Fair Market Value for Purposes of Part IX of the Excise Tax Act (Revised)

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST policy statement P-165R

Date of Issue

October 16, 1997
Revised March 1998


The earlier version of this draft policy statement originally focused on how subsidized and non-profit housing projects are affected by the rules for deemed supplies of real property which are based on the FMV of the land or the residential complex. This policy statement has been expanded to provide comments on the determination of fair market value (FMV) for purposes of Part IX of the Excise Tax Act (ETA) by including some general comments on FMV and the importance of the object of that valuation for purposes of the rules on deemed self-supplies and new housing rebates. In addition, it covers subsidized and non-profit housing and land for a residential complex which may be supplied by way of a sale or by way of a lease, licence or similar arrangement as well as how the deemed supply rules affect transactions involving leases of land.

Legislative Reference(s)

Definition of "residential complex" in subsection 123(1) and sections 190, 191, 191.1, 254.1, 256, 256.1 and 257 of the Excise Tax Act; sections 5.2, 6.1 and 7 of Part I of Schedule V to the Excise Tax Act.

National Coding System File Number(s)

11665-2, 11665-5, 11870-4-2, 11870-5 and 11950-1.

Effective Date

January 1, 1991 (and April 23, 1996, for certain parts where indicated).


Issue and Decisions


This policy statement provides the departmental position with respect to the determination of FMV for deemed supplies of real property by a builder under sections 190 and 191 of the ETA and for rebates under sections 254.1, 256 and 256.1 of the ETA. The real property may be a residential complex, a residential unit or land depending on the applicable section.

Specifically, this policy will address the concept of FMV with respect to:

(A) the methods used, the value added or subtracted for factors or characteristics of the property and the object of the valuation;

(B) subsidized or non-profit housing; and

(C) land for a residential complex by way of lease.



FMV in subsection 123(1) is defined as meaning the FMV of the property or service without reference to any tax excluded by section 154. Generally, the Department's position is that fair market value represents the highest price, expressed in terms of money or money's worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length, neither party being under any compulsion to transact.

For deemed self-supplies under section 191, three aspects of the FMV of real property are relevant: the methods used to arrive at a value, the factors affecting measurements of value and the objects of FMV appraisals. Professional appraisers have recognized practices on how to take into consideration factors or characteristics. This statement describes the Department's view of the correctobject of the appraisal.


Briefly, there are three general methods or approaches to market valuation that are used: the cost method; the direct comparison method; and the discounted cash flow method (also called the income method). There may be different approaches used for different components of the object being valued. The Department recognizes that no method should be excluded categorically.


There are many factors or characteristics of a property that affect its value such as a location near schools, services or transportation, picturesque views, the age of the house, a quiet neighbourhood, the size of the house or indoor access to a garage. Other factors may be of legal nature such as zoning that permits an office in a house or a liability for sewer obstructions.

Encumbrances are a certain type of factor. They limit the possible uses of the property or impose an obligation on the owner and may cause a reduction in the FMV of the property.


The legislation specifies the objects of certain deemed supplies and it is the FMV of those objects that is the basis of the self-assessments for real property. In these deeming provisions for real property, the objects include land, residential complexes, residential condominium units, single unit residential complexes and multiple unit residential complexes (MURCs). There is no definition of land in the ETA but there are definitions of the other objects. Therefore, in order to fully comply with the requirements of the ETA, it is critical that those definitions be used to describe the object of the FMV appraisal.

For purposes of applying the goods and services tax and harmonized sales tax (GST and HST), the FMV of real property is calculated on each property supplied (whether or not it is a deemed supply). The Department generally looks to the legal description of the property to identify it. However, the appraiser must be aware that the objects of self-assessments do not always coincide with the legal description of real property that is used to register the property at a provincial land registry or land titles office.

