Neder v. The Queen, 82 DTC 6022, [1981] CTC 501 (FCA)

Heald, J:—This is an appeal from a judgment of the Trial Division in respect of a reassessment by the Minister of National Revenue (the Minister) concerning a sale of some 105 acres of farm land described as the west half of Lots 13 and 14, Concession 8, Township of Zone, County of Kent, in the Province of Ontario (the subject property). Subject property was acquired by the appellant and his wife on April 20, 1971, and was owned by them continuously from its acquisition in 1971 until its sale on April 30, 1975. The effect of that reassessment was to add the sum of $11,500 to the appellant’s income for his 1975 taxation year, that sum being one-half of the capital gain attributed to the appellant ($23,000) and resulting from the sale of the subject property. The appellant appealed the reassessment to the Tax Review Board where his appeal was dismissed excepting that disposal costs of the subject property were allowed at $2,530. The appellant appealed further to the Trial Division. The trial judge dismissed the appeal and confirmed the decision of the Tax Review Board excepting that he directed the Minister to reassess the appellant on the basis of adding only one-half of the taxable capital gain to the appellant since it was apparently established in the Trial Division that the appellant and his wife owned subject property jointly at all relevant times.

Subject property was acquired in the year 1971 at a price of $10,000 and sold in the year 1975 for $45,000. In his tax returns, the appellant valued Subject property at $45,000 as of December 31, 1971 while the Minister valued it at that date at $22,000. Thus, the sole issue, as stated by the trial judge, was the value of the property as of December 31, 1971. He decided that issue by accepting a valuation of $22,000 which was the valuation placed on the property by the witness Patrick J. Fleming, called by the respondent at trial. The appellant’s initial attack on this decision was that where, as here, all or part of the assumptions relied on by the Minister for the reassessment are not correct, then the onus to establish the correctness of the reassessment shifts to the Minister and that on the facts of this case, the Minister has not satisfied that onus. Counsel for the appellant relied on three assumptions made by the Minister which in his view, were incorrect. The first assumption by the Minister said to be incorrect was that subject property was owned solely by the appellant. It is true that the Minister made this assumption but it was based on the appellant’s pleading such fact in his statement of claim (see Vol. 1 Amended Appeal Book, page 1, paragraphs

(c) and (d) ). Accordingly, the Minister admitted the allegation of fact, as pleaded and proceeded to reassess on this basis. The question of the joint ownership of the appellant and his wife was not raised until the matter was before the Trial Division whereupon the Minister readily agreed that the capital gain should be divided equally between the appellant and his wife (see Vol. Ill, A.B. page 335). Thus, if the Minister’s assumption was incorrect, the reason it was incorrect was because he relied on allegations of fact in the appellant’s statement of claim. In such circumstances the appellant is not, in my view, entitled to rely on an incorrect assumption when he himself is responsible for that assumption being incorrect. In any event, that error was readily corrected at trial and, as stated by the trial judge, was not an issue before him.

The second assumption by the Minister alleged by the appellant to be incorrect was the assumption that disposal costs in the sum of $2,530 should be deducted from the appellant’s capital gain on subject property. The appellant submits that this assumption could not have been made by the Minister at the time of the reassessment since the matter of disposal costs was not raised in the reassessment but was raised at some later date and finalized before the Tax Review Board at $2,530. Again this allegedly incorrect assumption appears to have been caused by the actions of the appellant. The appellant did not claim any disposal costs in his return. In subsequent discussions with the Minister’s representatives after the reassessment had been made, the Minister initially agreed on a figure for disposal costs of $1,530. However, at the hearing before the Tax Review Board, appellant’s counsel contended that the proper figure for disposal costs should be $2,530. Again, the Minister’s counsel agreed and requested that the Board refer the matter back for reassessment on the basis that the appellant should be allowed a deduction from his capital gain of $2,530 for disposal costs. Here also, as in the first assumption discussed supra, the Minister’s incorrect assumption was caused by the course of conduct of the appellant. Likewise, as in the case of the first assumption, this error was also corrected, but, in this case, by the Tax Review Board and was not in issue before the Trial Judge.

