Deemed proceeds at fair market value (s. 69)

A related-party seller meets this rule when the price paid is not the market price. Paragraph 69(1)(b) deems proceeds of disposition equal to fair market value where a taxpayer disposed of anything to a person with whom the taxpayer was not dealing at arm’s length for no proceeds or for less, or to any person by way of gift. The section opens with the words “Except as expressly otherwise provided in this Act”, so other provisions can displace it.

The buyer’s side and the test

• Paragraph 69(1)(a) deals with a taxpayer who acquired something from a non-arm’s length person at more than fair market value; that taxpayer is deemed to have acquired it at the market value
• The CRA’s folio says failing to carry out a transaction at fair market value may be indicative of a non-arm’s-length transaction
• The folio says related persons are deemed not to deal at arm’s length under paragraph 251(1)(a), and for unrelated persons it is a question of fact under paragraph 251(1)(c)

If a family sale price is below value, see what happens if CRA disagrees with the value used to transfer shares to family. A related rule for share sales is section 84.1.