Fair market value is the price a property would sell for between a willing buyer and a willing seller, both informed and acting freely, used throughout tax law to value transactions.
Fair market value is the benchmark the CRA uses whenever a transaction is not at arm's length or has no cash price, transfers to family, deemed dispositions, non-cash benefits, and asset contributions to a corporation. It is the price the property would fetch in an open market between unrelated, informed parties under no compulsion.
Because so much tax turns on FMV, supportable valuations matter. Transactions between related parties that are not at FMV can trigger double taxation or reassessment, and significant transfers, such as moving assets into a corporation, often warrant a formal valuation to withstand CRA scrutiny.
A parent sells a rental property to their child for $300,000 when its FMV is $500,000. The CRA treats the parent as having sold at $500,000 for the capital gain, while the child's cost base may be only $300,000, creating potential double tax.
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