When capital properties are transfered between taxpayers who are not dealing at arm's length, a consideration may be established at the level higher or lower than the fair market value to allow one or both taxpayers to reduce or avoid taxes. To prevent transfer price manipulations, rules are needed to deal with inadequate considerations.
Here is a table of the general rules (ITA 69) dealing with the non-arm's length transfer of property for consideration that is greater or less than the fair market value of that property.
| Transfer Price | Proceeds of Disposition For Transfer | Adjusted Cost Base for Transferee |
| Fair Market Value | Fair Market Value | Fair Market Value |
| Above Fair Market Value | Actual Proceeds | Fair Market Value |
| Below Fair Market Value | Fair Market Value | Actual Proceeds |
| Nil (Gift) | Fair Market Value | Fair Market Value |
Because the requisite fair market value adjustment is one sided, it has an inherent double taxation penalty. One should not underestimate the power of this anti-avoidance provision.
