Commercial Appraisal for Estate Planning in Canada - AACI FMV at Date of Death

When commercial property passes through an estate in Canada, the Income Tax Act treats the deceased as having disposed of it at fair market value immediately before death. That deemed-disposition value drives the capital-gain calculation on the terminal return and sets the cost base for whoever inherits. An AACI-signed commercial appraisal at the date-of-death effective date is what the Canada Revenue Agency, the executor, and the beneficiaries accept as that number. The three scenarios that pull a commercial AACI into an estate file are death of the owner, an estate freeze done in the owner's lifetime, and post-mortem planning - sometimes with a beneficiary dispute layered on top. Each has its own effective date; the standard is CUSPAP 2026.

Key takeaways

Income Tax Act paragraph 70(5) deems capital property disposed at fair market value immediately before death, resetting the cost base for the estate or beneficiary (CRA, capital gains at death).
The canonical FMV definition is Information Circular IC89-3, paragraph 3(a): the highest price obtainable in an open and unrestricted market between knowledgeable, informed, prudent parties at arm's length, neither under compulsion (CRA IC89-3).
CUSPAP 2026, mandatory for AIC assignments completed on or after April 1, 2026, organises the engagement around authorized use (estate / tax) and authorized client (the executor or estate trustee).
The effective date is retrospective - the date of death, the freeze date, or the post-mortem date. The inspection usually happens months later.
The CRA does not technically require a CUSPAP report for estate purposes; it requires a defensible FMV. CUSPAP is the practical floor for that defensibility.

When an estate needs a commercial appraisal

Death of the owner. The terminal return reports any capital gain on commercial property the deceased owned, and the executor needs the FMV at the date of death to calculate that gain and set the cost base for whoever inherits. Where the property rolls to a surviving spouse or common-law partner, the FMV still supports later planning; where the executor elects out of the rollover, the FMV becomes the proceeds figure on the terminal return.

Estate freeze. A lifetime transaction in which the owner crystallises today's fair market value (often into preferred shares of a holding company), passing future growth to the next generation. The freeze date is the effective date. A freeze done without a defensible FMV is the most common reason a CRA reassessment unwinds an estate plan years later; getting the freeze appraisal right is cheaper than defending a guess.

Post-mortem planning and executor disputes. After death the executor may need additional appraisals: a separate effective date for a post-mortem pipeline transaction, a current-date opinion for a third-party sale, or a second valuation for a beneficiary distribution at a different time. Where beneficiaries disagree on what the property was worth, an independent AACI report at the correct effective date is what settles the conversation. Where the dispute is litigious, the report may also need to satisfy the duties of a commercial appraisal for litigation.

The FMV-at-date-of-death standard (ITA s.70(5), CRA IC89-3)

Paragraph 70(5) of the Income Tax Act deems a taxpayer to have disposed of each capital property immediately before death for proceeds equal to fair market value at that moment, and the acquirer is deemed to acquire at the same amount. That deemed disposition triggers the capital gain on the terminal return and resets the adjusted cost base going forward (CRA, capital gains at death).

The CRA's verbatim FMV definition is Information Circular IC89-3, paragraph 3(a): "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" (CRA IC89-3). Issued in 1989 for business equity valuations, the language carries forward unchanged as the CRA's canonical FMV definition for capital property generally. The AACI's report mirrors it.

Step 1 - Engagement letter with a retrospective effective date

CUSPAP 2026 organises every assignment around two terms: authorized use - the use the appraiser permits - and authorized client - who may rely on the report. For an estate engagement the authorized use is estate and tax (terminal return, post-mortem planning, executor administration, CRA dispute support). The authorized client is the executor or estate trustee, with the deceased's accountant and counsel typically named as intended users.

The effective date is the load-bearing field on the retainer. For a date-of-death valuation it is the date of death - retrospective, often months before the AACI is retained. For a freeze it is the freeze transaction date. For a post-mortem sale it may be a later date the executor specifies. The engagement letter names the effective date, the legal description, the value type (fair market value), and any extraordinary assumptions or hypothetical conditions the file requires.

