Morneau v. The Queen, 98 DTC 2199, [1999] 1 CTC 2686 (TCC)

Dussault 7.C.J.:

The appellant is challenging an assessment for his 1991 taxation year by which the Minister of National Revenue (“the Minister”) contended that he had received a taxable benefit of $65,000 from 2541-4947 Québec Inc. (“the company”) under s. 15(1) of the Income Tax Act (“the Act”).

The benefit allegedly came from the sale by the appellant to the com- pany on November 20, 1991 of his residence located at 40 Rue principale in St-Arsène, Quebec for a price of $150,000, whereas according to the Minis- ter the fair market value of the property was only $85,000.

At the relevant time the appellant was a shareholder in the company and held the majority of the voting shares. The company had been created to hold immovable property leased to another company founded by the appel- lant to operate a truck transportation business, Transport Morneau Inc. (“Transport Morneau”), in which he was also the principal shareholder. Al- though the appellant had control of the company his daughter Micheline his two sons Guy and André, who assisted him in managing the Trans- port Morneau business, were also shareholders in the company and held participating shares.

The residence at issue was located on Rue Principale (Highway 291) in St-Arsène, Quebec. The lot was in an industrial zone and had a surface area of 13,112 square feet. The house was a bungalow 73 feet by 30 feet, built in 1978, the habitable area of which, not counting a finished basement, was 2,122 square feet.

The lot surrounding the house adjoined that owned by the company on each side and at the rear. There were two buildings behind the residence.

Seen from the rear of the lot owned by the company, the building closest to the residence was a rectangular structure located on the right and to the back of it: the portion adjacent to the residence housed the offices of Transport Morneau and the back portion its warehouses. The second building, also rectangular and with a surface area about half that of the first, was located on the left side of the lot. It was used as a garage. The rest of the lot was used for the movement and parking of tractors and trailers. The truck entrance was on one side of the residence and the exit on the other. According to André Morneau, one of the appellant’s sons, in 1991 there were about 70 daily truck movements, in or out, day and night. On one side of the residence and at its rear the yard was used for parking employees’ automobiles and was paved up to the part of the building housing the offices. The rest of the yard was dirt.

According to André Morneau’s testimony, in early 1991 it became urgently necessary to enlarge the offices used by Transport Morneau. The existing space was too small and a considerable expansion of activity into the Gaspé Peninsula was planned. From an operational standpoint it was desirable and even necessary for the new offices to be located as close to the existing offices and warehouses as possible. However, the construction of a new building near the existing offices meant that the appellant’s residence would have to be moved and transported to another lot.

According to André Morneau his brother Guy suggested at the outset that he buy the appellant’s residence and offered him $75,000 for it. He said the appellant categorically refused this offer. This approach was abandoned, and after discussions with those concerned, André Morneau was authorized to arrange for the construction of new offices.

An initial estimate by the architect he consulted, Jocelyn Sirois, placed the cost of the proposed new space, 3,500 square feet on two floors, at some $332,000, not counting the fees and other inherent costs of over $100,000, which included the cost of moving the appellant’s residence to another lot. It was quickly decided that this project was too ambitious and costly and André Morneau asked the architect for another estimate based on a reduction of the proposed offices to an area of 2,500 square feet. The second estimate obtained would have resulted in a reduction in construction costs of some $100,000, for an estimated cost of $230,000, to which additional costs of about $100,000 would still have to be added. As the proposed construction would be adjacent to the space in the existing offices, in order to construct the new building the appellant’s residence would have to be moved and installed on other land. According to André Morneau, there was no question of buying adjoining land to build on it since it would also have been necessary to obtain the dezoning of farm land. Certain problems en- countered in earlier negotiations with a neighbour with respect to fencing were also mentioned.

Realizing that the total cost for new construction was much too high for the resources of the business, and considering that the economic situation and the location of the business in St-Arsène did not justify investments of that size, André Morneau began to consider another solution in August 1991: : he suggested to his sister Micheline and his brother Guy that the ap- pellant’s residence be purchased and converted into office space.

