Departure Tax – Fair Market Value (FMV)

Paragraphs 128.1(1)(b) and (c) of the Act provide that, upon becoming a resident of Canada, an individual is deemed to have disposed of each property owned immediately before that time for proceeds equal to its fair market value and to have reacquired the property at a cost equal to that amount.

This deemed disposition establishes a new adjusted cost base for Canadian tax purposes.

Paragraphs 128.1(4)(b) and (c) of the Act provide that, upon ceasing to be resident in Canada, an individual is generally deemed to have disposed of property at fair market value and to have reacquired such property immediately thereafter at the same amount.

Any resulting capital gain or loss is required to be included in computing income for the year.

An exception to the deemed disposition on emigration may apply in certain circumstances, including where the individual qualifies as a short-term resident within the meaning of subparagraph 128.1(4)(b)(iv) of the Act.

The determination of fair market value is a question of fact. Judicial authority has established that fair market value generally represents the highest price that a property might reasonably be expected to bring in an open and unrestricted market between informed and willing parties dealing at arm’s length and under no compulsion to transact.

Such determination requires consideration of all relevant facts and circumstances.