Jacqueline Marriott v. Minister of National Revenue, [1991] 1 CTC 2379, 91 DTC 434

Kempo, T.C.J.:—This appeal is from the respondent's assessment dated May 29, 1987 which was made pursuant to subsection 160(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act").

The respondent's assessing position is reflected in paragraphs 4 and 6 of his reply to notice of appeal, as amended at trial, thusly:

4. In assessing the Appellant to tax in the amount of $39,759.80, the Respondent proceeded upon the following facts:

(a) on or about August 31, 1984, 520013 Ontario Ltd. transferred real property described as 24 King Street East, Kitchener, Ontario (the property”), to one Joseph Marlowe, in trust for Joseph Marlowe and the Appellant;

(b) at all material times, John Markou was the principal shareholder of 520013

Ontario Ltd., which corporation had made an assignment in bankruptcy;

(c) at all material times, the Appellant was the common law spouse of John Markou and did not deal with him, 520013 Ontario Ltd. or Joseph Marlowe at arm's length;

(d) at the time of the transfer of the property to Joseph Marlowe and the Appellant, each as to an undivided 50% interest as tenants-in-common, 520013 Ontario Ltd. was indebted to Her Majesty the Queen under Part 1 of the Income Tax Act in excess of $40,000.00;

(e) the fair market value of the property at the time of the transfer was not less than $345,000.00; the consideration for the transfer was the assumption of the outstanding mortgages on the property; and the amount of $2.00, the total consideration being not more than $260,002.00;

(f) the Appellant was a person to whom property was transferred at a time when the transferor was liable to pay tax under Part I of the Income Tax Act, the fair market value of which interest in the property was not less than $45,000.00, as follows:

Fair Market Value of Property	$345,000.00
Mortgages and Cash	$260,002.00
	$ 84,998.00
Divided by Two	$ 42,499.00

6. The Respondent respectfully submits that the Appellant has properly been assessed as 520013 Ontario Ltd., a corporation with which the Appellant did not deal at arm's length, transferred property to her at a time when it was indebted to Her Majesty the Queen under the Income Tax Act, the fair market value of which property was greater than or equal to the corporation's liability under the Income Tax Act, and the Appellant is therefore jointly and severally liable for that debt pursuant to section 160 of the Income Tax Act.

The issues raised by the appellant on her appeal have been succinctly put in the notice of appeal, paragraphs 3, 4, 5, 6, and 8.

3. The Appellant was not a transferee of the property in the August 31, 1984, transaction within the meaning of the Income Tax Act, either directly or indirectly or by means of a trust.

4, The Appellant had no dealings with Joseph Marlowe, in trust and was not in any way a beneficiary of the trust.

5. By a Deed registered as Instrument No. 838349 in the Registry Division of Waterloo North (No. 58) on January 22, 1986, Joseph Marlowe, in trust, transferred the property to the Appellant for total consideration of $295,000.00.

6. The price which the Appellant had agreed to pay for the property was originally $285,000.00. That amount was increased to the total consideration paid on closing after discussions with Revenue Canada regarding the payment of non-residence tax by the Vendor.

8. The Appellant relies upon the following grounds:

(a) The Appellant is not liable to pay tax pursuant to Section 160(1) with respect to the August 31, 1984 transfer of the property from 520013 Ontario Ltd. to Joseph Marlowe, in trust.

(b) In the alternative, the Appellant states that no tax is payable in any event as the fair market value of the property at the time of the transfer did not exceed the total consideration paid by Joseph Marlowe, in trust, to 520013 Ontario Ltd.

At the trial counsel for the appellant advised the Court that the appellant was conceding the alleged facts that Mr. John Markou was the principal shareholder of the numbered company and the pleaded amount of its fiscal indebtedness. The appellant denied having any interest in the subject property, legally or beneficially, on August 31, 1984 and that its value at that time was $345,000. The alleged non-arm’s length relationship was also denied.