As no specific price had apparently been mentioned up to that point, it was agreed following new discussions with the appellant that two contracars be contacted to determine the cost of building a residence similar to the one he occupied, namely a bungalow of about 2,200 square feet, not includ- ing the area of the finished basement and an adjoining garage.

The construction cost estimates obtained from the two contractors were $146,200 and $152,000 respectively, excluding in both cases the cost of purchasing and developing a lot.

André Morneau’s proposal that the appellant’s residence be bought at a price corresponding to the cost of building a new house, rather than pro- ceeding with the construction of an office building, was submitted to the Transport Morneau management committee on September 6, 1991. The ap- pellant chaired the meeting. His wife, his daughter Micheline and his sons Guy and André were also present. The proposed solution was accepted be- it made it possible to save considerable time, energy and money. The surface area of the residence did in fact meet the requirements and it could be converted into office space. André Morneau was then again in- structed to continue his negotiations with the appellant on the basis that the price offered should not exceed the cost of constructing a new building sim- to that which the appellant already had, excluding the cost of a lot and development thereof. The plan to expand into the Gaspé Peninsula was approved at the same meeting.

After this meeting the appellant was offered $150,000 for his residence. According to André Morneau this was a reasonable price which the com- pany would have been prepared to pay a third party as well. In his submis- sion, the company could at the outset have offered up to $165,000 since the cost of the lot to be purchased and of developing it also had to be taken into account. At the same time, as the appellant would be getting a new house he felt that the $150,000 offer was appropriate. In André Morneau’s submission, the transaction was beneficial to the company as it allowed new offices to be prepared quickly at a cost much less than that of a new building and this made it possible to spend more money on the purchase of trucks.

In his testimony the appellant stated that he was not interested in selling his residence and could still have continued living there. He admitted that he still had certain responsibilities in the Morneau group but was less active as he had had serious heart problems in 1989 and 1990. He acknowledged having taken part in the decision in September 1991 regarding the purchase of his residence and the preparation of new offices, but said he was not always present at the preliminary discussions. He said he had looked for another residence that might have suited him but had not found anything satisfactory. He admitted that he knew of the company’s requirements and that he knew it would help if he agreed to sell. However, he said that initially he was not interested in doing so. I conclude from his testimony that he was not really interested in doing so unless he was adequately compensated if he agreed to consider the sale. As none of the houses he had visited seemed to correspond to his requirements, the discussions focused on the cost of building a residence similar to the one he owned.

Bearing all this in mind, as well as the estimates obtained, the appellant wanted to obtain something over $150,000 for his residence in view of the additional costs he would have to bear to purchase and develop a lot. In spite of that, he finally decided to accept the offer at this price and the sale was concluded on November 20, 1991.

The appellant subsequently did purchase a lot on the other side of Rue Principale and built a new house on it, at a total cost which he said was between $162,000 and 165,000.

The company quickly converted the residence purchased from the appellant to new offices at a cost of about $16,200. A few years later, in 1995 or 1996, it spent about $10,000 to $12,000 more, among other things to change the roof boarding.

The appellant’s expert witness Benoît Egan of the firm Raymond Chabot Martin Paré, after a historical analysis of the case based essentially on the facts set out above, came to the conclusion that the fair market value of the appellant’s residence at the time of the sale to the company was at least $150,000. Mr. Egan did not undertake an analysis of sales of comparable properties since in his submission the optimum value had to be determined based on use for commercial or industrial purposes. Nor does Mr. Egan appear to have taken the cost approach into account, although his re- port did mention the estimates obtained from the two building contractors referred to above. The reasons for his conclusion were given as follows at p. 12 of his report:

[TRANSLATION!

