Seg Funds Taxation of Segregated Funds & Annuities question: adjusted cost base

Seg FundsTaxation of Segregated Funds & Annuities

Carl, 60, is a retired firefighter in Brandon, Manitoba. In 2018 he deposited $20,000 in a non-registered segregated fund contract. Since then, $3,000 of income has been allocated to him on T3 slips, which he reported on his returns each year, and all of it was reinvested in the fund. He has made no withdrawals or other deposits, and the contract is now worth $27,500. He has named his wife as beneficiary and plans to cash in the contract next year to buy a boat. What is his adjusted cost base?

A $17,000
B $20,000
C $23,000
D $26,000

Show the answer and explanation

Answer: C. $23,000

Allocated income that has already been taxed is added to the ACB so it is not taxed again: $20,000 + $3,000 = $23,000. A higher ACB means a smaller capital gain when the units are later redeemed. Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), s. 138.1(1)(e) (current to 21 Sep 2026) (as at 12 Oct 2026).

Common mistake

Leaving out reinvested taxed allocations.

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Dana, 58, a self-employed bookkeeper in Kelowna, British Columbia, has a non-registered segregated fund contract with an adjusted cost base of $40,000. She redeems the entire contract for $55,000 to help pay for her daughter's wedding. There are no surrender charges. What taxable capital gain does she report?Bea, 49, a speech-language pathologist in Halifax, Nova Scotia, holds a segregated fund contract inside her RRSP. This year the fund earned interest and dividends and realized some capital gains when the manager sold shares. Bea made no withdrawals. Her neighbour, who holds a non-registered contract, has just received a T3 slip. Does Bea receive annual T3 allocations to report?Ana, 47, lives in Winnipeg, Manitoba, with her husband and two teenagers. Three years ago she bought a non-registered segregated fund contract with a 10-year maturity guarantee and a deferred sales charge schedule. She now calls her agent to say she has lost her job as a warehouse supervisor and will need cash for household bills within 6 months. Her husband's wages cover about half of the family's expenses. Apart from the contract, she has $15,000 in a savings account and no other investments. What should the agent do?

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Original study material mapped to the public CISRO curriculum; not a real test question.Not affiliated with CISRO, CCIR or any provincial insurance regulator. Verify figures and rules against current guidance before relying on them.