The third incorrect assumption alleged by the appellant is, in reality, not an assumption at all. It is, rather, an allegation that the Minister should have taken into consideration in making the reassessment under review the fact that in the sale of subject property, in 1975, the appellant took back from the purchaser a mortgage in respect of which he would have been entitled to a reserve pursuant to the provisions of subparagraph 40(1 )(a)(iii) of the Income Tax Act. The short answer to this submission is that the appellant made no such claim to a reserve in filing his 1975 income tax return. In his notice of objection to the reassessment, he did not mention the section 40 reserve as a basis for the notice of objection. It was referred to in general terms in the notice of appeal to the Tax Review Board. However, in the statement of claim filed in the Trial Division, facts are not pleaded providing any details of the mortgage which could possibly form the basis of a proper claim for a reserve under subparagraph 40( 1 )(a)(iii). That subsection contemplates “a reasonable amount” as a reserve when the proceeds of the disposition of property are not all payable in the year of sale. Clearly implicit in such a determination of “reasonable amount” would be a requirement that the taxpayer provide all the details of the credit transaction in question. Furthermore, subsection (2) of section 40 places a number of limitations on the right to claim a reserve as set out in subparagraph 40(1 )(a)(iii). I can find nothing in this record which would provide the Minister’s assessors with the necessary information the Minister’s assessors with the necessary information from which they could determine the applicability or otherwise of subparagraph 40(1 )(a)(iii). Accordingly, I do not agree that the matter concerning a possible reserve under subparagraph 40(1 )(a)(iii) of the Act has any relevance to the question of the Minister’s assumptions being incorrect. For the above reasons, I do not consider that the cases relied on by the appel- lant dealing with incorrect assumptions by the Minister as a basis for an assessment have any application or relevance to the case at bar* [1] nor do they have the effect of shifting the onus to the Minister.

Appellant’s next attack on the Trial Division decision relates to the acceptance by the learned trial judge of the valuation of subject property on December 31, 1971 at $22,000 by the appraiser Fleming who was called to give evidence by the respondent. Fleming was the only expert witness at trial in so far as valuation of subject property was concerned. The only other evidence of value was given by the appellant himself who placed a valuation of $45,000 on subject property as at December 31, 1971. He based his opinion of value largely on an alleged offer to purchase subject property for $45,000 in September of 1971. One Alexander Bodon, a real estate agent, also gave evidence in respect of this alleged offer. In respect of this evidence, the learned Trial Judge stated (see Vol. Ill, pages 333 and 334):

I give little credence to the evidence of the Plaintiff and Bodon in respect of such offer to purchase. Even if such testimony were accepted there would be no means of ascertaining if the offeror had any knowledge as to the value of such property.

He then proceeded to review the evidence of Fleming and concluded as follows (see Vol. Ill, page 335):

I have no hesitation in accepting the testimony of this witness as I thought he was a most knowledgeable and credible valuator. I therefore accept his valuation.

The appellant, however, alleges that the appraiser Fleming committed several serious errors in arriving at his valuation and because of these errors, the learned trial judge should have refused to accept his appraisal. His first complaint is that Fleming used five comparable sales in his direct sales comparison approach to value, and that one of the comparable sales was subject property. The evidence discloses that Mr Fleming prepared at least two appraisal reports, the first one was tendered in evidence before the Tax Review Board, the second one was tendered in evidence before the Trial Division. The first report contained four comparables, the second report contained five comparables, that is, the same four comparables from the first report together with the fifth comparable which was the sale in 1971 of subject property. However, the valuation by Mr Fleming remained the same in both reports, namely, $22,000. Thus, whether or not the inclusion of the Subject sale as a comparable was proper, it did not change Mr Fleming’s valuation.

The appellant’s second complaint has to do with the fact that in arriving at the fair market value of a pre-fabricated cottage erected on subject property, Mr Fleming should have made a comparison of the value of the land without the building and its value with the building and in failing to do so, he committed a serious error. In support of this allegation, the appellant relies on the following question and answer by Mr Fleming under cross-examination (see, Transcript p 124, line 21):

Q. Now, I understand that you did not value the building on the property?

A. That’s right.

If this answer were to be considered in isolation, it might conceivably support the appellant’s submission that Mr Fleming failed to place a value on the land with the cottage on it. However, if both of the Fleming appraisals are perused, (Amended Appeal Case, Vol I, page 116 and Vol Il, page 295), it is noted that the following paragraph appears in identical form in each appraisal:

As noted on page (A) this property was improved with a small summer cottage type of building. In your request for this appraisal, you have advised that the construction costs for this building were $5,969.73. This estimate has been considered to be reasonable and accordingly has been accepted by the writer.