From the information on the area, the analysis of the neighbourhood, the existing zoning by-laws and the particular features of the property in question, especially the fact that it is enclosed by Transport Morneau, it appears that the best use of the property is for commercial or industrial purposes complementary to the activities of Transport Morneau.

In view of this special feature only two types of buyer could be found, namely:

the owner of the land enclosing the property in question, namely the business; or

a possible purchaser who could interfere with the activities of the business enclosing his property.

In any case, it would be impossible to find a typical buyer wanting to use the property for residential purposes.

In such circumstances, therefore, the best use is for commercial or industrial purposes complementary to the activities of Transport Morneau, and the market value in November 1991 is accordingly estimated at no less than $150,000; this estimate also corresponds to the concept of value in use.

I will make just two comments here. First, the appellant’s residence was enclosed. It was located at the entrance to the lot owned by the com- pany, which adjoined the residence on only three sides. My second com- ment has to do with the use of the “value in use” concept. Although Mr. Egan himself referred to the property as being of special value to the pre- sent user, and not to a potential purchaser, he then appeared to use the con- cept to support his conclusion regarding the best potential use. I admit I have some difficulty following this reasoning.

The respondent’s expert witness, Yvon Ouellet, also referred in his re- port to the best use principle. However, unlike Mr. Egan he concluded that best use could only be for residential purposes.

The reasons for this conclusion are set out as follows at p. 7 of his re- port:

[TRANSLATION]

In the instant case we consider that “Transport Morneau Inc.” is a special purchaser for the property in question, to whom the special value represented by the building entails a subjective value which clearly goes beyond an objective value or fair market value.

It should be noted that the property in question was built for residential use and was used for that purpose up to the date of the appraisal. This use could have been continued by any potential purchaser and the property could thus have been offered on the open market. In the sector under review (a rural area) we feel it is inconceivable, and indeed unrealistic, to believe in a commercial or industrial value since there is no demand for this type of use.

This is why in seeking to determine the fair market value, including the best use rule, it is our considered opinion that it would be contrary to all principles of real estate appraisal to ascribe a commercial or industrial value to this residence when there is only one potential purchaser who could benefit from such a use.

Using the depreciated replacement cost approach and an analysis of sales of comparable residences, Mr. Ouellet set the fair market value of the residence at the time of the sale at $85,000.

In his report Mr. Ouellet noted that it was impossible to visit the property, which he described as a [TRANSLATION] “well maintained bungalow of conventional design”. It should be noted that he assumed the basement of the residence to be unfinished, although it was in fact finished.

Using the cost approach, Mr. Ouellet set the value of the lot at $8,000 and the new replacement cost of the building at $147,186, which corresponded to the estimates obtained by André Morneau from building contractors in the summer of 1991. However, to determine the value of the building Mr. Ouellet applied three successive adjustments by way of depreciation: first, a 15 percent physical depreciation rate, second, a 20 percent functional depreciation rate, and finally, a 20 percent economic depreciation rate. He accordingly estimated the total negative adjustments to be made at $67,117, and thus set the depreciated replacement cost at $80,069. Adding the value of the lot, $8,000, and $5,000 for site development, he arrived using this approach at a value of $93,069, rounded off to $93,000.

In his testimony Mr. Ouellet explained that the physical depreciation rate was applied because of the age of the building, which was built in 1978. The functional depreciation rate was applied because the surface area of nearly 2,200 square feet was in his submission too large for a house located in the country and residences with that surface area were more difficult to sell. Finally, the 20 percent economic depreciation rate was applied simply because the house was located in the country. According to Mr. Ouellet, this percentage is arbitrary but accepted.

Using the direct comparison approach, Mr. Ouellet took three sales of “comparable” residences the selling price of which he adjusted to take various factors into account and then determine a selling price per square foot of building. Applying the average price, calculated at $34.15 a square foot of building (including development of the lot and the garage) to the habita- ble area of 2,122 square feet, he arrived at a value of $72,466 for the build- ing. Adding the value of the lot, $8,000, Mr. Ouellet arrived at a value of $80,500 for the property.

