- Fair market value is generally understood as the price a willing buyer and a willing seller, both informed and acting without pressure, would agree to for the asset — as of the specific…
- For most families, real estate and private company shares are where valuation disputes and CRA scrutiny concentrate — both because the numbers tend to be larger and because there is…
- If CRA later questions the reported gain, a dated, professionally prepared valuation is far stronger support than an executor's own estimate.
Under Canadian tax law, most capital property a person owns is treated as though it were sold — "deemed disposed" — immediately before death, at its fair market value at that moment. That deemed sale can create a capital gain or loss reported on the deceased's final return, even though no actual sale happened. Getting the fair market value right matters, because it directly drives how much tax the estate owes.
The problem is that fair market value isn't always obvious. A publicly traded stock has a market price; a family cottage, a private business, or a rare collection does not. This article walks through how value is generally established for different asset types, and why the executor's valuation choices matter well beyond the initial tax filing.
The General Principle: Value as of the Date of Death
Fair market value is generally understood as the price a willing buyer and a willing seller, both informed and acting without pressure, would agree to for the asset — as of the specific date of death, not before or after. Values fluctuate, so the executor needs to anchor the valuation to that exact date, not to a nearby statement date or an outdated appraisal.
Property that passes to a surviving spouse or common-law partner is generally treated differently — a rollover at cost is available in many cases, deferring the gain rather than triggering it immediately. Confirm with a professional whether this applies before assuming a deemed disposition occurred on a spousal transfer.
How Value Is Determined, by Asset Type
| Asset type | Typical valuation approach |
|---|---|
| Publicly traded securities | Market closing price (or an average of prices) on the date of death |
| Real estate | A professional appraisal, ideally dated at or very near the date of death |
| Private company shares | A formal business valuation, since there is no market price to reference |
| Personal-use property (art, collectibles, vehicles) | Appraisal for higher-value items; reasonable estimate for modest items |
| Principal residence | Still valued at date-of-death FMV for reporting purposes, even where the gain is expected to be sheltered by the Principal Residence Exemption |
For most families, real estate and private company shares are where valuation disputes and CRA scrutiny concentrate — both because the numbers tend to be larger and because there is genuine room for professional judgment to differ.
Why a Professional Valuation Matters
- It supports the number on the return. If CRA later questions the reported gain, a dated, professionally prepared valuation is far stronger support than an executor's own estimate.
- It protects the executor. An executor who relies on a reasonable, documented valuation is in a much better position than one who guessed, if the estate is later reassessed.
- It matters for every beneficiary, not just the estate. The date-of-death value generally becomes the new cost base for whoever inherits the asset — an inaccurate valuation can distort the tax position of a future sale by the beneficiary, years later.
- Some assets need it more than others. A public stock rarely needs a paid appraisal. A private company, a farm, or an unusual piece of real estate almost always benefits from one.
Reporting the Result
The deemed disposition gains and losses are reported on the deceased's final ("terminal") T1 return, covering the period up to the date of death. A principal residence sale or deemed disposition must still be reported on Schedule 3 of that return even when the gain is expected to be fully sheltered by the Principal Residence Exemption — a common misconception is that a tax-free result means nothing needs to be filed. The capital gains inclusion rate that applies to any resulting gain is the same rate that applies to capital gains generally.
Where the estate holds property for a period after death and before it is sold or distributed, any further change in value between the date of death and the eventual sale is a separate calculation, reported on the estate's own return rather than the deceased's terminal return.
If CRA Disagrees With the Valuation
CRA can challenge a reported fair market value on audit or review, particularly for private company shares and real estate. If that happens, the dispute generally follows the same path as any other tax reassessment: the CRA issues a reassessment, and the estate can respond by filing a Notice of Objection with CRA's Appeals Branch, with a further appeal to the Tax Court of Canada available if the objection doesn't resolve things. Because valuation disagreements often come down to competing professional opinions, having a well-documented, credible valuation from the outset is the single best protection against a costly dispute later.
Frequently asked questions
Do we need a formal appraisal for every asset in an estate?
Not necessarily. Modest personal items rarely need one, but real estate, private company shares, and any asset without a clear market price generally should be professionally valued, especially if the estate is larger or the family anticipates disagreement among beneficiaries.
What if the property is sold shortly after death for a different price than the appraised value?
A sale close in time to the date of death can sometimes be used as evidence of value, but it isn't automatically the same as the date-of-death fair market value, especially if market conditions shifted or the sale was under pressure. Get advice before assuming the sale price is the correct number to report.
Does the executor personally have to pay if a valuation turns out to be wrong?
An executor who acted reasonably and relied on a proper, documented valuation is in a much stronger position than one who did not. This is one of many reasons executors are encouraged to get professional valuations rather than estimate.
Is the valuation used for income tax the same one used for probate fees?
No — they are separate calculations for separate taxes, and estates sometimes need valuations for both purposes. Don't assume a number prepared for one automatically satisfies the other.
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