Fair Market Value (FMV)

Fair market value (FMV) is the price at which a business or asset would change hands between a knowledgeable, willing buyer and a knowledgeable, willing seller, neither under compulsion to buy or sell and both having reasonable knowledge of the relevant facts. This definition, established in Henderson Estate and Bank of New York v. Minister of National Revenue (1973), is the governing standard of value for Canadian business sales, tax purposes, and legal disputes.

FMV is the standard applied by the Canada Revenue Agency when assessing whether a business sale price reflects arm's-length market conditions, particularly for transactions involving related parties or LCGE claims. Non-arm's-length transactions (sales between family members or related corporations) are deemed by the Income Tax Act to occur at FMV regardless of the actual price agreed between the parties.

See also: Business Valuation, CBV, Capital Gains, LCGE, Add-Back.