Haslam v. The Queen, 88 DTC 6081, [1988] 1 CTC 153 (FCTD)

Teitelbaum, J: —William and Albertine Haslam acquired, as joint tenants, 10.82 acres of land situated in the Town of St. Albert, in the Province of Alberta in August 1956 for a sum of $2,500. The purpose of the purchase was to build a home on the land so as to have a proper place to bring up a family.

This never occurred. Both William and Albertine owned the land in St. Albert on December 31, 1971. The land was, in effect, in the same condition on December 31, 1971 as it was when it was purchased. A cottage which had been on the land at the date of purchase had been abandoned.

In August of 1975, William and Albertine sold their interest in the subject land. As a result of such sale, both William and Albertine Haslam realized a capital gain based on the proceeds of the sale of the property, less the adjusted cost base of the property. This was based on the value of the land on December 31,1971 and the cost of sale.

The 10.82 acres of land may be described as follows:

Lots 1 and 2, within Block 1, Lots 1 through 6 inclusive, in Block 2 and Lots 1, 2, 4 and 5 within Block 3, all within Plan 5428 AW, River Lot 23.

The subject land was sold in August of 1975 for a sum of $332,500.

In computing their income tax for the year 1975, both William and Albertine declared that the value of the subject property on December 31, 1971 was $262,500. They also declared the costs incurred in the sale of the subject property as being $10,000. They therefore declared a capital gain on the sale of the property of $60,000. William and Albertine filed separate tax returns for the year 1975 and thus, each declared a capital gain on the sale of the subject land of $30,000.

By notice of reassessment dated November 6, 1979, the Minister of National Revenue reassessed William and Albertine by increasing the amount of the taxable capital gain reported on the basis that the value of the subject property on Valuation Day, December 31, 1971, was less than the value stated by the Haslams. The Minister of National Revenue determined that the value of the subject land on December 31,1971 was $56,000 and not $262,500.

As a result of the Minister's valuation of the subject land, the capital gain that both William and Albertine earned is $266,500 and not $60,000 as previously reported. The Minister is of the belief that both William and Albertine should have reported a net capital gain of $133,250 on each of their 1975 income tax return:

On January 19, 1980, the Haslams filed a notice of objection. The Minister confirmed his reassessment and informed the Haslams of this decision on June 30, 1980.

On September 26, 1980, both William and Albertine filed separate statements of claim before the Federal Court of Canada making the submission that the value of the subject land on December 31, 1971, Valuation Day, is $262,500.

The issue to be determined is one of fact. That is, what is the value of the subject land on December 31, 1971, Valuation Day, in order to determine what is the capital gain received by the plaintiffs when they disposed of the land on August 26, 1975.

At the commencement of the hearing, counsel agreed that both cases should be heard at the same time and with the same evidence.

I was also informed that Albertine has since passed away and that the style of cause, in her case, should be changed to read William Haslam in his own capacity and as Executor of the Estate of Albertine Haslam.

I agreed that both cases should be heard at the same time and upon the same evidence. Thus, the present reasons shall be for both dossiers T-4551-80 and T-4552-80.

I allowed the verbal motion to change the style of cause in the dossier of Albertine Haslam.

The case heard was that of William Haslam v. The Queen, T-4552-80.

Plaintiff testified on his own behalf and gave the reasons why and how he and his late wife determined the value of their land in St. Albert on December 31, 1971.

In relation to how he arrived at a value of $262,500, the testimony of Mr. Haslam is interesting. He states that prior to selling the subject land he knew that he would have to pay income tax on any profit made and he decided to consult with his attorney, not his present counsel. While consulting with his then attorney, he met an accountant, a Mr. Freeman E. Reynolds. He states that he contacted Mr. Reynolds by telephone in June 1975 to discuss with him the issue of capital gains. He then retained Mr. Reynolds as his accountant and, after the sale of his property, he himself did nothing with regard to the issue of capital gains but forwarded all the documentation to Mr. Reynolds.

In 1976, when the 1975 income tax returns were to be sent in, Haslam states that Mr. Reynolds informed him how it was possible to determine the value of the land on December 31, 1971 and Haslam accepted the advice given to him. Haslam states "we did it the way he (Reynolds) told us to do it

— we accepted his expertise".

According to Haslam, Reynolds told him that the straight-line appreciation method should be used, “starting at $2,500 (cost of purchase) and continuing through to date of sale for $332,500”. This meant, according to plaintiff, that he held the land for 15 /2 years prior to Valuation Day (December 31, 1971) and 3'/2 years after Valuation Day, thus the value on Valuation Day is $262,500. Haslam states that Reynolds told him he used this type of accounting in cases where the value of the property went up every year. He also states that Reynolds deducted the expenses of the sale from the sale price.

Plaintiff called Mr. Freeman E. Reynolds as his witness. He was not called as an expert witness. Mr. Reynolds informed me that he was not a chartered accountant but a certified general accountant. He was , he states, an accredited public accountant before becoming a certified general accountant. He states that he had some influence on the plaintiff in determining the value of the subject land “1 should think”. In being questioned by counsel for plaintiff as to whether he acquired some information to determine plaintiff's land value he replied that he supposes he did, he believes he must have had some information. He states that the method used to calculate the value, or one of the methods, and this was used by him, was to allocate an equal amount to each year.

Reynolds admits that he did not instruct Haslam to use this method of calculation to determine the value of the subject land on Valuation Day. He admits that in his 18 years of practice, he may have used this method approximately 10 times and on "one or two occasions" problems arose by the use of this method. He also states that he always advises his clients to obtain an appraisal report and that he advised Haslam to do likewise.

This witness was of no benefit in determining the value of plaintiff's land. It seems to me that he simply told plaintiff to use the straight-line method without having any information other than the cost of the land in 1956, the expenses incurred for the sale and the amount of the sale price.

I am satisfied that the method used by plaintiff to calculate his capital gain resulting from the sale of his land and as reported on his 1975 income tax return is totally unacceptable.

His own expert witnesses agree that the straight-line method is inadequate to determine the value of vacant property on a particular day.

Plaintiff, in his testimony in chief attempted to show the high value of his land on December 31, 1971 by describing the situation as it existed or must have existed on Valuation Day in regard to the rate of development in the Town of St. Albert.

Haslam states, in his examination-in-chief, that in examining an aerial photograph, Exhibit P-1, dated June 1, 1971, it indicates, and this is only six months before valuation, that there was a proposed ring road to go through his property, the ring road to be a feeder road for traffic to proceed to McKinney Ave. and thus traffic would have clear access to the roads leading to the City of Edmonton.

