one of several similar actions with similar results), those remaining shares will transfer with their original cost basis. 

Example:
1/1/01 Buy 10 shares for $10/share = $100
1/2/01 Buy 10 shares for $11/share = $110  
1/3/01 Buy 10 shares for $12/share = $120  
1/4/01 Buy 10 shares for $13/share = $130  
1/5/01 Buy 10 shares for $14/share = $140
You have 50 shares with a total basis of $600 = $12/share average 
  
You sell half the holding = 25 shares using average cost.
Quicken will compute that your 25 sold shares had a cost basis of $300.
Quicken will now show holdings of 
1/3/01 5 shares bought at $12/share = $60  
1/4/01 10 shares bought at  $13/share = $130  
1/5/01 10 shares bought at $14/share = $140
 
For a later sale of that same security from that same account, the program will still use the average cost of $12/share

BUT... 
If you transfer shares to another account, those shares will show in the other account as
1/3/01 5 shares bought at $12/share = $60  
1/4/01 10 shares bought at  $13/share = $130  
1/5/01 10 shares bought at $14/share = $140
showing 25 shares with a total basis of $330 = $13.20.share average cost.

A later sale from this other account will use the $13.20/share average cost rather than the original $12/share value.

The solution to this miscomputation is to edit each Add Shares transaction created by the Shares Transferred to use the prior average cost basis ($12/share per the example).

I suspect this same error is impacting your Canadian version if average cost is applicable.  I would NOT expect the H&B version to be any different.           

jmcgmckinnon

Thank you again sir. Yes, in Canada the ACB is the average of all purchases. So it does look like the Canadian tax rules are used and remain the same in the same account but are changed during the transfer action using FIFO.