The Trust

Mr. John Markou

Mr. Markou was 35 years of age at the time of trial. He described himself as an experienced real estate consultant. He was the president of the numbered company which bought and sold real estate. It acquired 24 King Street East in Kitchener, Ontario (the “ subject property") on October 4, 1982 from Equitrust Mortgage and Savings Company “ Equitrust") for $265,000. His original interest in acquiring the subject was predicated on the acquisition of a then bankrupt restaurant located on the subject's second and third floor. Mr. Markou said that he had bought and sold restaurants previously. A women's clothing shop, called Jacqueline’s Fashions, owned and operated by the appellant, was situated on the main floor. A hair dressing establishment was in the basement. Mr. Markou explained that the subject property was then under power of sale by Equitrust, the restaurant could not be had until the building had been sold and that his negotiations ended up with the numbered company's purchase of the building with acquisition of the desired restaurant facility "for free”.

A disposition of the subject property was made in 1984, almost two years later, by the numbered company to one "Joseph Marlowe, In Trust” for $2 in cash and by mortgage assumption of $260,000. During the holding period 1982-1984 Mr. Markou had financed and put a friend into the restaurant at an inflated rental amount because he knew that it was one sure way of profitable resale of the building. The property was listed for sale in the spring of 1983 at a price of around $400,000 without any improvements having been made to the building. He explained that he had elevated the subject's total rental income up to $50,000 per year which he felt would support a selling value of at least $450,000. The listing price was subsequently dropped two or three times at increments of $50,000 each without any acceptable offers to purchase being brought to him by the listing broker.

Mr. Markou met the appellant as a result of their landlord/tenant relationship. They began to cohabit in the spring of 1983. In June of that year they acquired a house at 560 Queen Street in Kitchener as tenants-in-common. Its purchase was funded principally by the appellant. They lived together until the later of Mr. Markou’s departure to Florida at the end of 1983 or upon his return in February 1984. Mr. Markou said the appellant was paying all the bills on the house, that they were not getting along and that he was having considerable financial problems. He acknowledged he was then in a state of bankruptcy. By deed dated May 1, 1984 and registered July 25, 1984, he transferred his one-half interest in the home to the appellant for $2 plus $40,000 being allocable to his one-half share of the mortgage on the property. They did not resume cohabitation thereafter although they continued to see each other socially on a friendship basis.

On the company's conveyance of the subject property dated July 31,1984 and registered August 31, 1984 to Joseph Marlowe in trust it was then in mortgage arrears. Mr. Marlowe was his father's friend; Mr. Markou had first offered the property to his father at the current debt level of approximately $265,000. He tried to make $10,000 on the deal with Mr. Marlowe but was unsuccessful. The final deal was by Marlowe's assumption of the debts and a cash payment to bring the two mortgages and property taxes back into good standing.

Mr. Markou testified that he had tried to talk the appellant into buying the subject because he felt she was paying too much rent but that he knew she did not have the money and "that was the end of the subject”. He said he was not aware of any purported trust agreement or arrangement between the appellant and Mr. Marlowe and that she had not been involved in his discussions or price negotiations with Marlowe.

Mr. Markou denied there was any scheme at the time of the sale to Marlowe that the subject property would be protected in Marlowe's hands for the appellant's benefit. He said Mr. Marlowe had examined the building and the rental structure prior to the purchase; he was then some 70 years of age and resident in Buffalo, New York. Neither Mr. Marlowe nor the appellant's father were Called to testify.

The Appellant

The appellant's testimony was that she was not knowledgeable about nor had she participated at any time in Mr. Markou's business affairs. She said she always had a business concern when the building was up for sale. She had been a tenant since 1977 and at one time had tried to buy it to protect her business location but was turned down. When Mr. Markou's numbered company was trying to sell she had presumed, because of her previous experience, that she would not be able to buy it.