Plaintiff believes that since this plan existed on June 1, 1971, it is an important indication his land was ready for development. He also states that a company known as British American Construction Materials (B.A.C.M.) was in the process of developing all the land surrounding his property and that a Composite Plan in March 1971 indicated that the intention was to develop his land as it in fact was developed, that is, into 55 lots. He states that on a visit to his land, in 1968 or 1969, he noticed surveyors' tapes on his property which indicated to him that there existed plans for development of his land.

No plans were produced to indicate to me that in 1968 or 1969 the plaintiff's land was ready for development.

Plaintiff does state that the aerial photo, Exhibit P-1, shows that water and sewer services were available for his land and that these services were stubbed at his property.

I am satisfied that services were available on December 31, 1971 to the plaintiff’s land and that these services were stubbed off at the intersection of Larose Drive and Langley Road, just to the east of the subject land. This fact was confirmed by Mr. Martin Newell, an engineer who had worked in the Lacombe Park area of St. Albert were the subject land is situated. Mr. Newell produced an engineering report, D-4, which is an engineering plan showing what work was completed by October 31, 1971.

Exhibit D-1, according to Newell, clearly shows what water and storm sewers were in the plan on October 31,1971 and that these services were at the property line of the subject land. He states that the storm sewer had a diameter of 27 inches which was installed along Larose Drive and ended at manhole 142 which is at the intersection of Larose Drive and Langley Ave., the sanitary sewer had a diameter of 10 inches. It ended at manhole 60, the intersection of Larose and Langley while the potable water main, 8 inches in diameter, ended at the same intersection.

This witness stated the services were stubbed off at the intersection and thus, provision was made, by October 31, 1971, for future extension.

The plaintiff, in giving his evidence, gave his opinion that the value of fully serviced lots in a good area, here I assume near his own land, was between $7,000 to $10,000 each. He states that he based himself on his own research of sales in 1971 and 1972. He states he could have easily found 20 such sales but only produced seven sales which he believes are comparable. This witness is of the opinion, and quite naturally, that prior to and immediately after 1971 there was, in the area where his land is situated, a rapid rate of development.

In cross-examination, the plaintiff admitted he had left Alberta on September 10, 1966, he had been living in Edmonton not St. Albert, and that the first time he returned to Alberta was for a ten-day period at Christmas in 1968 or 1969. He also returned in February 1970 or 1971 to Calgary to purchase an automobile and visited his property in St. Albert for a day or two where he was able to observe what he called the rapid growth. He did not return again until May of 1973 to visit his friend, the Mayor of St. Albert for one day. In 1974, he returned for one day, he may or may not have seen his property but did visit with his friend the mayor and with an engineer, a Mr. Savage. In 1975, he returned to sell his land.

The plaintiff admitted in his cross-examination that all of his opinions as to development were simply based on what he observed when visiting. Although I am satisfied, from other evidence, that plaintiff's land on Valuation Day was to be developed imminently, within one year, I do not give much weight to this witness' evidence.

The plaintiff admitted he had no experience or knowledge of real estate. I am satisfied that his testimony was not from personal knowledge but from information that he obtained from other sources, such as, his friend Mr. Alan B. Hamilton, of whom later and from his expert's report prepared by Keith Fraser.

The first real estate expert appraiser called by plaintiff was Mr. Alan B. Hamilton.

Mr. Hamilton was asked to testify on two occasions; on the first occasion, as an expert as to the value of plaintiff's land on Valuation Day and on the second occasion as an expert in rebuttal to criticize the report of Mr. Peter Lee, the expert witness produced by the defence.

Counsel for defendant, after asking a number of questions, admitted Hamilton as an expert witness.

Soon after Hamilton commenced to give his evidence, counsel for plaintiff attempted to file the report prepared by this witness. Counsel for defendant objected as it was his belief that the majority of the report was not with regard to the subject land value but with a criticism of defendant's expert's report which was not yet filed. Counsel for defendant did not object to the contents of the report with regard to the value of the subject land on Valuation Day.

I maintained the objection and allowed, into the record, only those portions of the report having to do with the witness’ expert opinion as to the subject land value on December 31, 1971 and how the witness arrived at the said value.

At the very beginning of his testimony, Hamilton made it clear that he never arrived at a valuation of the subject land. His report was not meant as an appraisal report but meant to help out a friend, the plaintiff.

The report of Mr. Hamilton was admitted into the record as Exhibit P-14. At the very beginning of the report is a letter dated October 15, 1987 addressed to plaintiff in which one can see what this expert was expected to do.

In accordance with your instructions I have reviewed the Appraisal Report of the above described property prepared by Peter W. Lee dated April 10, 1987. You asked that I comment on the value found in this report and to provide you with my written comments relating thereto.

I visited the property on October 10 and 11, 1987, and was able to view the site and several of the comparables used in the report.

The following pages contain my comments. These comments do not in any way constitute an appraisal of the subject property. Any values mentioned herein are only examples of what may be found if an appropriate technique was used and adequate comparable sales were located.

I trust that you will find the comments herein useful.

Respectfully submitted,

Sgd. “A.B. Hamilton”

A.B. Hamilton, A.A.C.I.

(Retired)

[Emphasis is mine.]

In the course of his testimony in chief, Hamilton states that notwithstanding the fact that he did not make an appraisal of the valuation of the subject property he did form the opinion that plaintiff's land was:

(a) ripe for development on Valuation Day;

(b) because it was ripe for development, its value was higher than agricultural land or industrial land;

(c) at valuation day developers were anxious for the subject land as B.A.C.M. (British American Construction Materials Co.) was in the area developing land around the subject property.

Mr. Hamilton states that he did not prepare his report as a commercial appraisal and as a result did not follow, in detail, the normal 11 procedures one must follow to arrive at a conclusion in using the cost of development method to determine a valuation.

I was left with the distinct impression that the evidence he gave was biased in favour of his friend, the plaintiff.

Furthermore, the opinions given by him were based, not on information that he himself researched, but on second hand information. Much of what he said was on facts allegedly reported to him by plaintiff or based on information that he obtained by having read the appraisal report of Keith Fraser which was not filed into the record until after the trial had been completed and reopened as a result of a verbal motion by counsel for plaintiff. Mr. Hamilton admitted that much of his information had come from having read Fraser's appraisal report before he had prepared his own.