Then, considering that the direct comparison approach was more direct evidence of the state of the market, Mr. Ouellet estimated that the value obtained using this approach was more representative of the fair market value than that obtained by the cost approach. He thus concluded that the fair market value was $85,000.

Counsel for the respondent argued that the appellant’s expert witness, Mr. Egan, simply concluded that the transaction at $150,000 was reasonable without attempting in any way to determine the fair market value of the property for residential purposes, which counsel for the respondent submit- ted was the only likely use, even though not a desirable one. She rejected any idea of a special purchaser since, if I understand her reasoning cor- rectly, such a purchaser would be unique and would not be known to per- sons in the market, so that competition likely to result in a “capital gain’’ on the property would not result. Furthermore, she argued that no evidence was presented of the premium which might be paid if a commercial value were to be assigned to the property.

Finally, counsel for the respondent argued that the parties arrived quickly at an agreement based on the cost of construction of a similar resi- dence after very little bargaining. She also noted that the appellant was ac- tually acting for both parties and that the company approached no third pares, such as the neighbour, before reaching an agreement with the appellant.

Counsel for the appellant felt that in the circumstances the concept of a special purchaser should be accepted. Further, he argued that the parties in question had separate interests and that the appellant was not initially interted in selling his residence. He felt that while the appellant sold it at a price higher than what he could have obtained if Transport Morneau had not been there, this price negotiated between the parties should be taken into account as it represents what the company had to pay to ensure the appellant’s agreement and obtain the desired property, which was its only option, and there was no question of trying to confer any benefit upon him.

It should be noted that under s. 15(1) the Court must first determine whether a benefit was conferred on a shareholder in that capacity. Such a finding can only be made by looking at all the particular circumstances sur- rounding a given transaction. If a benefit was so conferred, its value must then be determined. It is primarily at this stage that the application of certain accepted principles of appraisal becomes truly relevant. The fact that a transaction between a company and a shareholder does not at first sight appear to have been made at the fair market value does not necessarily mean that a benefit was conferred by the company on its shareholder qua shareholder. Having said that, I hasten to add that although a transaction such as a sale of property which at first sight appears to have been made for an amount below or above the fair market value may of course be an indication in this regard, it must still be established that in the circumstances this transaction was not a genuine commercial transaction between the parties.

In the recent Federal Court of Appeal judgment in Fingold v. R., [1998] I F.C. 406 (Fed. C.A.), Strayer J.A. referred on this point to the classic comments of Cattanach J. in Minister of National Revenue v. Pillsbury Holdings Ltd. (1964), [1965] 1 Ex. C.R. 676 (Can. Ex. Ct.), at p. 684, on the real meaning to be given to the equivalent provision of the Act as applicable prior to 1972, namely s. 8(1)(c). These comments read as follows, at p. 413 of Fingold:

...in my view, there can be no conferring of a benefit or advantage within the meaning of paragraph (c) where a corporation enters into a bona fide transaction with a shareholder. For example, Parliament could never have intended to tax the benefit or advantage that accrues to a customer of a corporation, merely because the particular customer happens to be a shareholder of the corporation, if that benefit or advantage is the benefit or advantage accruing to the shareholder in his capacity as a customer of the corporation. It could not be intended that the Court go behind a bona fide business transaction between a corporation and a customer who happens to be a shareholder and try to evaluate the benefit or advantage accruing from the transaction to the customer.

On the other hand, there are transactions between closely held corporations and their shareholders that are devices or arrangements for conferring benefits or advantages on shareholders gua shareholders and paragraph (c) clearly applies to such transactions ... It is a question of fact whether a transaction that purports, on its face, to be an ordinary business transaction is such a device or arrangement.