Step 2 - Document discovery (rent rolls, leases, T12, environmental, structural)

The record for an estate appraisal is more demanding than for a refinance because the effective date is retrospective - the AACI is reconstructing the property as it stood, not as it stands. The documents needed for a commercial appraisal in an estate context include the rent roll at the effective date; all leases and estoppel certificates in force then; the T12 straddling the effective date; three to five years of prior operating statements and capital-expenditure history; property tax assessments; Phase I and Phase II environmental site assessments; building-condition reports; the parcel register, survey, and zoning confirmation; and for freeze files the freeze-transaction memoranda. Executors unfamiliar with the file rarely have all of this on hand - working the commercial appraisal preparation checklist before the inspection saves weeks at drafting.

Step 3 - Site visit and inspection (often well after the effective date)

The inspection happens when the AACI is on the file - typically months and sometimes years after the effective date. The AACI observes the property today but values it as at the effective date, and the report is clear on that gap. Where the building was substantially the same, the inspection corroborates the record. Where something has changed - a tenant vacated, a roof was replaced, a renovation happened - the report identifies the change, dates it where possible, and uses an extraordinary assumption to bridge what the inspection saw to what the property was at the effective date. Where the property has been sold or materially altered before the AACI is retained, the file relies on prior inspection records, photographs, listing material, and the documentary record. CUSPAP permits this as a scope-of-inspection decision, disclosed in the report.

Step 4 - Drafting and reconciliation

The income, direct-comparison, and (where the property type requires it) cost approaches are each developed at the effective date. Comparable selection is anchored in the period straddling the effective date - sales, leases, and capitalisation-rate evidence available to a knowledgeable buyer at that moment. Comparables that closed after the effective date are used cautiously or excluded; comparables that closed well before may need market-condition adjustments. The AACI then reconciles the approaches into a single value conclusion. CUSPAP does not require a second AACI to peer-review an estate appraisal - the signing appraiser takes sole professional accountability for the conclusion - though a firm may run its own internal quality-control check before delivery as a matter of practice.

What can go wrong

Effective-date mismatches. The most common error is using a current-date opinion to settle a date-of-death question, or vice versa. A current-date market opinion is not a substitute for a retrospective FMV, and a date-of-death FMV does not support a sale or financing today.

Post-mortem comp set. Comparable sales that closed after the date of death are not what a buyer at the effective date would have known. They can corroborate trend, but they do not directly support the value conclusion - one of the first things a CRA reviewer or an opposing AACI on a critique report flags.

Multi-asset estates. Where the estate holds several commercial properties, the executor sometimes wants "one number for the real estate." CUSPAP requires each property to be valued on its own facts at its own effective date; the portfolio total is the sum, not a separately negotiated bulk discount.

Frequently asked questions

Does the CRA require a CUSPAP appraisal for an estate?

The CRA requires a defensible fair market value. It does not technically require a CUSPAP-compliant appraisal. In practice, on commercial real estate, an AACI-signed CUSPAP 2026 report is the standard the CRA, the accountant, and counsel work from. A broker opinion, a desktop assessment, or a recent property-tax assessment is rarely enough to settle a contested estate.

How retrospective can the effective date be?

Years, where the record supports it. A defensible retrospective valuation depends on the survival of leases, rent rolls, operating statements, and comparable evidence from the relevant period. Where the record has been lost, the report may need extraordinary assumptions; the value conclusion is still possible but the file should be honest about its weight.

Who can rely on the report?

The authorized client - typically the executor or estate trustee - and the intended users named in the report, which usually includes the deceased's accountant and counsel, and the CRA where dispute support applies. CUSPAP authorises the appraiser, not the engaging party, to set reliance.

Can the appraisal be updated if it is years old?

An update report is appropriate where the original AACI - or a competent successor - extends the authorized use or moves the effective date. Where the executor needs a new effective date entirely, a fresh report is the right instrument.