Following the sale of the subject to Joseph Marlowe, the appellant said she was not involved in any way except for payment of the business rental to “Joseph Marlowe in Trust”. This continued, she said, until February 1986 when the building became hers by way of her purchase. Apart from meeting Marlowe only once in 1984 when he was looking the building over, she denied having any discussions with him with respect to her buying the premises at that time, or that she should be the beneficiary of any trust, or that she should have any interest in the property.

By written offer to purchase, Exhibit A-5, dated November 7 or 8, 1985 which was precipitated by and through the active involvement of Mr. Markou, the appellant offered to buy the subject for $285,000: The terms were $100 down, a new $280,000 first mortgage and the balance by way of a promissory note to the vendor. Mr. Markou arranged the financing which was to be almost the entire purchase price. Mr. Markou had told her that Marlowe was wanting to sell the subject and that the asking price was $285,000. Through Markou's efforts the appellant obtained financing from Counsel Trust in an amount which she admitted was then unknown to her.

The appellant's signature appears on a document entitled "Trust Agreement" dated August 31, 1984 (Exhibit R-3) infra. She testified that she does not recall signing it and that it may have been among a packet of mortgage documents produced by Mr. Markou for her signature at a time when she was then busy with customers in the store.

Counsel for the appellant advised the Court that the trust agreement document was found in Counsel Trust's file and that it had been received by them in 1985 at the time the appellant was seeking financing for the purchase of the property. The appellant denied having any specific knowledge of the document or of any such trust arrangement. She said she first saw it the day before the trial. It is brief and, as submitted and marked, reads as follows:

Exhibit R-3

Trust Agreement, made in duplicate the 31st day of August, 1984

Between:

Joseph Marlowe,

Of the First Part,

—and—

Jacqueline Marriott,

Of the Second Part

Whereas Joseph Marlowe is the registered holder of title of property municipally known as 24 King Street East, Kitchener, Ontario being more particularly described as part of Lots 13 and 14, B. Eby's Survey, Registered Plan 364 for the said City of Kitchener;

And Whereas in fact Joseph Marlowe holds title to the property in trust, as follows:

one-half interest, as	Joseph Marlowe	"♦To Buy Out Existing
tenants in common:		Partner $25,000”
one-half interest, as	Jacqueline Marriott	[handwriting unidentified]
tenants in common:

The Parties do hereby agree that each shall be responsible for one-half of all carrying costs of the subject property (without limiting the generality of the foregoing, to include mortgage payments, realty taxes, insurance premiums, etc.) and each shall be entitled to one-half of the net proceeds (gross sale proceeds less payment of outstanding mortgages, real estate commission, fees and disbursements, etc.) upon a sale of the subject property.

In Witness Whereof the Parties hereto have hereunto set their hands and seals, this 31st day of August, 1984.

Witness:

	Signed
Signed	Joseph Marlowe
(undecipherable)
	Signed
	Jacqueline Marriott

The appellant specifically denied having any interest in the subject property at any time prior to her purchase in 1986 apart from that of lessee, and that the only payments made by her were those made under the business' lease. Nothing else was paid or received.

The appellant's testimony regarding her mortgage application to Counsel Trust was that

—Mr. Markou was to apply for her as she had left all matters in his hands;

—she had probably provided a written statement of her net worth to Counsel Trust via the bundle of documents that Mr. Markou had had her sign in the store but that she could not remember providing the details of her financial worth to anyone; and that

—all that mattered to her was that she was going to get the building.

