SERVICES
Tax Appraisal
Why the CRA Requires a Property Valuation?
There are several reasons why the Canada Revenue Agency (CRA) may need to determine the true market value of a property. In most cases, these reasons relate to ensuring accurate calculation and collection of tax revenue. One of the most common scenarios involves capital gains taxation.
Understanding Capital Gains
A capital gain refers to the increase in a property’s value over time. When a property is used as an investment—for example, as a rental—the CRA taxes the profit realized between the time the property was purchased and the time it is sold.
If a property’s use changes from owner-occupied to tenant-occupied, the CRA requires an appraisal to establish the fair market value as of the date of the change in use. This ensures that the homeowner is only taxed on the portion of the property’s appreciation that occurred after it became an investment property, not on the entire gain since purchase.
When the change in use occurred in the past, an appraiser can perform a retrospective appraisal—an evaluation that estimates the property’s value as of a specific historical date.
Example
- Sam purchased an apartment in 2015 for $500,000.
- Mary purchased a townhouse in 2016 for $700,000.
- They got married in 2018, bought a new home, and began renting out their previous properties in January 2018.
- In 2020, they sold both rental properties—Sam's for $700,000 and Mary's for $900,000.
At first glance, the CRA might attempt to tax them on the full appreciation—$200,000 each. However, by obtaining a retrospective appraisal dated January 2018, the appraised values may instead be $600,000 for Sam's apartment and $800,000 for Mary's townhouse.
This means they would each only be taxed on the $100,000 increase that occurred after the properties became rentals, rather than on the full $200,000 gain—resulting in a fairer and more accurate tax assessment.