Before comparing figures, always specify what is being measured, on what date, and for which decision.
An accountant receives an expert valuation report (CBV / EEE) for a client: the fair market value (FMV) of the shares is set at $5M. Six months later, a purchase offer comes in at $3.8M.
The classic question immediately arises: “Which number is correct?”
The most honest answer is simple: the question is poorly framed. Fair market value and sale price do not measure the same thing, do not serve the same purpose, and often refer to different objects and dates. Comparing them without adjustment is like comparing Gatineau’s temperature in February to Montreal’s in July to conclude that a thermometer is broken.
Key takeaway: Before placing two amounts side by side, you must align three parameters: the object, the date, and the decision. Everything else follows.
1. Fair Market Value: A Theoretical Construct
Fair market value (FMV) is not an observed price but a reasoned conclusion developed in a hypothetical market.
CBV Institute definition: “Fair market value is the highest cash price, expressed in cash equivalents, that can be obtained in a transaction in an open market where competition is unrestricted, between a hypothetical willing buyer and a hypothetical willing seller, both competent, under no compulsion, and reasonably informed of the relevant facts.”
Legal definition: Canadian jurisprudence (Henderson Estate v. M.N.R.) confirms it is the price forged “on the anvil of supply and demand” in an open market, free of constraints and undue pressures.
In this theoretical framework, buyer and seller are rational, the market is exposed to all potential buyers, and the deal is settled in cash.
The CBV Institute calls these notional valuations. They are required when no real market exists: tax reorganizations, shareholder disputes, matrimonial regimes, or buy-sell agreements. FMV answers: “What would this interest be worth in an ideal market at a specific moment?”
2. Sale Price: An Empirical Reality
Price is simple: it is the exact consideration a real buyer agreed to pay a real seller in an actual negotiation.
Price reflects all the human and economic factors that FMV tries to neutralize:
- Bargaining power and urgency to buy or sell
- Access to financing and liquidity position
- Unique synergies of a strategic buyer willing to pay a premium
- The founder’s emotions
- Payment structure (vendor take-back, earn-out clauses, share rollover)
Watch the structure: A nominal $5M price paid over five years and contingent on future earnings does not equal an FMV of $5M payable 100% cash at closing.
3. The Three Parameters to Align Before Comparing
To make a useful comparison between a valuation and a purchase offer, break down these three elements:
A. The Object Valued
A valuation report may cover 100% of shares, a 30% minority interest, or the net operating assets of a business. A purchase offer often targets a different scope (e.g., asset purchase only, excluding the building or excess cash). Comparing FMV of all shares with an offer for only the operating business is a common mistake.
B. Valuation Date
Value is a photograph, never a film. CBV Standard No. 110 requires explaining the exact economic context at the precise valuation date. Between a tax valuation date and an offer received 12 months later, interest rates, the loss of a key customer, or industry conditions can radically shift the picture.
C. Decision Purpose
The objective changes the approach:
- Tax (e.g., estate freeze, ITA s.85): Requires strict adherence to notional market assumptions.
- Strategic sale: May include analysis of synergies and special buyers.
Why a Gap is Not an Error
A difference between FMV and sale price does not mean the valuation is wrong. It simply reflects the specifics of the real market:
- The buyer had unique synergies to exploit.
- The seller faced time or health pressures.
- Information between the parties was asymmetric.
As Justice Cattanach noted in Henderson Estate, the purpose of a valuation is to establish a defensible, reasoned FMV—not a value “absolutely precise to the penny.” FMV provides an anchor; price reflects a negotiation.
Implications for Your Files
For accountants, lawyers, tax advisors, and bankers, the golden rule is to ask the right starting question:
“Do the two amounts refer to exactly the same object, on the same date, and for the same decision?”
In most cases, the answer is no—explaining most of the gap without needing to challenge discount rates or multiples.
This approach protects the client by ensuring a tax valuation is not mistakenly used as a negotiation floor, or a pressured offer does not compromise rigorous tax planning.
Discuss Your Situation
Each file has its own specifics regarding the object, date, and decision. Need to reconcile a valuation report and a purchase offer for a client, or prepare a transactional reorganization?
The PME Business Valuators team supports owners, buyers, and professionals across Canada to bring clarity to your decisions.
Contact us:
📧 Email: info@jcdesnoyers.ca
📞 Phone: 877-734-4030
This article provides general information and does not constitute professional advice or a valuation report. Each situation requires an analysis based on its own facts, date, and purpose.
SOURCES:
- Revenu Québec, « Juste valeur marchande (JVM) », définition officielle. https://www.revenuquebec.ca/fr/definitions/juste-valeur-marchande
- Agence du revenu du Canada, « Juste valeur marchande », transfert de biens à une entreprise. https://www.canada.ca/fr/agence-revenu/services/impot/entreprises/revenu-petites-entreprises-travailleurs-independants/etablir-votre-entreprise/apport-biens-entreprise/juste-valeur-marchande.html
- Henderson Estate v. M.N.R., 73 DTC 5471, [1973] CTC 636 (C.F. 1re inst.), conf. par 75 DTC 5332 (C.A.F.). Texte intégral reproduit par Tax Interpretations. https://taxinterpretations.com/content/353347
- Institut des CBV, « Évaluation d’entreprises » (évaluations notionnelles et contextes d’utilisation). https://cbvinstitute.com/evaluation-dentreprises?lang=fr
- Institut des CBV, « Countdown to 2026: Strengthening Report Disclosures (Part 1) », norme d’exercice n° 110 révisée, en vigueur le 1er janvier 2026. https://cbvinstitute.com/countdown-to-2026-strengthening-report-disclosures-part-1
- Jean-Claude Desnoyers, FCPA, CBV, « Standard No. 110 of the CBV Institute » (niveaux de rapport et contenu minimal). https://jcdesnoyers.ca/en/standard-no-110-of-the-cbv-institute
- Banque de développement du Canada, Patricia Narbaitz, « Value vs. price: Understanding the difference when buying or selling a business ». https://www.bdc.ca/en/articles-tools/blog/value-vs-price-understanding-difference-buying-selling-business
- Davis Martindale LLP, Ron Martindale et Korab Ferati, « Is Fair Market Value the Price of the Business? Fair Market Value vs. Price », 8 avril 2025. https://www.davismartindale.com/blog-fair-market-value-vs-price
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