In the instant case the evidence amply demonstrates that the company had a pressing need for new offices and that the construction of a new building was proving to be an extremely costly solution. The appellant’s residence was also located strategically at the very entrance to the existing commercial facilities used by Transport Morneau in operating its business. Furthermore, his residence was immediately adjacent to the existing offices and the space between the two buildings was already paved. The company’s interest in acquiring this residence, the habitable area of which corre- sponded in large part to its need for office space, is clear. The choice of such a solution seemed all the more attractive as the necessary renovations were minor and the cost low. From the company’s standpoint, therefore, this choice made it possible to save not only money but also considerable time and energy. What is equally clear is that no other residence, whether that of the neighbour or another located somewhere in the village, occupied so strategic a position for the expansion, considered essential, of the Trans- port Morneau business. It is somewhat simplistic and unrealistic to think that the company could have considered locating these new offices just any- where, even at some distance from its existing offices, which would have to continue being used for this purpose. Logically, those involved could not be blamed for not trying to bargain with the neighbour or someone other than the appellant in their search for space in an already constructed building, since no such building could offer comparable advantages in light of the company’s requirements.

As for the appellant, he lived in this residence he had built at the very entrance to the facilities used by the truck transportation business, which been in operation for several years. He was clearly not interested in selling, and if he agreed to do so he did not want to move somewhere else to a residence that did not suit him. That was how he felt and it was his choice, and the Court knows of no rule that could require him to accept a solution that did not suit him. It is hard to dispute his point of view, since as owner of property coveted by the company, which really had no other choice, he was in a position of strength. He was under no obligation to ac- a solution which did not seem suitable to him. As he had not found another residence which satisfied him, the appellant asked for a price corre- sponding to what it would cost to build a residence somewhere else compable to the one he had, which suited him perfectly. In these circumstances, he clearly had a significant economic interest distinct from any interest he might have as a shareholder in the company, and he asserted this interest, the company could not ignore and had to satisfy in order to attain its objectives at a cost which was both acceptable and well below that of new construction.

The negotiated price of $150,000 was agreed on after two estimates had been obtained from building contractors. The average of the estimates ob- tained was $149,100, excluding the price of a lot and the development thereof. The appellant himself mentioned a total cost of $162,000 to $165,000 for his new residence. Additionally, the respondent’s expert wit-

ness estimated the cost of building a residence similar to that of the appellant at $147,186, which is on the same order of magnitude.

The appellant received a price less than what he paid for the new residence, which he said is neither larger nor more lavish than the old one. It is certainly more modern, but the appellant had to spend an additional amount to purchase and develop the lot. In short, in terms of cost he was not fully compensated for relocating elsewhere. In the circumstances, I feel that the evidence presented does not show any attempt whatever to confer a benefit on him as a shareholder. If some nevertheless feel that he received a benefit, it has to be admitted that this was much more as the owner of property of strategic value to the company’s expansion than as a shareholder thereof.

I find it difficult to believe that someone in the appellant’s position, who was neither forced nor obliged to sell, would have agreed to give up a residence that suited him for $75,000 or $85,000 knowing that he would have to reach into his own pocket for almost exactly the same amount in order to build for himself a residence that, albeit new, was comparable to the one he had, so as to benefit a company the future of which he had already placed in the hands of his children, as was true of Transport Morneau. Generosity has its limits and analysing the special circumstances of the case requires a minimum of common sense.

Ordinarily this conclusion would make it unnecessary to further analyse the concept of fair market value and the principles of appraisal referred to by the expert witnesses and counsel for the parties. Nonetheless, I will venture to make a few comments, in particular on the position taken by the respondent’s expert witness and counsel, according to whom the best use could only be residential despite the fact that the company was acknowledged to be a special purchaser.

First of all, I would note that the appellant’s residence was located in an industrial zone. In this context it is somewhat difficult to understand the remark by the respondent’s expert witness that [TRANSLATION] “it is inconceivable, and indeed unrealistic, to believe in a commercial or industrial value since there is no demand for this type of use”, whereas he acknowledged somewhat later that there was a potential purchaser, although only one, who could adopt such a use.

