Citation: 2005TCC756
Date: 20051123
Docket: 2003-55(IT)G
BETWEEN:
HILBERT ARTHUR CORBETT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Docket: 2003-76(IT)G
AND BETWEEN:
N. EDWARD CORBETT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2003-75(IT)G
AND BETWEEN:
PEARL ANNE CLAWSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2003-795(IT)G
AND BETWEEN:
I. KEITH CORBETT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, J.
[1] These appeals were heard together on common evidence at Kelowna, British Columbia, on November 16 and 17, 2005. N. Edward ("Ted") Corbett testified and the Appellants called an appraiser, Rod S. Cook who qualified as an expert for the purposes of the hearing. The Respondent called its appraiser, Frank Raffard, who also qualified as an expert.
[2] At the outset the parties filed agreements as to value of all the lands in dispute except one, Lot 2, Section 16, Township 91 KDYD, Plan 2300 except Plan 11703 ("Lot 2"). They are attached to these Reasons. Lot 2 consists of 35.85 acres in Merritt, British Columbia. In 1996 it was zoned:
|
M1
|
Light Industrial
|
27.30 acres
|
76.2%
|
|
R3
|
Medium Density
Residential
|
7.75 acres
|
21.6%
|
|
AR1
|
Agricultural
|
0.80 acres
|
2.2%
|
|
|
|
35.85 acres
|
|
[3] The Appellants gave Lot2 to a charitable trust, the Fraser Hope Foundation. The effective date of the transaction is December 26, 1996. The Appellants' appeals claim that the value of Lot 2 at the time of the gift was $2,843,622. The Respondent's Reply places its fair market value at $394,000. The value determined will be divided by the Minister among the Appellants in accordance with their respective interests in the property gifted.
[4] The particulars of the original matters in appeal are set out in paragraphs 14 to 17 of the Reply to N. Edward Corbett's Notice of Appeal. They read:
14. On October 7, 2002, the Minister reassessed the Appellant's 1996 taxation year to vary items which are not the subject of this appeal.
15. In so reassessing the Appellant, the Minister relied on the following assumptions:
a) the Appellant is one of 7 siblings who each inherited an equal interest in their father's estate upon his death;
b) among other things, the Appellant and his 6 siblings inherited at least 36 pieces of real property from their father upon his death (the "Property");
c) the Appellant and 3 of his siblings, I. Keith Corbett, Hilbert Arthur Corbett, and Pearl Anne Clawson are directors of a private foundation called the Fraser Hope Foundation (the "Foundation")
d) on December 26, 1996, the Appellant, I. Keith Corbett, Hilbert Arthur Corbett, and Pearl Anne Clawson donated their respective interests in the Property to the Foundation;
e) of the Property, the Appellant, I. Keith Corbett, and Pearl Anne Clawson each donated a ¼ interest in certain lots and a 1/7th interest in certain other lots to the Foundation; and
f) the total fair market value of the Property as of December 26, 1996 was no more than $4,084,705.0, as set out in Schedules I and II attached to this Reply.
B. ISSUES TO BE DECIDED
16. The issues are as follows:
(a) What was the total fair market value of the Property as of December 26, 1996?
(b) Did the Minister properly calculate the Appellant's capital gain from the disposition of the Property in the 1996 taxation year?
(c) What was the amount of the charitable gift of the Property by the Appellant to the Foundation in the 1996 taxation year?
C. STATUTORY PROVISIONS RELIED ON
17. He relies on sections 3, 38, 39, 54, 118.1 and 248 of the Income Tax Act and particularly subsection 248(1) and paragraphs 38(a) and 39(1)(a).
At the hearing the respective appraisers testified that the following were the values of Lot 2:
Appellants' appraiser: $850,000
Respondent's appraiser: $369,000
[5] Lot2 is located in the southwest corner of Merritt, across Midday Valley Road from the Tolko sawmill. The southwest corner of Merritt in 1996 was usually called Colletville an "unfavourable" community that was annexed into Merritt just before 1996. Merritt was and is a city of just less than 8,000 people at the junction of the Coquihalla Highway and the Okanagan cut off to Kelowna. The junction is the major highway intersection in the interior of British Columbia.
