3 July 1998 External T.I. 9809605 - RRSP AND RRIF PROPERTY VALUATIONS

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:

How to determine fair market value of property held in an RRSP or RRIF.

Position:

It is a question of fact what the FMV is at any time. Furthermore it is the trustee or carrier's duty to provide the information when filing annual returns.

Reasons: Explanation of the applicable law.

						980960
XXXXXXXXXX 					W.C. Harding
(613) 957-8953

Attention: XXXXXXXXXX 

July 3, 1998

Dear Sirs:

Re: Determination of Fair Market Value

This is in reply to your letter of March 30, 1998, in which you requested our clarification of how to determine the fair market value of shares and debentures of small businesses contributed to or held in RRSPs and RRIFs. We presume these investments would be qualified investments for an RRSP or RRIF and note that a qualified investment for a trust governed by an RRSP or RRIF does not cease to be qualified if the asset is not generating any income.

The determination of the fair market value of a particular investment is relevant to such things as the determination of the cost amount of an asset contributed to an RRSP, the application of subsection 206(4) of the Income Tax Act (the “Act”) and the determination of the “minimum amount” for a year with respect to a RRIF.

In your letter you directed our attention to several factual situations involving RRSPs and RRIFs for which you act as trustee and/or carrier. Written confirmation of the tax implications inherent in particular transactions are given by this Directorate when the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. Questions concerning existing situations must, however, be directed to your local tax services office. Accordingly, since your letter deals with various existing factual situations, we cannot provide any specific answers. However we can provide the following general comments which are not binding on the Department but may be of some assistance.

The term "fair market value" is not defined in the Act and therefore takes on its ordinary meaning in its application under the Act. 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". Other definitions can be found but all generally apply the same tests and conditions (See in particular The Supreme Court of B.C. in Re Mann Estate, (1972) 5 W.W.R. 23, page 26).

Under the Act, it is the responsibility of the trustee of any RRSP or RRIF to file the appropriate tax returns for the trusts and to report, as required, the fair market value of the property held in the trust. Accordingly, while a trustee and the annuitant of an RRSP or RRIF may enter into agreements between themselves pertaining to the administration of a trust, for purposes of the Act, it will remain the trustee’ s responsibility to ensure the propriety of any amounts reported. Where necessary, it may be appropriate for the trustee to use expert valuators to determine the necessary information. However, this is not specifically required under the Act.

With respect to the administration of RRIFs, the carrier of a RRIF is generally required to pay the fair market value of the property held in the plan or the “minimum amount”, which ever is less. The specific rules are detailed in the definition of “retirement income fund” contained in subsection 146.3(1) of the Act). In the event a trustee does not comply with this requirement, the provisions of subsection 146.3(11) of the Act will apply and the plan will cease to be a RRIF. The term “minimum amount” is defined in subsection 146.3(1) of the Act. Basically the minimum amount is nil in the first year of the plan and thereafter, the fair market value of the property at the beginning of each year multiplied by a prescribed factor.

We trust this information will be of assistance to you.

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch