Why ETFs are harder than a single stock
With a plain share, your adjusted cost base only moves when you buy or sell. ETFs move it in two extra ways that never show up as a trade in your account: reinvested (phantom) distributions and return of capital. Both are reported on your T3 slip after year-end, not on your brokerage statement, so most investors never fold them in.
The result is a cost base that drifts away from what you actually paid — usually upward — and a capital gain that is smaller than the raw "proceeds minus purchase price" number your broker might imply.
Reinvested distributions raise your ACB
Some ETF distributions are declared and immediately reinvested without any cash reaching you — a "phantom" distribution. You are still taxed on it in the year it is paid, so to avoid being taxed on the same money twice, the CRA lets you add that reinvested amount to your ACB.
Return of capital lowers your ACB
Return of capital (ROC), reported in box 42 of your T3, is not income — it is the fund handing back part of your own capital. It is not taxed the year you receive it. Instead it reduces your ACB dollar for dollar, so the eventual capital gain is larger.
If enough ROC accumulates to drive your ACB below zero, the negative amount becomes an immediate capital gain in that year. Ignore ROC entirely and you understate the gain — exactly the kind of error the CRA can reassess.
Keeping it straight across a portfolio
For one ETF held one year this is arithmetic. Across a dozen ETFs, several accounts, and reinvestment plans, the per-unit adjustments compound and are easy to lose. The fund's tax characteristics are published each year on sites like the CDS Innovations breakdown, but matching them to your unit count on the right dates is the tedious part — and where a tool earns its keep.