[6] Lot 2 was large, relatively flat and was accessible from adjoining streets. The evidence is that at the end of 1996 hydro electric power was available from the adjacent streets, water supply was available at one corner from Lindley Creek Road and sewer services were promised, but not established. (See Exhibit A-2, page 30.)
[7] In the Court's view comparably sized properties are suitable comparisons as was established by both experts. Moreover, "flat" is also an important factor for development purposes, since the evidence is that many proposed comparables had severe hill problems which limited development and also limited available the areas of land available for development. The availability or lack of services is also an important factor. Finally, while there was a great deal of hearsay about the willingness of Merritt officials to adjust zoning in order to obtain development and jobs, the fact is that the zoning in place is what a buyer has when purchasing a property; it says what can be done at the time of purchase.
[8] The comparable closest to Lot 2 respecting all of these factors is the purchase of Lots A and B, Section 23, Township 91, Plan KAP54971, a total of 84.83 acres, by Mr. Lee. It was reviewed by both appraisers. It will be described by its individual Lots, A or B hereafter. Lot B is 17.17 acres situated at the intersection of Airport Road and the Coquihalla Highway. There were full City services accessible directly across the Coquihalla Highway. Lot B was somewhat "hilly" or rough when purchased. Lot A is divided into two parts by Airport Road, stretches along the Coquihalla Highway and Highway 5A and is "flat"; the side across from the Coquihalla Highway is adjacent to Merritt's small local airport which had and has no scheduled air services. Any services to Lot A would apparently have had to go by Lot B first, and then service Lot A. When Mr. Lee purchased Lots A and B they were not in Merritt's city limits. But they were two minutes across the Coquihalla Highwayfrom a newly opened McDonald's hamburger outlet. LotA had a total of 67.66 acres.
[9] It is clear from the report and testimony of both appraisers that there was a real estate boom in Merritt in 1996. From the sales and comparables they provided it is also clear that the acreages sold in the time around 1996 were not near Lot 2 in southwest Merritt. Some were in southeast Merritt. But the large acreages were virtually all around the Coquihalla intersection in northeast Merritt where Lots A and B were. The northwest of Merritt is about one and one-half miles away from Lot2. Moreover Lot 2 is about two miles west of the Coquihalla Highwayand, in part because of the NicollaRiver, appears to have no immediate, direct road access to the Coquihalla Highwayor the Okanagan cut off. It is on the other side of Merritt from the Coquihalla Highway.
[10] The comparability of Lot 2 with Lots A and B is confirmed by Exhibit R-1, a letter from the City of Merritt to "Ted Corbett" dated August 24, 2000 which states that there are only two possible locations in Merritt with 30 acres or more suitable for a manufacturing site. Mr. Raffard confirmed that the two were Lot 2 and Lot A.
[11] Mr. Cook testified that Lots A and B were purchased by Mr. Lee, a speculator who had some spare money, and who had long-term holding in view. He purchased Lots A and B in June, 1995 for $600,000. Mr. Raffard calculated the price of LotA to be $548,100 or $8,095 per acre. Mr. Cook calculated that only 65 acres of the $600,000 purchase were usable and arrived at a price of $9,230 per "usable" acre. The sale was apparently negotiated in early 1995 and closed June 30, 1995.
[12] Both appraisers went through a series of calculations and projections to arrive at their valuations. Respondent's appraiser's calculations were less elaborate based largely upon time and location factors. Appellants' appraiser's calculations were more elaborate based upon two models of subdivision, and time and financing factors among others.
