Part II: Understanding and Determining Fair Market Value in Canadian Appraisals
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Thursday, May 22, 2025 in Ask an Instructor, Education, For Appraisers
Fair market value (FMV) is foundational in Canadian personal property appraisals prepared for charitable donations, estate administration, and cultural property certification applications. While the term is widely used, determining FMV in these contexts requires careful adherence to legal precedent, administrative guidance from the Canada Revenue Agency (CRA) and issued by the Canadian Cultural Property Export Review Board (CCPERB), when applicable.
Unlike in the United States, in Canada, FMV is defined not by statute but in common law:
“The highest price, expressed in terms of money, that a property would bring, in an open and unrestricted market, between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other” (CCPERB Guide to Monetary Appraisals, page 2).
This definition originates from legal precedent, specifically the 1973 Henderson v. Minister of National Revenue decision ([1973] 2 F.C. 347; 73 D.T.C. 5471 (F.C.A.) and is used by the CRA and CCPERB in evaluating appraised donations. Importantly, this definition emphasizes real transactions in the most active and appropriate market where the item is typically sold to the public, such as a gallery or auction sale, not asking prices.
The term "highest price" is often misunderstood. This means a consistently achieved market price, not an unusually high one-off sale. Fair market value excludes abnormal prices and reflects typical sale prices supported by regular transactions.
For tax-related donations, whether ordinary charitable gifts or gifts of certified cultural property, appraisers must select the appropriate market by analyzing where similar items are most frequently sold to end users. Comparables must be credible, relevant, and adjusted for differences in quality, condition, scale and provenance. While the original purchase or recent sale price could support FMV, this is only valid if the transaction occurred close to the effective date, at arm’s length, and under typical market conditions. The Income Tax Act (Canada), s. 251(1)-(6) defines arm’s length as “two persons are dealing at arm’s length if they are not related and if they act independently of each other.”
Donations over CAD$1,000 require a professional appraisal; certified cultural property appraisals valued above CAD$50,000 require two independent appraisals (unless prepared by certain approved organizations). The CRA and CCPERB require reports to be thorough, and professionally prepared. The CRA recommends compliance with USPAP, and CCPERB publishes a Guide on Monetary Appraisals, available on their website. Notably, CCPERB does not accept fixed formulas, arbitrary ratios, or unsupported assumptions—only documented market evidence, reasoned analysis, and transparent methodologies.
In exceptional cases where only asking prices are available, CCPERB may accept them, provided they come from reputable sources and are relevant to the object's fair market value. In such instances, appraisers must clearly explain why the Guide for Monetary Appraisals could not be followed, how their methodology diverged from the guide, and how the fair market value was ultimately estimated. In other words, the appraiser should clearly acknowledge that this is an exceptional case and provide a well-supported explanation as to why asking prices are the only available market data.
CCPERB considers the appraiser’s role to be estimating fair market value, as the Review Board determines the final FMV. This terminology differs from standard ISA practice, where appraisers are understood to determine value, and it applies specifically to appraisals submitted in support of cultural property certification applications. This distinction is unique to CCPERB; in most other contexts, including those governed by the CRA, appraisers are expected to determine FMV.
While governed provincially, estate appraisals also rely on FMV and require care in identifying valuation dates, verifying authority, and applying accepted appraisal standards. These appraisals are frequently used to support probate filings or calculate estate-related tax liabilities.
In all Canadian tax-related assignments, appraisers must demonstrate a strong understanding of FMV, the applicable legal and regulatory framework, and their responsibility to provide objective, well-supported conclusions. Errors such as misusing asking prices, failing to account for restrictive conditions, or relying solely on opinion rather than market data can result in rejected appraisals or denied tax benefits.
Similarities between US and Canada
Fundamental valuation principles align closely between the U.S. and Canadian approaches to determining fair market value (FMV), despite differences in legal definitions and administrative procedures. At their core, both systems emphasize that FMV must reflect the price a property would achieve in an open, competitive market between informed and independent parties under no compulsion to act. This shared understanding anchors appraisals in market reality rather than theoretical or inflated values, ensuring that conclusions are credible, defendable, and based on observable behaviour among willing buyers and sellers.
Both the IRS and the CRA/CCPERB stress the use of actual market data, particularly comparable sales, as the most reliable indicator of FMV. They discourage the use of asking prices, unsupported opinions, or arbitrary formulas, and instead require appraisers to document their findings with concrete evidence and sound methodology. Additionally, both countries require that appraisers demonstrate independence, professional judgment, and adherence to appraisal standards (such as USPAP), recognizing that accurate FMV conclusions are critical in contexts like charitable contributions, estate settlements, and cultural property valuations. This alignment reflects a shared commitment to transparency, fairness, and the integrity of the valuation profession.
This is Part II of II of a Fair Market Value series. See Part I here.