Having said the above, what does Hamilton's evidence indicate. Hamilton is of the view that the subject property was close to where there was a great deal of commercial activity and that this "denotes (the subject land) has more value than if (the land) were in the boon docks". Hamilton referred to Exhibit P-14A which is a Compiled Plan of St. Albert dated March 18, 1971. He states that the significance of this plan is that the plan was developed by adjoining land owners (to the plaintiff's land) with the town and indicates the area immediately outside of the subject land has streets with Larose Drive (ring road) to go through plaintiff's land. Hamilton believes that plaintiff's land was so situated that if he refused to join in the development of the area, greater costs would have to be incurred to development around him. This makes, Hamilton believes, the plaintiff's land more valuable. Hamilton believes that if a parcel of land is absolutely required (to complete or effect a development) then this factor would cause a developer to pay more for the land making the land more valuable.

About the only evidence given by this witness to which I agree is that the method to be used in attempting to value plaintiff's land is the cost of development method as I am satisfied that one can, on Valuation Day, assume that the subject land is ready for development.

Mr. Hamilton states that on some occasions he had seen the straight-line valuation method used but that this method is only used to obtain an estimate rather than a "fine" valuation. He states that "the end result must be confirmed by other methods". In this case, he believes, the cost of development method should be used.

Hamilton is of the opinion that the cost of development approach should be used as the indication on Valuation Day showed the subject land was "ripe" for development. He believes this is obvious from Appendix "A" and "B" attached to his report and from the aerial photo, Exhibit P-1. These exhibits, he states, enabled him to reach the above conclusion that the land was ready for development.

In both Hamilton’s examination-in-chief and cross-examination, he admits that in attempting to show a value in using the cost of development method, he used hypothetical numbers (figures). He never placed a specific value for the land but gives "a great deal of value” to the land.

The evidence of Keith Fraser is of much greater importance. As I have stated, counsel for plaintiff, only after all evidence for both plaintiff and defendant had been concluded and just before argument was to have commenced made a verbal motion to first, reopen that part of the hearing for rebuttal evidence and after I denied his request, made a second verbal motion to reopen the trial in order to enable the plaintiff to produce the report of Keith Fraser and have Keith Fraser give expert evidence.

Although counsel for defendant objected stating that the evidence that plaintiff wished to make was not new evidence that he was not aware of before the trial and that it was a conscious decision by counsel for plaintiff not to make the evidence, I granted the verbal motion to reopen the hearing, the plaintiff being responsible for all costs and disbursements of defendant, including the travelling and other expenses of defendant's attorney and of any witnesses he may call to refute the evidence of Keith Fraser.

Before discussing the importance of the evidence given by Keith Fraser, I believe it necessary to briefly discuss the evidence made by plaintiff through his witnesses Veness, Bamber and John Van Leewan. Counsel for plaintiff also called Mary Lou De Long, an employee of Revenue Canada. Through this witness, plaintiff filed a number of documents emanating from Revenue Canada's Data Bank as Exhibit P-17 en liasse. She stated that the Department of Revenue “stands by" the figures contained in the documents themselves but she was not prepared to state that the documents she was asked to bring were given to plaintiff while Haslam had visited the office where she was employed.

William J. Veness gave evidence that he lives in St. Albert and had lived there “all of my life”. He was town councillor from 1949 to 1951 when he became mayor. In 1957, the town of St. Albert applied for new town status and he became chairman of the board of administrators. In 1962, the new town status was dissolved resulting in this witness becoming, once again, mayor. He retained the position of mayor to February 1965.

The background of this witness is such that I believe he would be knowledgeable as to the development of St. Albert up to and subsequent to December 31, 1971.

He states that he was familiar with the northwest section of the town of St. Albert which is now known as the Lacombe Park area. He states that in 1969 or 1970 a hospital with approximately 100 beds was opened. The hospital is, “as the crow flies”, approximately 8 blocks from plaintiff's land. This witness testified that the town, in 1956, installed water and sewer services but because of demand (by population growth) the town found these services insufficient and a "more extensive system" was installed.

Veness is of the belief that the most rapid growth period commenced after St. Albert became a new town in 1958 and "it continued from then on”. He stated, in his opinion, there were "no wild fluctuations, just a boom town".

Generally the evidence given by Veness is corroborated by the figures of population growth given in the reports of Fraser and Lee. Commencing in 1956, and with the exception of 1968 where there was a decrease in population of 52, the town of St. Albert had a general and gradual population increase. The rapid increase in population seems to have commenced from 1969 and continued to 1980 (see page Population — St. Albert 1956-1979 Fraser Report or Lee Report).

The witness John Van Leewan corroborates the evidence of Veness as to the growth of the area and the rate of development of the town. Mr. Van Leewan was president of Madison Development Corporation Ltd. The company was a real estate development company active in land development and construction. Before the downturn in the western economy, the total assets of the company were in excess of $100,000,000.

After this witness testified as to his work experience, I became satisfied that he was knowledgeable in the field of real estate, construction and land development. Van Leewan gave evidence that in 1971 his company, Madison Development, purchased 4.28 acres of vacant land on Brandon Road in the town of St. Albert for a sum of $54,000. The land was purchased in January 1971. It is described as lot 2 in Block A in the town of St. Albert (see Exhibit P-21). The land, according to the witness in his examination-in-chief, was, when purchased, raw land zoned residential. It was purchased by witness' company because the witness determined that the Town of St. Albert had a history of growth and he felt he had made a good buy “if not a bargain”. He states the company resold the land in the same condition it was purchased with the zoning having been changed from single family residential to multifamily residential. He states that it was several years after the purchase that the zoning was changed.

The evidence of Peter Lee indicates to me that Van Leewan's evidence in relation to the 4.28 acres of land his company purchased is flawed. I am satisfied that the land, when purchased and sold, was zoned multi-family and cannot be used to indicate a value to Haslam's property which was zoned single family residential.

I can accept the evidence of this witness only to indicate that there was a steady growth of population in St. Albert after he purchased the 4.28 acres of land in January 1971. I do not accept his evidence as satisfactory proof that plaintiff's land had the same value as that purchased by this witness' company.

Normally, it can be assumed, witnesses called by a party to testify in legal proceedings are called upon to give evidence which would favour that party for whom he or she is giving evidence. In the present instance, counsel for plaintiff called a Mr. Morris Bamber to give evidence to show, I assumed, that the value of plaintiff's land on Valuation Day, December 31, 1971, was more than the value allowed in the notice of assessment issued by the defendant.