[13] Mr. Cook's subdivision calculations and submissions (Exhibit A-2) were directly contrary to his statement made in an earlier valuation. On page 40 of that valuation he stated that a subdivision form of appraisal is subjective, less reliable due to projections and on page 39 he stated that it is most accurate when the prospect of subdivision is within six months. (Exhibit R-2) From the pictures submitted, it appears that Lot 2 remains underdeveloped today. The case law supports Mr. Cook's warnings expressed in Exhibit R-1. Thus his extensive subdivision calculations, while allegedly "supportive" are not truly supportive because they fly in the face of Mr. Cook's own warnings.
[14] In the Court's view the speculative purchase by Mr. Lee of Lots A and B for hold and sale includes within its price virtually all of the factors (including particularly time and the cost of financing) except location. Since both appraisers focused on Lot A, it should be noted that for speculative purposes the zoning of Lot A-M1, light industrial and C4, commercial, and a large AR1 agricultural portion is approximately similar to Lot 2's M1, light industrial and R3, medium density residential with 2.2 percent AR1. Mr. Cook's residential subdivision plan was for mobile homes, which is indicative of the general residential quality in the Collettville area of Lot 2.
[15] That having been said, Lot2 had obvious advantages - more land better zoned, some services to its boundaries and a location within the city limits. Against this is the fact that the active land purchases in 1995, 1996 and 1997 were in the immediate area of Lot A, while none occurred in the vicinity of Lot 2.
[16] At the time of purchase, LotA's highest and best use was what it was zoned for, but the purchase itself was speculative. Mr. Cook's appraisal adopted Lot 2's zoning as the basis for his premised valuation, but on December 26, 1996 Lot2's use and time of use was also speculative.
[17] For these reasons, the Court chooses to focus on the price per acre which the appraisers calculate as appropriate respecting Mr. Lee's purchase of Lot A on June 30, 1995:
Respondent's appraiser: $8,095
Appellant's appraiser: $9,230
[18] As against these numbers there are various factors. Because of Mr. Lee's speculative purchase and hold method, time and financing are not considered by the Court. They are factors contained within Mr. Lee's price. Similarly, the difference between June 30, 1995 and December 26, 1996- 18 months, is not a major discrepancy although it should be considered. The other advantages of Lot 2 are: it is within city limits, most services nearby (although sewage service is a major missing factor) and somewhat better zoning. All of these advantages are severely mitigated by the fact that no comparable sales are in evidence in the vicinity of Lot2 in 1995, 1996 and 1997.
[19] Both appraisers testified that a larger lot has a lesser value per acre than a smaller lot - Lot A being larger and Lot 2 being smaller. However, the lack of sales in the southwest portion of Merritt, where Lot A is, also mitigates this as a valuation factor in this case.
[20] Mr. Cook's calculation of $9,230 per acre, as the usable acreage price for Lots A and B, when multiplied by Lot 2's acreage of 35.85, yields a price in 1995 of $330,895.50. Applying the pluses and minuses of the discrepancy described in paragraphs [18] and [19] might yield a difference of 10 percent, or $33,089.55. If that is calculated as a positive figure in the Appellant's favour, the total fair market value of Lot2 on December 26, 1996 becomes $363,985.05. That remains less than the assessment appealed which fixed the fair market value of Lot2 at $394,000.
[21] The Court finds the fair market value of Lot 2 on December 26, 1996 to have been $363,985.05. For this reason, the appeals respecting Lot 2 are dismissed and these assessments are referred to the Minister of National Revenue to reconsider and reassess the Appellants on the basis of the Partial Agreed Statements of Fact annexed to each Appellant's Judgment and Reasons for Judgment and to confirm the assessment of the Appellants respecting Lot 2 on the basis that the fair market value of Lot 2 on December 26, 1996 was the value assessed, namely, $394,000.
[22] Because there were partial agreements respecting the four appeals and only one property assessment was tried at the hearing, the Respondent is awarded one set of party and party costs, and all of the taxable disbursements incurred respecting all Appellants. The costs are to be taxed on the basis that the amount subject to appeal was the largest amount appealed by any one of the Appellants at the time the Notices of Appeal were filed.
Signed at Toronto, Ontario, this 23rd day of November 2005.
"D.W. Beaubier"
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