I recently read advice from a few sources that having DRIP in registered accounts TFSA, RSSP, RESP are good, but you should not enroll into DRIP for taxable accounts.
The reasons provided were:
- It makes it difficult to determine your Adjusted Cost Base (ACB) used for taxes when you sell.
(You must calculate this yourself since your broker will not do this for you …. Not sure how complex this is or how much paper work this is?) - If you don’t do this you’ll pay more tax than necessary when you eventually sell. For a long term investor it could add up to a lot! (This got my attention.)
I have DRIPS on my taxable account thinking I was smart by not paying the $9.95 trading commissions on the new shares and it getting my dividends working for me quickly and automatically. Now I am thinking I might have created a paperwork problem or setting myself up to pay more tax than I need to in the future.
I am looking for advice hopefully from someone with knowledge and experience calculating ACB:
- Should I stop using DRIP in my taxable account?
- What is the best method of calculating ACB and tips for keeping these records? How to use these to prevent the tax man from taking more than his share?