Kusch v. The Queen, 84 DTC 6117, [1984] CTC 108 (FCTD)

McNair, J:—This is an appeal by the plaintiff taxpayer from his tax assessment for the year 1976 in respect of the sale of his farm land in close proximity to the city boundary of Saskatoon, Saskatchewan. The Minister reassessed the subject land at $229,000 for its Valuation Day value. This was later changed to $242,000. The land was sold for $639,530. The plaintiff attributed to the land a V-Day value of $536,280 and showed a taxable gain of $51,625 in his 1976 Return.

The land in question comprises three farm parcels which can be briefly described as NW!4 6-37-4-W3, SW!4 6-37-4-W3 and NW A 7-37-4-W3 consisting of 160,137.5 and 137.27 acres respectively. The subject property is located just beyond the city limits of Saskatoon in the Sutherland area of the Rural Municipality of Corman Park. The property is predominantly agricultural land which the plaintiff still farms under some arrangement with the City of Saskatoon. It was the original Kusch homestead which the plaintiff acquired from his mother by transfer instrument dated November 16, 1967. Previously, he had acquired through VLA a quarter section lying immediately southwesterly of the homestead property. This was in 1946 or thereabouts. In the early 1950s the plaintiff sold off a four acre parcel to North Star Oil at a price of $3,000 an acre. In November, 1965, he sold the remaining parcel of this quarter section to First Investors Corporation but with the title going in the name of Alberta Mortgage Exchange Ltd. This parcel was sold for $1,100 an acre.

On February 21, 1973, the plaintiff gave to Saskatoon Real Estate & Insurance Co Ltd an option to purchase the westerly half of quarter section six, consisting of 160 acres, at a price of $170,000. The expiry date was December 31, 1973. The optionee persistently endeavoured to sell the optioned parcel to the City of Saskatoon, but the price was considered too high. Hence, the option was not taken up.

In 1976 the plaintiff sold all but 20 acres of the remnant Kusch homestead to the City of Saskatoon at the price referred to previously, which comes to about $1,471 per acre. The City was the instigator of the sale.

The City of Saskatoon has implemented a land banking system with a view to acquiring tracts of agricultural land adjacent to its limits to facilitate orderly growth and development. In March, 1966, the City adopted a Community Planning Scheme. Parcel SW'/4 6-37-4-W3 was within the Scheme periphery. In March, 1971, the Community Planning Scheme was revised with the result that this portion of the Kusch land was no longer within the boundary of the Scheme. The Community Planning Scheme is periodically revised and some time later the Kusch land was brought within its boundary. In fact, the Community Planning Scheme must be revised every five years according to the statute. It is not written in stone.

The issue for determination is the market value of the subject land as at December 31, 1971.

The defendant relies on sections 3, 38, 39 and 40 of the Income Tax Act. It is unnecessary to reproduce these.

Sylvan D Chyz, AACI, was the plaintiffs expert appraiser. The defendant called two expert appraisers, Murray J Cooney, AACI and James N Perry, AACI. Mr Cooney is an employee of the Department of National Revenue but this is not by itself a disqualifying factor. Both Mr Chyz and Mr Cooney agreed that the highest and best use of the subject land was its present utilization as agricultural land but with an anticipated future development potential. Mr Cooney selected 20 years as the probable time frame for development. Mr Chyz saw its impending transition to urban development as much more immediate.

Mr Perry concluded that the subject land did not have any subdivision potential in the foreseeable future and, based on that premise, put its highest and best use at agricultural and rural residential utilization. All of the value indicators chosen by Mr Perry were for properties on the westerly side of the South Saskatchewan River some considerable distance from the Kusch land. He applied an agricultural yardstick only and rejected any consideration of development potential. He admitted on cross-examination that his choice of comparable indicators was predicated purely on a judgment determination without explaining adequately why he ignored other sales in closer proximity to the subject land. In view of these erroneous postulates, I am unable to accept Mr Perry’s appraisal evidence. This is no reflection on his credibility.

It was obvious from his evidence that Mr Cooney conducted a thoroughgoing investigation as a basis for his appraisal. To a lesser degree than Mr Perry, he was prone to select for his comparable sales properties quite far removed and somewhat dissimilar in characteristics from the subject land. He was perfectly frank and honest in his testimony but much of the impact or persuasive thrust of his evidence was substantially blunted, if not negated, during the course of a very capable cross-examination. He admitted that his comparable #4 was, like the Kusch land, outside the periphery of the Community Planning Scheme when it was sold in 1968 for $1,700 an acre. This was the one to which he applied a 55 per cent negative adjustment factor for reasons which are not at all explicable. He admitted that property on the easterly side of the river is generally considered to be more desirable than that on the westerly side.

In my view, Mr Chyz was more discriminating in his choice of comparable sales as indicators of land value in terms of proximity and generally similar characteristics to the subject land. He concluded that the immediate neighbourhood of the subject land was in a state of impending transition at a point in time closest to V-Day which necessarily had a significant effect on its use potential and property value. I am satisfied on the weight of evidence that this was a reasonable conclusion. In the result, the defendant failed to shake the validity of the Chyz sale comparables. The first three, namely, sales 7, 8 and 9 average out to $1,670 per acre. The Cooney unadjusted sale #4 is in the same price range of $1,700 per acre. These comparables must, under the circumstances, be taken as representative indicators of market value.

Furthermore, the evidence establishes that the recessive economy trends of the late 1960s manifested significant signs of reversal during the latter part of 1971. Land values were on the increase. The proximity of the Kusch property to the city boundary could not be ignored in terms of development potential. Due heed had to be paid as well to the several important land acquisitions by the City of Saskatoon in fixing market value at the material time and about which much was said. The defendant’s hindsight evidence that these were unusual sales which could not therefore qualify as precedents going to land value left me unconvinced. The City exercised a free choice in the acquisition of these properties and that determinant factor simply cannot be swept under the rug.

It is well settled that the one essential criterion for utilizing comparable sales as indicators of land value at a particular point in time is that the comparables be similar to and in the proximate area or location of the subject property at that time: Smith and Campbell v MNR, [1980] CTC 2208; 80 DTC 1185, 1188.

In my opinion, the evidence of Mr Chyz meets this criterion on any reasonable balance of probability. Having regard to this and the other considerations alluded to, his valuation of $579,000 for the subject land, according to the component breakdown set out hereunder, must therefore stand:

I find therefore that the plaintiff has met the onus of establishing that the Minister’s assessment is incorrect. Accordingly, the plaintiffs appeal is allowed with costs and the matter is referred back to the Minister for reassessment on the basis determined herein.