How to Reassess a Property’s Fair Market Value for Taxes

When you sell a rental property, Carl, you must calculate your net proceeds and the adjusted cost base (ACB) to determine the capital gain—and the tax that may apply. Proceeds are straightforward: the sale price minus selling costs. The ACB is often more complex. It begins with what you paid for the property, plus closing costs and any capital improvements. For immigrants, however, the rules differ because of the deemed disposition on arrival.

Capital gains when moving to Canada

When you immigrate to Canada, any unrealized capital gains on assets you own before arrival are generally ignored for Canadian tax purposes. The Canada Revenue Agency (CRA) taxes only the increase in value that occurs after you become a Canadian resident.

For tax purposes, an individual arriving in Canada is treated as having disposed of and immediately reacquired their capital property at fair market value on the date they become a resident. That deemed acquisition price becomes the cost base for future capital gains calculations. If your property was valued in pounds sterling, convert that value to Canadian dollars using an appropriate exchange rate from the date of entry. The CRA suggests the Bank of Canada rate but will accept other verifiable sources.

In short, for a rental property you owned overseas, the fair market value on your arrival date becomes the starting ACB for Canadian capital gains tax purposes.

Fair market value of a property for tax purposes

You are not strictly required to have a professional appraisal, Carl. The CRA accepts owner estimates or realtor valuations. However, if you claim a figure that is later questioned, the burden is on you to substantiate it. The tax return requires you to certify that all information is correct and complete, so using an independent professional appraiser can strengthen your position if you expect the valuation to be scrutinized.

Historical valuation

If you didn’t obtain a formal valuation at the time of arrival, it’s usually possible to commission a retrospective appraisal. An experienced realtor or licensed appraiser can research comparable sales and market data from the historical period in question to estimate fair market value as of that date.

Be aware, though, of potential complications in your particular case. If you’ve already reported lower values to the CRA over the years or claimed tax deductions based on earlier figures, changing that number now could trigger further questions or require corrections to past filings.

Reporting the cost of foreign real estate

Owning property abroad does not always require annual disclosure to the CRA, but there are important situations when reporting is necessary:

1. You earned rental income from the property. Canadian residents must report worldwide rental income on Form T776 Statement of Real Estate Rentals each year.
2. You sold the property. Any disposition of foreign real estate must be reported on Schedule 3 Capital Gains or Losses, and you may have filing obligations in the foreign jurisdiction as well. Taxes paid abroad can often be credited against Canadian tax through the foreign tax credit rules.
3. The total cost of your specified foreign property exceeds CAD$100,000. If the aggregate cost of specified foreign property held at any time in the year is more than $100,000 CAD, you must file Form T1135 Foreign Income Verification Statement annually.

Capital cost allowance on foreign property

You mentioned claiming capital cost allowance on your foreign rental property. Claiming CCA requires you to disclose the cost of the property when filing, so the CRA already has some record of the basis you used. If your true cost base should have been higher, that would mean you could have claimed larger CCA deductions in earlier years. Changing the ACB now to reduce a current capital gain could therefore be problematic without adjusting prior filings.

Practically speaking, increasing your historic cost base in the year of sale after years of reporting a lower amount—including on Form T1135—may require amending past returns and explanations to the CRA.

Should you revise a property’s fair market value?

To summarize, Carl: you can obtain a retrospective valuation for the date you became a Canadian resident, and you may use a realtor’s estimate or a professional appraiser. The key is ensuring the valuation is accurate and supported by evidence. If a higher historic value truly reflects market conditions at the time, a professional appraisal can support that position. But if the higher value only appears when it advantages you now, the CRA may question it—especially if past filings showed a lower figure or you claimed CCA based on that lower cost base.

Read more about capital gains on real estate:

• Cutting down capital gains tax on real estate sales
• When does the “plus 1” rule apply to a principal residence?
• How capital gains tax on property is divided in a divorce
• The tax implications for Canadians selling foreign real estate