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.