For example, a residential complex only includes the land subjacent or immediately contiguous to the building that is reasonably necessary for its use and enjoyment as a place of residence. If there is a house on 200 hectares, the legal description of a property may consist of the plan and lot number or a surveyed outline. That legal description will not coincide with the object supplied as defined in the ETA. For GST and HST purposes, when the owner sells the house and 200 acres, section 136 or section 141, as the case may be, deem there to be two supplies. One supply is of a residential complex and the other supply is of all the other land that is not part of the residential complex.

Title of Land

Subsection 191(3) states that the builder is "deemed ... to have made and received ... a taxable supply by way of sale". When a person sells real property, in some provinces, it is recognized that the property is granted "in fee simple". Other provinces use the terminology of granting property to a purchaser "and his/her heirs" which means essentially the same kind of ownership as "in fee simple". Some jurisdictions do not use such phrases. Generally, when the ETA uses the word "sold", the Department interprets that to mean a transfer of the ownership with all the possible rights or estates in the property or a transfer of the ownership with the greatest possible interest in the property that is possible in our system.


The FMV referred to in the ETA is the FMV before adding any GST and HST, therefore in order to avoid any confusion, the appraisal should state whether or not the GST and HST is included in the appraised value.

This policy statement refers to professional appraisers and their standards and practices. Although there is no legislative requirement for any person making a self-assessment to hire an appraiser, where the Department disagrees with the value used for self-assessment purposes, it may request its own appraisal.


New section 191.1, effective April 23, 1996, provides that, when subsections 191(1) to 191(4) apply, a minimum amount of tax is deemed to have been collected for certain types of subsidized or non-profit housing.

The minimum amount of deemed GST and HST collectible cannot be less than the input tax credits claimed or the rebate under section 257. Section 191.1 describes that minimum amount as the greater of (i) the tax calculated on the FMV of the complex and (ii) all the amounts of GST and HST payable by the builder for the real property that is part of the complex or the addition to the complex or an improvement to that real property.

Before that effective date, the amount of the GST collectible for the deemed supplies described in subsections 191(1) to 191(4) is 7% of the FMV.

Pursuant to coming-into-force provisions, the new provision will not apply if the builder received government funding before April 23, 1996, or could reasonably expect to receive such funding as a result of a letter of intent or a memorandum of understanding. In addition, to meet the exception, the construction or substantial renovation of the complex (or any addition to it) must be substantially completed by April 23, 1998.



In this policy statement, the word "lease" is used to cover the term "lease, licence or similar arrangement".

Under subsection 191(1), where a builder makes a supply of property by way of lease, the builder is deemed to have made a taxable supply by way of sale. In this instance, the Department's position is that the deemed sale refers to the transfer of full ownership of the property. Therefore, the object is deemed to be sold even though it may, in fact, be leased.

Leased Land

Sometimes the builder of a residential complex leases the land on which the building sits instead of purchasing the land. The building could be part of a subsidized or non-profit housing project.

No Substitution Allowed

For subsection 190(3), the object of the deemed supply and the FMV appraisals is the land. For section 191, the object of the FMV may be a single unit residential complex, a residential condominium unit, a MURC or an addition to a MURC, all of which depend to varying degrees on the meaning of a residential complex.

Under subsection 123(1), a residential complex means a building or part of a building "together with ... the land subjacent or immediately contiguous to" the building. Although there are slight variations for the different objects, depending on the subsection that deems there to be a self-supply, none of the variations refer to a "leasehold interest in the land ...". The Department's position is that you cannot substitute the phrase "leasehold interest in the land" for the word "land" when defining the object of the FMV appraisal for GST and HST purposes. Therefore, in these circumstances, the object subject to fair market valuation would be the building and the land subjacent to or contiguous to it, as if both were being sold.


Under paragraph 20(d) of section 4 of GST Memoranda Series Chapter 1, the Department may refuse to issue GST rulings on matters involving the determination of the fair market value of property. This policy statement deals with issues of valuation of real property so no sample rulings are provided.

Decision Tree for Policy Statement P-165

Decision Tree for Policy Statement P-165

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