Why You Need an Appraisal Report for an Accurate Capital Gains Tax Calculation

Understanding Capital Gains Tax in Canadian Real Estate
When it comes to selling real estate in Canada, especially in cities like Toronto where property values have surged over the past decade, capital gains tax is one of the most significant financial implications. Whether you’re selling an investment property, transferring ownership as part of an estate, or gifting real estate to a family member, any increase in the property’s value from the time of acquisition to the time of disposition may trigger a taxable capital gain.
The key question is this: how do you accurately calculate that gain? The answer starts with the property’s fair market value—and the most credible way to establish that is with a certified, retrospective appraisal report.
At Seven Appraisal Inc., we work with property owners, accountants, lawyers, and financial advisors across Toronto and the GTA to provide appraisals that withstand CRA review and ensure accurate, defensible capital gains reporting.

What Triggers Capital Gains Tax?

Capital gains tax is payable when a property (excluding a primary residence) is sold, transferred, or deemed disposed of. In real estate, this applies to:

Second homes or vacation properties
Commercial buildings
Vacant land
Transfers between family members (including gifts or sales below market value)
Death of the property owner, triggering a deemed disposition
Rental Investment Properties

While only percentage of the capital gain is taxable, the value of that gain is what matters most—and that value can only be calculated correctly if you know both the adjusted cost base (ACB) and the fair market value (FMV) at the time of sale or transfer.

If either of those numbers is inaccurate, your capital gains calculation could be significantly off—either overestimating your tax burden or underreporting your liability, which could invite CRA scrutiny.

Why Appraisals Are Essential for Capital Gains Tax Purposes

An appraisal report determines the fair market value of a property at a specific point in time. This becomes critically important in the following situations:
When the Property Was Not Originally Purchased at Market Value
If you inherited the property, received it as a gift, or acquired it in a non-arm’s-length transaction, your ACB may not be based on a traditional purchase price. In these cases, the CRA considers the fair market value on the date of acquisition as the baseline.
Without a professional retrospective appraisal from that date, you’re left guessing—or relying on weak supporting documentation—which creates risk if your capital gain is later audited.
When Selling or Transferring Below Market Value
It’s common in family wealth planning to gift or transfer properties between generations. However, even if no money changes hands, the CRA assumes a deemed disposition at full fair market value. You still owe capital gains tax on the difference between the ACB and the appraised value—even if no cash is received.
An appraisal ensures that this declared value is based on real market data, not assumptions. This protects both parties in the transaction and provides essential documentation for tax reporting.

When the Property Has Significantly Appreciated

Toronto’s real estate market has experienced aggressive appreciation over the past decade. If you bought a commercial building in Leslieville for $600,000 in 2008 and it’s worth $2.1 million in 2025, your taxable capital gain could be in the seven-figure range.

In cases of large gains, the CRA is far more likely to request supporting evidence. A properly documented, professionally prepared appraisal from Seven Appraisal Inc. provides that protection.

In Estate Planning and Inheritance Scenarios

Upon death, a property owner is deemed to have disposed of all capital property at fair market value, triggering capital gains tax before the estate is transferred to beneficiaries.

An accurate date-of-death appraisal is required to:

File the final return for the deceased

Determine capital gains tax liability for the estate

Set a new adjusted cost base for heirs who retain the property

Failure to establish the correct value could lead to overpayment—or worse, an audit and penalties for underreporting.

What’s Included in a Capital Gains Appraisal Report?

A high-quality capital gains appraisal includes:
A retrospective or current market valuation, depending on the date required

Market-based comparables adjusted for location, condition, and improvements

Clear explanation of methodology used (typically the direct comparison approach)

Evidence of market conditions at the time of valuation (economic factors, trends, etc.)

Compliance with Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP)

A signed certificate of value by a certified appraiser

At Seven Appraisal Inc., our reports are designed to be used by both clients and their accountants during tax preparation—and to be ready for CRA scrutiny if needed. We provide valuations that are clear, defensible, and deeply rooted in Toronto’s real estate market dynamics.

Common Scenarios Where Clients Require Appraisals for Tax Reporting

1. Sale of an Investment Condo or Rental Home
A property purchased in 2012 and sold in 2025 must be appraised to confirm current market value and calculate capital gains tax accurately—especially if improvements have been made.
2. Intergenerational Transfers of Real Estate
When a parent gifts a Toronto home to a child, an appraisal is required to determine the fair market value at the time of transfer, even if no cash is exchanged.
3. Property Owned by a Corporation
When a corporation sells or restructures ownership of a commercial asset, an appraisal is often needed to verify the disposition value for corporate tax filing.
4. Divorce Settlements
Where real estate is transferred as part of an equalization agreement, appraisals support both capital gains calculation and property division decisions.
5. Estate Distribution
A date-of-death valuation supports executor duties, tax filing, and beneficiary allocations based on real, court-recognized values.

Protecting Yourself with a Professional Valuation

Using guesswork, old purchase documents, or online estimators to calculate capital gains tax may seem easy—but it opens the door to errors, reassessments, and penalties. The CRA doesn’t accept casual numbers. They expect real evidence.
A certified appraisal from Seven Appraisal Inc. gives you:
A clear, justifiable valuation

A compliant and professional report

Legal defensibility in case of audit or review

Peace of mind when filing returns or planning ahead

We work with property owners, accountants, and legal professionals to provide valuation reports that satisfy both your financial planning goals and CRA documentation standards.

Final Thoughts: Don’t Let Uncertainty Define Your Tax Liability

Real estate has become one of the most valuable assets many Canadians hold—and when it comes time to dispose, transfer, or report those assets, accuracy matters. Capital gains tax is too significant a liability to approach casually. Getting the numbers right from the start is not only responsible—it’s essential.
Whether you’re selling, gifting, or planning your estate, trust Seven Appraisal Inc. to deliver the professional, market-tested appraisal report you need to navigate capital gains taxation with confidence.