In his work Canada Valuation Service (Toronto: Carswell), Ian R. Campbell defines what he refers to as “special interest purchasers” as fol- lows at p. 3-26:

Purchasers who can, or believe they can, enjoy post-acquisition economies of scale (or synergies) or strategic advantages by combining the acquired business interest with their own.

In Dominion Metal & Refining Works Ltd. v. Minister of National Revenue (1986), 86 D.T.C. 6311 (Fed. T.D.), Joyal J. of the Federal Court(Trial Division had inter alia to determine whether a company could be regarded as a special purchaser at December 31, 1971, for purposes of establishing as of that date the value of certain rights in real property conveyed some five years later. In the course of his analysis Joyal J. mentioned certain decisions to which counsel for the appellant had referred, including an old English decision of the Court of Appeal in Inland Revenue Commissioners v. Clay Inland Revenue Commissioners v. Buchanan, [1914] 3 K.B. 466 (Eng. C.A.). In those cases, where the situation bore some resemblance to that at issue here,[1] the Court had to determine the value of a private residence pur- chased by the trustees of an adjoining property used as a nurses’ home in order to enlarge the nurses’ home. Cozens-Hardy M.R., recognizing that such a use could justify a higher value, adopted at p. 472 the language of J. (whose decision was on appeal), who had stated the following, drawing an analogy the relevance and soundness of which can hardly be

questioned:

An “open market” sale of property “in its then condition” presupposes a knowledge of its situation with all surrounding circumstances. To say that a small farm in the middle of a wealthy landowner’s estate is to be valued without reference to the fact that he will probably be willing to pay a large price, but solely with reference to .ils, ordinary agricultural value, seems to me absurd. If the landowner does not at the moment buy, land brokers « or speculators will give more than its purely agricultural value with a view to reselling it at a profit to the landowner.

(Emphasis added)

The comments of Swinfen Eady L.J. are also especially relevant to the recognition of a special purchaser. He stated the following at pp. 474-75:

The learned judge below found as a fact[2] 2 that “as a private residence, and having regard to the other houses offering, No. 83 was not worth more than 7501. which was the utmost such people could be expected to give,” but that “to the nurses’ home, which owned the neighbouring house, and needed further accommodation near, No. 83 was so adjacent, and offered such suitable accommodation, that it would be advantageous to them to pay at least 1000/., probably more, for it, and the 1000/. actually paid was a profitable business transaction to the nurses’ home and not a fancy price. It was not worth any one else’s while to pay a sum substantially larger than 750/., except in the hope of reselling to the nurses’ home, to which the house was obviously of considerable value and a likely subject of purchase.” That is prefaced by this line: “After listening to the evidence I find the following facts,” and then he states what I have read.

The Solicitor-General contended that as the section said “if sold at the time in the pen market.” the price which ly one particular buyer was prepared to pay must be excluded from all consideration: it might possibly be a fancy price which had _ no relation to market price: that a reference to open market shewed hat the statute referred to a current market price of land. a price which one or more valuers might determine to be the market value of the land.

In my opinion this contention is unsound. A value, ascertained by reference to h amount obtainable in an open market, shews an intention to include every possible purchaser. The market is to be the open market, as distinguished from an offer to a limited class only, such as the members of the family. The market is not necessarily an auction sale. The section means such amount as the land might be expected to realize if offered under conditions enabling every person desirous of purchasing to come in and make an offer, and if proper steps were taken to advertise the property and let all likely purchasers know that the land is in the market for sale. It scarcely needed evidence to inform us — it is common knowledge — that when the fact becomes known that one probable buyer desires to obtain any property, that raises the general price or value of the thing in the market. Not only is the probable buyer a competitor in the market, but other persons, such as property brokers, compete in the market for what they know another person wants, with a view to a resale to him at an enhanced price, so as to realize a profit. A vendor desiring to realize any land would ordinarily give full publicity to all facts within his knowledge likely to enhance the price. The local conditions and requirements, the advantages of the situation of the property for any particular purpose, and the names of the persons who are probable buyers, would ordinarily be matters of local knowledge to the property brokers and agents and speculators. In order to arrive at the amount which land might be “expected to realise”, all these matters ought to be taken into consideration.

