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:
In computing the amount included in income under 146(8.8), are redemption fees considered when calculating the fair market value of mutual fund units that must be redeemed.
Position:
Yes
Reasons:
The market will take into account all factors in its determination of market value. It would be normal for the market to account for any redemption fees where the units of a mutual fund must be redeemed. Accordingly, we would expect the fair market value of a unit on death would be the value of the unit otherwise determined less such fees as are applicable.
XXXXXXXXXX 970653
Attention: XXXXXXXXXX
October 14, 1997
Dear Sirs:
Re: Determination of Fair Market Value of Property held in RRSPs
This is in reply to your facsimile of March 10, 1997 in which you requested clarification of the application of subsection 146(8.8) of the Income Tax Act (the "Act") where an RRSP holds mutual fund units subject to redemption charges.
Subsection 146(8.8) of the Act applies to include the fair market value of all of the property held in an annuitant's RRSP in the annuitant's income for the year of the annuitant's death. After the maturity of the RRSP, this income inclusion is reduced by the portion of this amount that becomes receivable, as a consequence of the annuitant's death, by the annuitant's spouse. Furthermore, subsection 146(8.9) of the Act allows a deduction from the amount where any refunds of premiums are paid to beneficiaries of the RRSP property.
The term "fair market value" is not defined in the Act and therefore takes on its ordinary meaning in its application. Black's Law Dictionary (6th edition) defines fair market value as "the amount at which property would exchange 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 any particular property at any time is a question of fact. However, if units of a fund cannot be transferred between persons dealing at arm's length but must be redeemed, we would expect that the fair market value of the units would be their value otherwise determined less any applicable redemption charges.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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