The written loan submission, ostensibly approved by Counsel Trust officials, reads:

Exhibit R-1

	Branch:		Toronto
	Date:	October 9, 1985
	Property Type:		Commercial
	Loan Submission
Borrower:	A company to be incorporated
Covenantors:	Jacqueline Marriott jointly and severally with the Borrower
	and each other
Loan Amount:	$280,000
Loan/Square Foot:	$43.29
Interest Rate:	Semi-annual GIC + 1.75%, to be set five days prior to
	funding
Term/Amortization:	3/25
Source:	Canadian Money Market (Susan Temple)
Purpose:	To refinance existing first and second mortgages of
	$255,000 and to buy out partner's tenants-in-common
	interest for $25,000
Fees:	$2,800 non-refundable ($1,000 received)
Disbursement:	On or before November 15, 1985
Special	1. Appraisal confirming value of $400,000 and market
Conditions:	rents sufficient to provide a 1.2x dsc.
	2. Net worth statement of Jacqueline Marriott to be dated
	and signed (copy submitted is unsigned)
	3. Satisfactory credit report on Borrower and Covenantor
	(ordered)
Security:	1. First mortgage on the lands and improvements
	2. General Security Agreement
	3. General Assignment of Leases and Rentals
Location:	24 King Street East, Kitchener, Ontario
Valuation:	$400,000 minimum to be confirmed by Counsel Trust
	approved appraiser prior to funding. Also to confirm
	market rents sufficient to provide a 1.2x dsc. loan- to value
	70%.
Recommended by:	Approved by:
"S. Temple"	[3 undecipherable signatures]
Date of Approval:
Oct. 10/85

Counsel Trust issued a written loan approval dated October 10, 1985 addressed to Canadian Money Market Corporation but which bore the appellants signature verifying her acceptance of its terms of conditions on October 21, 1985. The following are extracts therefrom of significance to the immediate matter at hand.

Exhibit R-2 (extracts)

Purpose

To discharge existing first mortgage in favour of First City Trust and existing second mortgage in favour of Seel Mortgage Corporation in the approximate amounts of $192,000 and $63,000 respectively. The balance of funds ($25,000) are to be utilized to discharge the tenants-in-common interest of Joseph Marlowe.

Loan Details

Loan Amount

$280,000

Conditions Precedent

Prior to the advance of funds, Counsel Trust Company requires a current personal net worth statement for Jacqueline Marriott which is to be signed by the covenantor and dated.

Appraisal

Prior to any advance of funds, Counsel Trust Company will require a satisfactory appraisal prepared by a Counsel Trust Company approved appraiser confirming a minimum market value of $400,000. The cost of said appraisal is to be paid by the borrower. In the event that the appraised value is less than $400,000 the loan amount will be adjusted accordingly at Counsel Trust's option.

The appellant said she had consulted a lawyer by the name of Sheldon Kosky about the whole matter. On cross-examination it was her evidence that she had not reviewed any of the above documents and that she had not taken them to a lawyer for review.

Funds were advanced by Counsel Trust in January of 1986 in order to enable the appellant to complete the purchase. The appellant said she probably was aware that Counsel Trust was relying on a $400,000 valuation appraisal which was to be submitted on her behalf. She specifically confirmed that at all material times Mr. Markou was exclusively representing herself in the dealings with Counsel Trust and that it was through his work that she had ultimately received the loan proceeds from them.

At this juncture it is important to mention that during the testimony of the appellant, which followed that of Mr. Markou, her counsel advised the Court that because of the evidence which had gone in he intended to recall Mr. Markou. On resuming the trial the following day counsel announced, without reasons, that Mr. Markou would not be recalled. The Court was therefore without the benefit of testimony from this pivotal and key player in the whole matter respecting not only the appellant's assumed beneficial interest in the property by way of a trust in 1984 but also as to all of the subsequent representations made by him to Counsel Trust as her authorized agent.

Mr. Sheldon Kosky, Lawyer

Mr. Kosky testified that he acted for the appellant in 1985 with respect to the purchase of the subject property. He is a legal practitioner of some 30 years' experience predominantly in the fields of commercial, mortgages and real estate law. He drew up the offer to purchase on the basis of information provided by the appellant after consultation and advice to her concerning the merits of the purchase and the viability of the price. He said there was no discussion with her concerning any possible interest she may have had in the property—only that she was buying it.

