D1. What is fair market value and why is it important?

D1. What is fair market value and why is it important?

Fair market value (FMV), which is not defined in the Income Tax Act , is understood as:

  • the highest dollar value you can get for your property;
  • in an open and unrestricted market;
  • on the day that it was transferred;
  • between a willing and knowledgeable buyer;
  • and a willing and knowledgeable seller;
  • who are acting independently of each other.

This concept is important for several reasons.

  • To issue an official donation receipt, a charity must know the fair market value of what it has received. If the fair market value cannot be reasonable determined, then an official donation receipt cannot be issued.
  • A charity must also determine the fair market value of any advantage that it provides to the donor.
  • The fair market value is required to calculate the eligible amount of the gift; as well, calculations are required to determine the amount of the advantage in relation to the intention to make a gift and the de minimis thresholds.
  • If the charity’s receipts are not based on the concept of fair market value, it risks its registration as a charity. Charities bear the onus of ensuring that the fair market value reflected on official donation receipts is accurate.