Principal Issues: 1. In computing the eventual gain on property held by a child where the parent transferred a remainder interest in that property to the child prior to death, is the child's ACB of the property based on the fair market value of the property at the time the remainder interest was given or the fair market value at the time of the parent's death.
2. Is a formal real estate appraisal is required to establish the fair market value of the property at the relevant time?
3. General comments on personal tax situation requested
Position: 1. The ACB of remainder interest is determined under 43.1(2) with the result that, following the parent's death and absent any capital improvement's by the child, the ACB will not be more than the FMV of the property at the time the remainder interest was given.
3. General comments on principal residence, determination of individual's residence and filing obligations as of the date of death given.
Reasons: 1. The Court addressed the taxpayer's issues concerning the effect of 43.1(2) in Depedrina et al v. the Queen (2005 DTC 1386).
2. Where there is a reference to "fair market value' as to whether a taxpayer is expected to obtain professional valuation or appraisal advise of their real estate, the answer is no. However, because the Canadian tax system is one of self-assessment, there is an obligation for taxpayers to voluntary comply and report their fair share of taxes. Taxpayers are also expected to maintain and keep, for a period of time, books and records to assist in calculating their taxable income. Depending on one's tax situation, a taxpayer may have to resort to obtaining professional assistance in order to ensure that proper books and records are well prepared and this would include hiring accountants, tax preparers, valuators or appraisers where the need is evident. There is no obligation imposed by CRA but if a taxpayer does not have the technical expertise to calculate his gains or losses for a specific transaction then it would be logical that assistance be obtained. It may be in the taxpayer's best interest to have an accurate understanding of the "fair market value" of the asset at the time of acquisition, whether or not the property was purchased or transferred in a non-arm's length transaction (ITA - 69(1)) or deemed to have been disposed at the date of death (ITA 70(5)) or some other similar transactions.
Whether a valuation analysis was prepared by a taxpayer himself or a professional valuator or appraiser, the Canada Revenue Agency is not obligated to accept the reported amount and can review the report and/or calculations provided before accepting the reported value.