Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: What is the fair market value of an investment whose return is based on market performance?
Position: Question of fact.
Reasons: Fair market value should be computed based on all of the facts and no reason to use principal amount because return only computed at maturity.
XXXXXXXXXX
Attention: XXXXXXXXXX
982244
November 17, 1998 M.P. Sarazin
Dear Sirs:
Re: Fair Market Value of a Market Linked Product
This is in reply to your facsimile dated August 28, 1998, wherein you requested our views as to whether the fair market value of a market linked product on any given date prior to its maturity (the “Particular Date”) is its original principal value or an artificially calculated value based on the market performance to the Particular Date.
“Fair market value” is not defined in the Act and takes on its ordinary meaning. For example, Black’s law Dictionary (6th edition) defines fair market value as:
“the amount at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts.”
The fair market value of a specific property at any point in time is a question of fact that could only be determined after a review of all of the facts pertaining to the specific property. Even though a product’s return on investment may be based on the change of the average market index gain over a specific period and may be paid on a specific maturity date, we are of the general view that the product’s fair market value will fluctuate based on the market’s performance prior to the product’s maturity. The terms and conditions relating to early redemption, if possible, may also be relevant in determining fair market value. Consequently, the fair market value would have to be computed on any specific date as required under the Income Tax Act.
We trust that our comments will be of assistance to you.
Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1998
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1998
Email this Content