(Emphasis added)

Since in our law the concept of market value presupposes an open and unrestricted market, it is also wrong to say that the value which property would have for a potential purchaser desiring to use it for different purposes can be disregarded on the ground that he is the only one who wants to use it for those purposes, there is no competition in the market for this use and the value is thus purely subjective. To do so would be to disregard one aspect of the situation, with the result that the appraisal exercise would become highly theoretical, disconnected from the specific circumstances of the case under consideration and so very questionable.

Several other decisions mentioned or analysed by Joyal J. in Dominion Metal & Refining Works Ltd., supra, establish that two relevant factors in determining the value of property are the possibility of using the property in accordance with its special features and its use contemplated by a special purchaser. Two such decisions are those of the House of Lords in Vyricheria Narayana Gajapatiraju v. Revenue Divisional Officer Viza- gapatam, [1939] A.C. 302 (India P.C.), and the Supreme Court of Canada in Fraser v. R., [1963] S.C.R. 455 (S.C.C.). Joyal J. also mentioned Lay- cock v. R. (1978), 78 D.T.C. 6349 (Fed. T.D.), and 93/7 Holdings Ltd. v. Minister of National Revenue (1985), 85 D.T.C. 388 (T.C.C.), and he analysed the Tax Review Board’s decision in Lakehouse Enterprises Ltd. v. Minister of National Revenue (1983), 83 D.T.C. 388 (T.R.B.). The least that can be said on reviewing these decisions is that it is impossible to disregard special interest which a potential purchaser may have in acquiring prop- erty for a value higher than what others would be prepared to pay, in view of the special circumstances in which it finds itself and the use it intends to make of the property, to the extent that such an interest can be demonstrated

a given date.

at a

It is clear in the instant case that the appellant’s property, on account of situation, offered unique advantages which could meet the requirements of the company in view of the use the company intended to make of it after undertaking renovations which were fairly minor and which, most impor- tantly, were fairly inexpensive compared with the much larger amounts it would have had to spend on new construction. No other property in the vicinity used for residential purposes could offer these same advantages. It is impossible not to be surprised that these factors were not taken into ac- count in the appraisal submitted by the respondent’s expert witness, as this put the exercise in the most unlikely of contexts in light of the special cir- cumstances of the transaction at issue.

In closing, I would add that the appellant and his children, who were already taking over management of the company and of the Transport Morneau business, did according to the testimony heard have quite separate and opposing interests in this matter. Accordingly, the price of $150,000 negotiated by the company for the purchase of the appellant’s residence in the circumstances related above seems to me to be quite normal and reasonable and to represent a value which can be regarded as being the fair market value of the property in question as of the time of the transaction. When the interests of a seller can be reconciled with those of a buyer, albeit a special one, after a mutual compromise consistent with each side’s bargaining power, a price which has been negotiated and finally accepted may be regarded as representing a value which could be obtained on the market.

While the determination of fair market value presupposes a transaction between people who are dealing with each other at arm’s length, I agree with the view that this question must be answered by looking at the particular circumstances of a given case, and not by reference to the presumption stated in s. 25 !(!)(«) of the Act that related persons are deemed not to deal with each other at arm’s length.[3]

In accordance with the foregoing, the appeal from the assessment made under the Income Tax Act for the 1991 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant received no benefit as a shareholder from the sale of his residence to 2541-4947 Québec Inc. on November 20, 1991.

Costs are awarded to the appellant.

Appeal allowed.