Although Mr. Bamber was not called as an expert witness on behalf of the plaintiff, Mr. Bamber's qualifications can lead me to no other conclusion than that he is an expert. Much weight must be accorded to his evidence. Bamber is a retired real estate appraiser who had been employed by the Minister of National Revenue and who was asked, before his retirement, to prepare an appraisal of plaintiff's land to indicate its value on December 31, 1971.

Bamber testified that in preparing his opinion as to the valuation of plaintiff's land, he did his own research for data in order to arrive at his own conclusions. The fact that he might have been aware of a previous form report valuation (a preliminary form valuation made by the defendant) would not, in any manner affect his own conclusion as to the value of the subject land. I have no reason to believe that this witness prepared his report on the value of plaintiff's land basing himself on any other valuation but his own.

Mr. Bamber gave evidence that he prepared a report as to the value of plaintiff's land on December 31, 1971. He stated that he disregarded the cost income or cost of development methods to determine the value of the subject land as these methods were not appropriate for the subject land. He is of the opinion that in bare land valuations the comparable method is best. He believes that the cost of development approach should only be used when the land is ripe for development, that is, within a year or two as there are many variables that could affect the valuation using this approach. He states, and this is confirmed by Peter Lee, that the "longer away" the development, the more chance of error, in that, the figures for the cost of servicing, etc. become less definite.

Bamber stated that since his opinion was that the property was not ready for immediate development, one to two years, he used the comparative method to determine the value of the subject land. He stated that the comparisons used were not chosen at random. He looked and verified a number of sales and chose those "that are most similar to subject land, in size, location, development factor and time of sale".

It should be noted that Haslam chose his comparables at random, disregarded those that he did not like and kept, for use, those he thought would help his case, this, of course, with the help of Hamilton.

Counsel for plaintiff agreed to produce the written report of Bamber into the record as Exhibit P-18. Exhibit P-19 was produced in the record. It is a map identifying the comparables mentioned in Bamber’s Report, P-18. The map is dated May 1973 and is of St. Albert.

Bamber used eight sales in his comparative method to arrive at the value of Haslam's land for Valuation Day. Most of the comparisons Bamber used (six of the eight) were used by Lee in his report. In a question put to him by counsel for Haslam, Bamber gave his opinion that it is unusual that two appraisers would use many of the same comparables.

I believe that counsel for plaintiff wished to show, by this fact, that Lee's research should be put in doubt in that Lee used many, six, of the same comparables. I do not agree with this submission. I would think that the fact that most of the comparables were the same would give added weight to Lee's report. It indicates that both appraisers chose what they thought were the best sales to make the comparison with Haslam’s land. Both Bamber and Lee selected the land sales on the basis that it was their opinion that these were the best comparables.

I am asked by plaintiff to disregard the value placed on the land by Bamber because he did not testify as an expert yet I am asked by plaintiff to accept Bamber's opinion that it is unusual that experts would use the same comparables. I cannot do so. I accept as valid evidence the testimony of Mr. Bamber and the report of Mr. Bamber. Should I be satisfied that the comparable method of determining the value of plaintiff's land is the proper one, then the value of the land should not exceed $54,100.

Bamber, a witness for the plaintiff, corroborates the value as stated by the defendant. This witness not only corroborates the valuation given by defendant but agrees with the method used by Peter Lee in determining the valuation, that is, the "comparable" method is the proper one. The witness disregarded the use of the cost of development method as not being practical in the context of the present factual situation.

Upon the reopening of the hearing, plaintiff called a Mr. Keith N. Fraser as an expert witness. His professional qualifications are most impressive. Although Mr. Fraser is a young man, 35 years of age, he seems to have a most successful professional career. On page 26 of his report, filed as Exhibit P-23, is a detailed list of Mr. Fraser's accomplishments and professional experience. Mr. Fraser is the president of the Alberta Chapter of the Society of Real Estate Appraisers which is a "world wide" organization and is an instructor for the Canadian Real Estate Appraisers Valuation Network of Alberta.

Counsel for the defendant admitted the qualifications of Mr. Fraser and stated that he was satisfied that Mr. Fraser can be considered as an expert and to testify as such.

Although I am most impressed with Mr. Fraser's evidence, it is flawed by the fact that he himself did not do all of the research, having relied on others in his office and by the fact that on certain matters he failed to verify some of the facts he was given to check their accuracy.

Fraser's appraisal report, Exhibit P-23, was completed on December 3, 1980. He was requested to prepare the report in October 1980.

Mr. Fraser’s letter of December 4, 1980 addressed to Mr. Haslam and found in Exhibit P-23 indicates what it is that he prepared for Mr. Haslam.

In accordance with your instructions, we have prepared a valuation analysis of the property legally described as: Lots 1 and 2, in Block 1 and Lots 1 through 6, inclusive, in Block 2, Plan 5428 A.W., and Lots 1, 2, 4 and 5 in Block 3, Plan 5428 A.W., all within River lot 23, St. Albert. As at the effective date of the appraisal, the property encompassed 10.78 acres of net potential development land.

The property rights appraised is the value of the fee simple estate. The effective date of the appraisal is December 31, 1971. The appraisal is required to estimate market value.

We have derived a value by analyzing the monetary appeal which would have been associated with the subject property as at the effective date. This has been undertaken by analyzing the development potential for the property at that time and the costs and returns associated with development.

After an analysis of all pertinent data, we have formulated the opinion that the best single estimate of value for the property effective December 31, 1971 is:

ONE HUNDRED THIRTY SIX THOUSAND EIGHT HUNDRED ($136,800.00) DOLLARS.

Mr. Fraser therefore states that Haslam's property consisted of 10.78 acres of net potential development land, the effective date of the appraisal is December 31, 1971, the value was derived by analyzing the development potential for the property at December 31, 1971 and the costs and returns associated with development. Mr. Fraser is of the opinion that the best estimate of value for the property is $136,800 effective December 31, 1971. Mr. Fraser's estimate of value per acre is $12,690 (page 1 of Exhibit P-23).

In his testimony, Fraser states that the location of the plaintiff's land on December 31, 1971 was in an area already being developed. He states that B.A.C.M. had developed the land next to Haslam's property, on the east side, up to the border of Haslam's land. He was of the opinion that the Haslam property had its own personality “especially because of the roadways in place for the property". He believes that one could not obtain the true potential of the land unless the cost of development approach was used to determine the value of the land.

