Valu8er for CRA Tax Valuations

Valu8er for CRA Tax Valuations

As per the Canada Revenue Agency (“CRA”) information circular 89-3, CRA requires that a valuation prepared for tax purposes have “reasonable judgment and objectivity in the selection and analysis of the relevant facts.”  As seen in the chart below, while most Canadian tax valuation reports are prepared using standards that require no corroboration, Valu8er takes no chances and goes above and beyond valuation requirements set by the CRA.  Further, trust Valu8er’s 100% independently suggested EBITDA multiples in satisfying the CRA.

Far too often, practitioners will rely upon a “quick and dirty” valuation prepared by either themselves or by the client. This strategy can backfire if the value conclusion is challenged by the CRA, and further exacerbated upon consideration of tax implications relating to shares redeemed based on the “quick and dirty” business valuation, resulting in significant penalties and interest.

Price Adjustment Clause

Practitioners are warned that the CRA can set aside a Price Adjustment Clause (‘PAC’) if there was not a “bona fide” attempt at determining the fair market value of the company or the company’s shares in question, as prescribed under CRA’s Income Tax Folio S4-F3-C1.

Valu8er & CRA Information Circular 89-3

As seen below, while most Canadian tax valuation reports are prepared using standards that require no corroboration, Valu8er takes no chances and goes above and beyond valuation requirements set by the CRA.  Further, trust Valu8er’s 100% independently suggested EBITDA multiples in satisfying the CRA.

Valuation Analysis/Reasearch/corroboration

Corroboration Required by Canadian Valuation Bodies*

Corroboration Required by
CRA**

Built-in Corroboration
Standard of
Valu8er

General outlook and specific outlook and condition of the particular industry

N/A

The company's Position Within the Industry

N/A

The company's relative earnings power

N/A

Marketing Prices of reasonably similar
corporations in the same line of business

N/A

General economic conditions and outlook

N/A

Quality of the business, including management depth

N/A

Impact of inflation

N/A

Opportunities for growth

N/A

Existance and importance of competitors

N/A

Level of Owner Reliance Risk

N/A

Customer & Supplier Concentration Risk

N/A

Revenue Growth Rate

N/A

Scalability & Level of Technology

N/A

Tangible Asset Banking (TAB) Level

N/A

Difficult of Industry Entrance

N/A

Capital Asset Expanditure Levels

N/A

*As per Guidance on the Lowest level of report Standards

**As per CRA Bulletin 89-3 (https://www.canada.ca/en/re venue-agency/services/forms-publications/io89-3/policy statment-on-business-equity valuations.html)

* No Corroboration is required as per Guidance on the Lowest Level of Report Standards

** As per CRA Bulletin 89-3 (https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/ic89-3/policy-statement-on-business-equity-valuations.html)