The value of the land has been added to the value of the cottage as follows:

Land Value	$15,750.00
Building Value	5,969.73
Total Property Value	$21,719.73

This amount has been rounded upward to $22,000.

Accordingly, it seems clear that in arriving at a “total property value” of $22,000 Mr Fleming was valuing the property with the building situated thereon. The appellant also complained that the appraiser’s valuation of the cottage represents only the cost of the pre-fabricated cottage without the cost of labour involved in laying a foundation and installing posts for support and that the learned trial judge was in error in not having regard to the appellant’s evidence which quantified the value of the labour by the appellant and members of his family at $2,400 to $3,100.

However, the appellant himself in his 1971 tax return showed the undepreciated capital cost of the cottage at $5,969.73 and this was the figure used by Fleming in his appraisal which presumably would include all costs of erection, installation, etc. It also seems clear that the trial judge did not ignore the appellant’s evidence as to erection and installation since he specifically refers to the cost of the pre-cut cottage and the fact that additionally it has to be installed. (Vol III, Appeal Book, p 332). Thus, after having regard to all the surrounding circumstances, he accepted Fleming’s valuation of building costs at $5,969.73 and his total valuation of $22,000. One of the surrounding circumstances to which the trial judge specifically refers is the fact that when subject land was purchased in April of 1971 he only paid $95 per acre for it. He observed that in valuing the land at $150 per acre as of December 31, 1971, the appraiser “was fair with the appellant because there was no other evidence of such an increase in the value of such land in that area at that time” (Appeal Book Vol III, page 334).

The appellant’s third complaint was that Fleming, in using the comparative sales approach, erred in not obtaining full information about the surrounding circumstances of the comparative sales. Mr Fleming’s Reconciliation and Final Value Estimate in both appraisals (Vol I amended Appeal Case page 116 and Vol Il, page 295) states:

Reconcilliation (sic) is the process by which the appraiser weights and analyzes all data collected. Sales of dissimilar properties are discarded, sales of similar properties are carefully reviewed and adjusted for specific factors of dissimilarity. The end result is a defendable value estimate which reflects a reliable market value to the property being appraised. In the subject instance 12 property sales in Zone Township were carefully analyzed. Of these 12, 4 sales were finally selected as the most appropriate value indicators. These four sales have been adjusted by this appraiser and reflects a land market value for the subject property, as at Dec 31, 1971 in the amount of $150 per acre or $15,750.

On the basis of the above quotation it seems clear that Mr Fleming selected 4 comparables as being “the most appropriate value indicators”. He then adjusted these 4 comparables to reflect what he considered to be a true land market value for subject property. On this basis, it cannot be successfully argued, in my view, that Fleming failed to have regard to the surrounding circumstances of the comparative sales. Mr Fleming stated that the sales of similar properties were “carefully reviewed and adjusted for specific factors of dissimilarity”. No evidence was led at trial of relevant circumstances not considered by him which would impeach his valuation. Accordingly, I see no substance in this complaint.

As stated supra, it is my view that this is not a factual situation where the onus of proof has shifted from the appellant taxpayer to the respondent Minister. The onus throughout is, in my view, on the taxpayer to show error in relation to the taxation imposed on him.* [2] The only evidence related to value addueced by the appellant was the evidence of the appellant and the real estate agent Bodon. Their evidence was expressly rejected by the trial judge. The only other evidence of value was that of Fleming, the expert appraiser, whose evidence was expressly accepted by the trial judge. He was the trier of fact and, as such, entitled to accept or reject, in whole or in part, any of the evidence adduced before him. This he clearly did. Notwithstanding the criticisms of the appraiser Fleming, the trial judge was entitled, in my view, to accept his valuation. I am satisfied that in arriving at the final valuation, the learned trial judge has regard to the totality of the evidence before him and that in the final analysis, the decision as to value represented his own conclusion and his own independent judgment. In so deciding, he did not, in my view, proceed on a wrong principle so as to require intervention by an appellate Court. For these reasons I would dismiss the appeal with costs.