He states that when he made his appraisal, the land had already been developed. He therefore knew that there were, on the Haslam land, 55 lots, the lots were generally larger than most residential lots and he therefore concluded these lots could be considered "upgraded lots". He states that the houses built on these lots were 2,000 sq. ft. or more. Mr. Fraser testified that the Haslam property was unique, it was imminently developable. It was only developed in 1976 because Haslam refused to sell. Had Haslam sold, Fraser believes, the land could have been developed within a six to twelve month period.

Fraser is also of the belief, after verifying the aerial photograph in his report that the roadway system was in place and going in a westerly direction and that the Haslam property was blocking the completion of the roadway system making Haslam's property important and situated in a strategic area. This makes, he states, the property more developable.

In Fraser's report, Exhibit P-23, he writes “as at Valuation Day, 1971, the water and sewage lines were stubbed at Langley Avenue and Lakeshore Drive and would have been easily extended to the subject subdivision that subsequently occurred".

I am satisfied that the water and sewage lines were stubbed at Haslam's property line. At first, Peter Lee, Defendant's expert witness, did not agree that the water and sewage lines were stubbed at the property line of Haslam's land but he later admitted that he may have erred on this fact. I believe he did err.

On page 7 of Fraser's report, he states, with regard to services and development:

In 1971, the services were stubbed at Langley Avenue and LaRose Drive. Discussions with the Engineering Department of the City of St. Albert indicated that effective Valuation Day, services would have been available to accommodate a subdivision of the subject property. Servicing was traditionally undertaken by the developer on a prepaid basis.

In 1971, the integral components were in place to facilitate short term development. The property was in the path of residential development of a good quality. It is conceivable that prospective purchasers of the property as at V. Day could have foreseen the excellent subdivision potential as proven over the subsequent years.

In 1971, the Lacombe Park area development, in which area of St. Albert Haslam’s property is situated, had been undertaken (page 9, Exhibit P-23). Fraser believes "it would appear reasonable to assume that as at December 31, 1971, an astute developer could have projected a proposed use for the subject lands as being consistent with the subsequent use to which the lands were put" (page 9, Exhibit P-23).

On page 11, Mr. Fraser states, in speaking of location:

The location of the subject property in 1971 was excellent in that it was in the heart of a comprehensive subdivision on which development work had commenced at that time. Services were available to the property, with adjoining uses established to ensure the conformity of the area as a whole. The location of the subject as at the effective date of appraisal would reasonably insinuate a subdivision of the subject land accommodating development of a residential nature as being imminent.

In speaking of zoning, he states (page 11) :

In the specific instance of the subject property, location and zoning are close in accord. Technically, the zoning was Urban Reserve with the future residential development earmarked, although, zoning does not provide an indication of phasing or development timing. The location logically insinuates further residential developments which were supported by the zoning classification. Zoning would have provided no constraints to the development as at the effective date of the appraisal in that a rezoning to a specific classification would have been available to the site at that time.

We will see that Peter Lee believes that on the 10.78 acres, it would be improbable if not impossible to obtain 55 lots. He, Lee, is of the view that the 55 lots could only be obtained if 14.72 acres of gross land was available. In that, he states, that Haslam only owned 10.78 acres, the maximum amount of lots would be approximately 40 to 41 lots, using the size of the lots presently on the land. Lee is of the opinion that only 3 /2 to 4 lots could be obtained per acre.

In reading Fraser's report, Exhibit P-23, under the title “Valuation technique", it becomes apparent why Fraser is of the belief that the best method to estimate Haslam's land is the cost of development method. He states that in estimating the value of land available for subdivision, the most commonly used methods are the cost of development technique and the direct sales comparison approach and there is a relationship between the techniques which varies in direct proportion to the development timing for the land. The closer the land is ready for development, the lesser reliance is generally given to the direct sales comparison. I believe that the defendant's expert, Mr. Lee, agrees with this. Furthermore, Fraser states:

In the case of the subject property, the lands were available for an immediate subdivision. The servicing was available, the planning for the area was complete and the procedures were in motion to accommodate short term rezoning of the fragmented subdivision. The fact that the subdivision was not developed for three years after the effective date of the appraisal does not influence the development timing as at the effective date of the appraisal. If the subject property was included with B.A.C.M. land holdings in the area, it is probable that submission would have been included within the first phase of the Lacombe Park development and accordingly, development would have proceeded prior to the effective date of the appraisal. There were undoubtedly factors which deferred development of the subject which related more to ownership than to market constraints. For the purpose of our appraisal, the cost of development offers the most meaningful indication of value due to the eminent developability of the lands as at the effective date of the appraisal.

After having decided that he was of the opinion that the cost of development technique should be used to determine the value of Haslam's land, he states, on pages 14 and 15, of his report, how the value is derived:

The Cost of Development Technique derives a value by projecting a hypothetical subdivision and calculating gross sales achievable from such development. From the gross sales figure must be deducted all expenses incurred during the development including sales commission, all subdivision costs and a sufficient profit to attract developer's [sic] to the property. The residual value to the land is discounted to current day values representing the time lapse necessary during development to offer an indication as to who [sic] much could be paid for the property as at the effective date of the appraisal while still providing a sufficient profit to attract developers.

Fraser gives specific details in his report on each of the elements he took into consideration in arriving at the value of $136,800. On pages 15 and 16, of his report, Exhibit P-23, he discusses the Gross Sales Estimate and states that he used 1972 prices. He states:

As at the effective date of the appraisal, assuming an immediate residential subdivision, lots would not be available for construction until the fall of 1972 to facilitate the time lapse accommodating subdivision approval and servicing of the lands. 1972 remains the second highest year for single family developments, surpassed only by 1973. In 1972, 890 single family dwellings were constructed followed by 933 single family dwellings in 1973. This trend could have been foreseen at the effective date of the appraisal in that the construction of single family dwellings increased from 201 in 1970 to 590 in 1971 and still did not satisfy the ongoing demand. For this reason, it is conceivable that an astute developer would commence a marketing program during the servicing of the lots and that if marketed competitively, could be sold prior to the end of 1972 particularly in consideration of the modest size of the subdivision. The subject subdivision would be marketed on the basis of 1972 prices, and accordingly, the 1972 prices are within our market analysis. The following areas have lots for sale which would yield a value representative of the subject.

