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.
W.C. Harding
19(1) 613 957-3499
July 18, 1989
This is in reply to your letter of June 26, 1989 wherein you requested our interpretation of the term "Fair Market Value" as it is used in paragraph 146.3(1)(b.1) of the Income Tax Act (the "Act") and whether or not it includes accrued interest on debt obligations and "ex-dividends".
"Fair market value" is not defined in the Act but has been defined by the courts as being:
"... the highest price available in an open and
unrestricted market between informed, prudent parties,
acting at arm's length and under no compulsion to act,
expressed in terms of money or money's worth".
When debt obligations or shares are sold together with their accrued interest or declared dividends those amounts would be considered by prudent parties in the determination of the properties' price. Accordingly these amounts must also be considered in determining such properties' fair market values.
When a right to income is detached from its underlying property (for example when bond coupons are stripped or shares are sold ex-dividend) that right to income will also be a distinct property and will have a fair market value determinable on the same basis.
With respect to "fair market value" as it is used in paragraph 146.3(1)(b.1) of the Act, it is our opinion that it is intended to include the value of each property including any accrued interest or dividends held by the plan as of the beginning of the particular year in question.
We trust this reply is satisfactory to your needs.
Yours truly,
for Director Financial Industries Division Rulings Directorate
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