Based on the above, Fraser considered the sales of four lots in the Forest Lawn area of St. Albert, five lots in the Lacombe Park area (the subject land is in this area) and four lots in the Braeside area (see page 18 of the report) to determine an average lot price for the Haslam land. Fraser concluded that the sum of $6,000 per lot represents a reasonable projection for the value and concludes, using 55 lots on the property, the gross sales estimate to be 330,000.

I cannot agree that the value of each lot to be estimated at $6,000 on the Haslam property. In the 13 land sales used by Fraser as comparisons, the sales went from February 1971 to November 1972, there are only three sales of lots having a value in excess of $6,000 and none of the lots are in the Lacombe Park area. In the Lacombe Park area, of the five comparisons given by Fraser, the average sale price is $5,392.80 or rounded out to $5,400.

In my questioning of Fraser concerning the $6,000 value, he stated he simply took the figure of $6,000 as being a reasonable value. I believe a more reasonable value to be $5,400 per lot, the average sale price of the lots in the same general area as the Haslam land.

Therefore the total estimate of the Gross Sales should be, and assuming 55 lots can be obtained from the Haslam property, $297,000.

With regard to the Hard Costs, which Fraser states “are the fixed labour and material charges necessary to service a land parcel", these would include

(a) Cost of providing the property with full services including sanitary and storm sewers, power, water, asphalt paved roadway, concrete curbs and gutters and overhead mercury vapour street lighting.

(b) Costs of upgrading facilities or font end costs for the extension of services.

Fraser states that in discussions he had with Revenue Canada Taxation, it was indicated to him that the hard costs were generally 35 per cent of the finished lot value. He also states that the actual servicing costs for 1971 were not available “in that the developer of the Lacombe Park subdivision as well as the cities of Edmonton and St. Albert indicated (December 1980, date of report) that insufficient records were available to provide the figures.

In cross-examination, Fraser stated that in doing his calculations with regard to the hard costs, he did not consider any sums that might become payable for roadways or lanes since the developer, in this instance, did not have to pay for land for roadways or lanes.

It later became apparent that the statement that the developer, in the present instance, did not have to pay for land for roadways or lanes was incorrect. The developer did have to pay for land for roadways. In addition, Fraser was also incorrect in speaking of reimbursement for oversize services (water and sewage). This sum is paid, if services are to be extended to the developer who was responsible for bringing the services to the land to be developed. Fraser states he could not specify the actual cost as he was unable to find out what was paid by the developer of the Haslam property, Delta, to B.A.C.M. which brought the services to the subject property.

Fraser, in his report also speaks of the soft costs which “include intangible items necessary for the development of a subdivision including carrying charges, payment of property tax during development as well as liability insurance on the land” (page 19 of Exhibit P-23).

Fraser gives a detailed discussion of the soft costs on pages 19 and 20 of Exhibit P-23.

Fraser estimated carrying charges to be $8,000 being prime six per cent in 1971 plus two per cent on $100,000 (page 19) Interim financing charges as being $4,620. (see page 20). He states:

The servicing costs for the subdivision are calculated at $2,100.00 per lot times 55 lots which equals $115,500.00. Interim financing charges on servicing costs are generally calculated at '/2 of the serving costs for 1 year at prime plus 1%. The interim financing charges calculated at:

$115,500. X 8% = $4,620.

2

For tax and insurance Fraser allowed $800 and $6,600 as a two per cent contingency.

For Marketing Costs, Fraser has selected a marketing commission of five per cent "as being reasonable". He states at pages 20 and 21 of his report:

Commissions on real estate was generally 6% for multiple listing service and 5% for exclusive marketing. Very few subdivisions are listed on the multiple listing service primarily due to the limited number of purchasers, the active home builder's [sic] and the ease of canvassing them without multiple listing exposure. For the purpose of this appraisal, we have selected a marketing commission of 5% as being reasonable.

In a detailed discussion (pages 21 and 22 of Exhibit P-23), Fraser concludes that a developer's profit of ten per cent of the gross sales is reasonable. He admits that the developer's profit “is an arbitrary figure which ranges from proposal to proposal”. He goes on to state that the developer's profit “in and around the effective date of appraisal was reportedly between 10 to 15 per cent of gross sale as determined by discussions with Revenue Canada".

On page 24 of Exhibit P-23, Fraser calculates the "Present Value, Dec. 31, 1971” by taking residual value to land, which he calculated at $144,980 (see page 23 of Exhibit P-23) times .943396 which equals $136,774 which he rounds out to $136,800.

No other witnesses testified on behalf of Haslam.

The defence called one witness, Mr. Peter Lee. Counsel for plaintiff admitted that Mr. Lee can be considered as an expert witness and is qualified to give evidence as such.

With regard to the method to be used to establish the value of Haslam's property on Valuation Day, Peter Lee differs with Keith Fraser. Both agree that a number of methods exist to make an appraisal, such as, cost of development of comparison, but Peter Lee is of the opinion that the cost of development method can only be used if the subject land to be appraised is ready for imminent development and that the Haslam property was not ready for imminent development. In that the property was not ready for imminent development, Peter Lee gave a term of three to five years for development, he was of the opinion that only the comparable method of valuation can be used.

During argument, counsel for plaintiff stated that should I conclude that the comparable method is to be used to value plaintiff's land on December 31,1971, the amount arrived at by Peter Lee of $54,100 is reasonable. He is, of course, of the opinion that this is not the method to be used. The method, he states, that should be used is the one adopted by Keith Fraser, the cost of development method.

Mr. Lee states he was assigned the Haslam property for valuation by the defendant. He was required to determine the value of the property on December 31, 1971. Mr. Lee's report, filed as defendant's Exhibit D-2, is dated April 10, 1987 and is to be taken as read. He states that no other report was made available to him when he made his report. He knew that a form report existed as well as a report made by Mr. Bamber but that he never made reference to these reports before he completed his own report.

Peter Lee, in his letter dated April 10, 1987 (Exhibit D-2) states that the purpose of the appraisal “is to render an opinion of the Market Value of the property, as at Dec. 31,1971". He states he personally inspected the property, analyzed the information made available to him and concluded the market value to be $54,100.

On page 1 of the report D-2, Peter Lee states that his final estimate for the value is $54,100 and that he arrived at the value by the direct sales comparison approach.

Market value is defined by Lee as:

The highest price in terms of money which a property will bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently and assuming the price is not affected by undue stimulus.

Keith Fraser defines it as:

The highest price estimate in terms of money which a property will bring if exposed for sale on the open market for a sufficient time to find a purchaser who buys with full knowledge of all the uses for which a property is adapted and is capable of being used.

Mr. Lee, after giving a detailed description of the site, under the title of area data (pages 3, 4, 5 and 7, Exhibit D-2), as did Mr. Fraser, speaks of the highest and best use for the subject property.

Peter Lee defines the concept of highest and best use as (page 10, Exhibit D-2):

Highest and Best Use is defined as “that use which, at the time of the appraisal, is most likely to produce the greatest net return in money or amenities over a given period of time”.

Keith Fraser states highest and best use as (page 11, Exhibit P-23):

Land resources are at their highest and best use when they are used in such a manner as to provide the optimum return to their operators or to society. Depending upon the criteria used, this return may be measured in strictly monetary terms, in intangible and social values, or in some combination of these values. The principle of highest and best use is fundamental to the valuation of real estate. Highest and best use may also be defined as the best use which can be made of the land under the existing constraints. The three main factors affecting the highest and best use hypothesis are location, zoning and size and utility of parcel. The Highest and Best Use analysis is undertaken on the basis of the data which would have been available to a prospective purchaser as at the effective date of the appraisal.

Both experts, Lee and Fraser, describe the highest and best use by speaking of the subject land's zoning and location.

Peter Lee, in discussing the question of location states that it is evident that the Haslam property would be developed “in the foreseeable future” (page 10, Exhibit D-2):

Subject site is a parcel of vacant land located just inside the town boundary. The site had a zoning of RX (Residential Comprehensive) which designated it for future residential development. Based on the continuous growth of the town population, and the developments that were taking place in the subject neighbourhood, it was quite evident that the development of the subject site could be expected in the foreseeable future.

In this, Lee agrees with Fraser except that Lee believes that “foreseeable future” to be three to five years and Fraser believes it to be six to twelve months.

Both experts also agree that the zoning of the land was such that the land was designated for future residential development. Fraser states that the zoning would have provided no constraints to the development.

I believe Mr. Lee would have and did agree with this.

Both experts state that the timing of development must be carefully considered in order to choose an effective appraisal method.

Lee considered the growth of St. Albert and stated that in 1969, the area known as Braeside was developed. In 1971, the areas of Forest Lawn and Lacombe Park developed. In 1973, Akinsdale developed and in 1976 the Woodlands area developed (see Neighbourhood Map, page 13, Exhibit D-2). He was of the opinion that in order to determine the development time of Haslam's property, it is necessary to verify how many lots were already available for development in 1971. He states there were available 978 vacant residential lots, 378 serviced while the other 600 lots could be made ready for construction. Many of the 378 serviced lots were already sold at the end of December 1971 (page 12, Exhibit D-2). Lee is of the belief that basing himself on the consumption rate of 674 lots for 1971 and 331 lots for 1970, the 978 lots would be sufficient to meet the needs at least to December 31, 1973, two years after Valuation Day. In addition, Lee states there was the possibility of 1,000 acres of land which could have been developed and which could have accommodated 15,000 persons (Exhibit A, attached to Exhibit D-2, Population Statistics).

Lee believes that in attempting to determine the development time a developer must consider that the population growth was relatively low, there were existing lots available and that there was vacant land immediately south of the subject land which should be developed before plaintiff's land.

Lee concluded from this that the best scenario for Haslam's property in so far as development is concerned is three years. The worst scenario is that the land would be developed in five years.

Lee, in attempting to justify his three to five year scenario, stated that if a developer owned the subject land on December 31,1971 and he wished to immediately develop it, he could do so but oversize services would have to be installed which "would be really costly”. He stated that in December 31, 1971 services were extended up to McKinney Road which was quite a distance from the subject land.

Mr. Lee, it became apparent, erred when he made the statement concerning the services. There is no doubt that the services were stubbed at the line of Haslam's property. The services were "not quite a distance" from Haslam's property. (This was clearly shown by the evidence of Martin Newell who stated that services, by October 31, 1971, were stubbed off at Larose Drive and what is known as Langley Avenue.)

Mr. Lee concluded, after giving consideration to the above (page 16, Exhibit D-2):

After considering the existing inventory in the stage 1 and stage 2 development, the relatively slower population growth at the time and the existing vacant sites in the subject neighborhood; it is estimated that the development of the subject side is more likely to occur within the next 5 years. Therefore, it can be concluded that the Highest and Best Use of the subject site as at the date of the appraisal, is a temporary holding property until development takes place.

In discussing the best method of valuation, Mr. Lee states, at page 17 of Exhibit D-2, that it is his opinion that the direct sales comparison approach is the best method:

The best approach to value vacant land is the Direct Sales Comparison Approach. This is a preferred approach because it reflects typical buyer and seller reactions in the market place and also the Principle of Substitution. The Principle of Substitution affirms that when a property is replaceable, its value tends to be set by the cost of requiring an equally desirable substitute property, assuming no costly delays are encountered when making the substitution.

In rejecting the cost of development approach to valuation, Mr. Lee states at page 18, Exhibit D-2:

The Land Development Approach, which usually applies to development land, has also been considered. It was decided not to use it in this appraisal.

This method of valuing land is used mainly for undeveloped tracts which are in line for development of urban use. It attempts to value undeveloped land by projecting a hypothetical subdivision onto the site. The total gross sales price of all the lots are estimated and from this, the costs of development are deducted. The balance will be the value of the property to the owner, including his profits. The usual profit required by developers on similar projects is then deducted and the resulting figure is the value if there was no time lag in marketing the lots. If there is time lag in marketing, the figure has to be discounted. Final value estimate is really the price the developer would pay for the land, taking into consideration the development potential of the site.

This method of valuation is basically a cost approach to value, it is very difficult to apply and often difficult to prove. This is because of the numerous estimates and forecasts that are required to fulfill the above steps. The reasonableness and accuracy of this method is highest when the raw land has imminent development potential (i.e. within the ensuing 6 months), its accuracy falls drastically as the time of development increases.

In the case of the subject property, the estimated holding period is approximately 5 years based on the supply and demand condition which existed at the date of the appraisal. Furthermore, the Land Development Approach is not recommended when there are comparable sales available because investors tend to use those sales to assist them in their negotiations.

It is important to note that the cost of development approach, according to both Lee and Fraser, is a method of valuing undeveloped tracts of land in line for development of urban use. The Haslam property is an undeveloped tract of land in line for development.

Mr. Lee rejected this method of valuation because he was of the opinion that the estimated holding period of Haslam's property to be five years, in his written report, and three to five years by his oral evidence. He believes the cost of development method is most accurate if development is within six months.

Both experts agree that the cost of development method of valuation is most accurate if the land is to be immediately developed. The issue between the two experts is the question of development, that is, 6 to 12 months or 36 to 60 months.

As I have previously stated, I am satisfied that the Haslam property was ready for imminent development.

I have so decided by the fact that the Haslam property had the services stubbed at its line, there was and continued to be active development in the immediate area of the property by B.A.C.M. B.A.C.M. attempted, according to Fraser's evidence, to purchase the Haslam property for immediate development but could not do so because Haslam refused to sell. The number of building permits being issued for the City of St. Albert increased substantially from 1968 to 1972 for single family dwellings, and the population growth was fairly substantial (see Addenda “A”, Exhibit P-23). The road service was such as to indicate that the Haslam property could easily be developed by a developer if he owned the land on December 31, 1971. Furthermore, Peter Lee stated that basing himself on the consumption rates of 674 lots for 1971 and 331 lots for 1978, the 978 lots would be sufficient to meet the needs for two years. Bamber states, in his evidence, that land can be considered ready for imminent development if it is to be developed within a two-year period.

The evidence clearly indicates to me that B.A.C.M. or any other developer working in the area would have immediately developed the area if it had ownership of the land.

In that I have decided that the evidence has convinced me that the subject land was, on December 31, 1971 ready for imminent development, I do not have to comment on the direct sales comparison approach taken by Mr. Lee on behalf of the defendant. I have stated that counsel for plaintiff agreed that should I find that the direct sales comparison approach should be used as the method of valuation, then the value of $54,100 found by Mr. Lee as the value of Haslam's property is acceptable.

It now becomes important to determine the value of Haslam’s property by using the cost of development approach.

I have discussed the issue of the value of each lot. I have stated that I am satisfied that the value of each lot to be ascribed to the lots on the Haslam property to be $5,400 and I have given the reasons for my so deciding.

A serious issue arose as to how many lots could be obtained, on December 31, 1971 from the 10.78 or 10.82 acres owned by Haslam.

Mr. Fraser, in his report, Exhibit P-23, states 10.78 acres.

As at the effective date of the appraisal, the property encompassed 10.78 acres of net potential development land (letter December 4, 1980, Exhibit P-23)

Mr. Lee, in his report, Exhibit D-2, states at page 1:

(F) Size of land: 471,531 square feet

10.82 acres more or less

I assume, because Lee uses the words "more or less" that the acreage is 10.78 acres.

Mr. Lee produced a subdivision plan of what was Haslam's property registered in 1976 at the Land Titles Office of the North Alberta Land Registration District. The plan was filed as Exhibit D-6. He states, and I agree, the plan shows that there are 55 lots but on 14.81 acres of land. This is evident by reading under legend on the plan the following:

Mr. Lee states that if Mr. Haslam only had 10.82 acres, he was concerned how Delta Mortgage, who purchased Haslam's property, was able to have 14.81 acres. He states he investigated and found that Delta Mortgage purchased from the Town of St. Albert road and lanes and a statutory road allowance of 1.17 acres in May 1976, by two separate documents for a total sum of $50,000. Exhibits D-7 and 8 are the title documents showing the sale from the Town of St. Albert to Delta Mortgage Ltd. Lee therefore concluded, after looking at the total lots (55) and the land required for the total lots (14.81 acres) it is possible to get 3 /z to 4 lots per acre, the average for the Town of St. Albert. Mr. Lee therefore states on the 10.82 acres, one could only have 40 to 41 lots.

It is obvious that Fraser, in making his report in 1980 completely overlooked the important fact that Delta had acquired the additional land from the Town of St. Albert and that they paid $50,000 for same.

Fraser, in giving rebuttal evidence to Mr. Lee's testimony, admitted he assumed no consideration would have to be paid for lanes and roadways and thus, in 1980, he did not known a charge was made. He states that the proportionate cost to acquire the roadways was offset between 1971 to 1976. He states that the $50,000 paid in 1976 is really "so small” in 1971. That is, the 1971 price would be so small as to be insignificant.

The sum of $6,000 was suggested as being the equivalent sum for 1971 as compared to $50,000 for 1976.

Mr. Lee states that Fraser used 35 per cent as hard costs for servicing (see page 23, Exhibit P-23) Lee believes this figure is too low because Mr. Fraser failed to consider indirect costs such as offsite levies which increased from $200 per lot to $500 per lot on January 2, 1972, the by-law for the increase was passed on December 6, 1971 therefore known, and oversize service costs which Delta Mortgage paid to B.A.C.M. in the sum of $57,609.86.

Mr. Lee admits that the sum of $57,609.86 could be discounted to $35,771 for 1971 service connection.

Mr. Fraser also admitted in his rebuttal evidence that he, in 1980, did not know that Delta Mortgage had paid for oversize services and did not take this into account when he made his calculation to determine the value of Haslam's property.

Fraser stated that he took a conservative approach and using “a bit of hindsight” he concluded that one could obtain 55 lots on the Haslam property "even if before there may have been 59 lots projected" on the same parcel of land.

I am satisfied that there could have been obtained as there was obtained 55 lots on the parcel of land owned by Haslam. As Mr. Fraser stated, the development efficiency of the subject property was 91 per cent while the normal is 65 to 70 per cent. He stated in his evidence where one would get 40, 42 or 43 lots on the parcel of land, it could be recognized by a qualified developer that Haslam's property would yield 55 lots. It was, he believes, on December 31, 1971 possible to recognize a greater density from this land.

Therefore to determine the value of plaintiff's land, using the cost of development method, it is necessary to verify the figures in the Fraser report, Exhibit P-23.

I am prepared to accept the method of calculation found on pages 23 and 24 of Exhibit P-23.

I therefore conclude that the value of the plaintiff's land on December 31, 1971 is $82,423.56 rounded out to $83,000.

It is ordered that the appeal from the assessments of income tax for the 1975 taxation year be and the same are hereby allowed and the assessments be referred back to the defendant for reconsideration and reassessment on the basis of the reasons given.

I have given consideration to the question of costs. The costs for the two last days of hearing are the responsibility of the plaintiff as it was at his request that the hearing was reopened. Plaintiff therefore must pay to defendant all costs and disbursements, including disbursements for travel and accommodation for defendant's counsel for the last two days of the hearing.

No further order as to costs will issue. Although I stated I would be prepared to receive further submissions on the issue of costs, I am now satisfied that this is not necessary.

Appeal allowed.