During the consultations Mr. Kosky was told by the appellant that Mr. Markou was instrumental in making the mortgage arrangements. The title search revealed legal ownership in the name of Mr. Marlowe In Trust. Being then a non-resident Canadian, a possible payment of a withholding tax in order to obtain a clearance certificate pursuant to section 116 was anticipated.

Discussions ensued with Revenue Canada, Taxation, principally concerning the value of the property. A clearance certificate was ultimately obtained on closing (Exhibit A-6) premised on the property value being $325,000 ostensibly via the vendor-solicitors' agreement. As a consequence the appellant agreed to pay an additional $10,000"to make the deal work”. The transaction closing was delayed some two months supposedly due to this problem.

Mr. Kosky testified that he had reviewed Counsel Trust's mortgage commitment letter with the appellant but that he did not recall discussing the stated “purpose” aspect of the loan that “the balance of funds ($25,000) are to be utilized to discharge the tenants-in-common interest of Joseph Marlowe”. He did recall, however, having a conversation with Mr. Markou during the course of things in which he was told that the best way of getting the mortgage was to have indicated that the appellant already held an interest in the property and that this was only refinancing. Mr. Kosky recalls being relieved and happy not to have been involved in the mortgage arrangement because he was aware it was a very large mortgage for the purchase price. He knew that almost all of the purchase price was coming from Counsel Trust, but claimed he could not recall the 70 per cent ratio mentioned in the commitment letter or that they had specifically expected a fair market value to be at least $400,000 for the loan size. Contrary to his normal practice, no copy of the mortgage commitment remained on his file.

Mr. Kosky acknowledged that mortgage funds of $280,000 were advanced and that the two existing mortgages were discharged therefrom. He received a surplus amount of (rounded out) $14,300 and a further sum of $19,500 from the appellant from which he paid $18,000 to Revenue Canada to get the clearance certificate. He also paid the adjusted balance due on closing of around $10,600 to Mr. Marlowe's solicitor. Accordingly, he confirmed, approximately $28,600 had been paid to or on behalf of the Vendor.

It is reasonable to infer that Mr. Kosky, through his discussions with both the appellant and Mr. Markou, knew something was amiss. He chose to treat the file in the normal way and let Counsel Trust look after itself. No negative aspersions respecting Mr. Kosky’s actions or professional ethics are intended or even contemplated here. The event did happen some five years past. But the fact that he did recall being glad he was not involved in the Counsel Trust financing is of note.

Mr. Randy Swanson

Mr. Swanson, an employee of Counsel Trust and manager of its real estate finance department since 1987, was called by counsel for the respondent. He testified that the loan approval document, Exhibit R-1 and the mortgage commitment letter, Exhibit R-2, all formed a part of the business file. These documents had been signed by officials whose whereabouts were no longer known. Similarly, the trust document, Exhibit R-3, also formed part of the files which Mr. Swanson could only assume had come to them from the mortgage broker, a Mr. Koebel, at Canadian Money Market Corporation. The other documents in the business file were real estate transmittal letters, a real estate appraisal report of the subject property dated October 30, 1985 authorized by David Ratz Appraisers Inc. addressed to Mr. Koebel of Canadian Money Market Corporation and a statement of the appellant's net worth. He confirmed that this statement, Exhibit A-9, contained no reference on the asset side to the appellant having had any interest in the subject property.

Other Testimony

The other evidence heard in the case dealt primarily with the fair market value of the subject property, both as at when the appellant's alleged beneficial interest arose, August 31, 1984, and also as at the date she purchased, November 30, 1985. The litigated values as to the later date was accepted as relevant under the umbrella of a course of conduct allegedly consistent with the respondent's assumption of the existence of a trust on the earlier date. In other words, the August 31, 1984 sale price to Marlowe in trust via Mr. Markou's company was $260,002, and the purchase price to the appellant over 15 months later via his involvement was $285,000. The disbursal of funds statement, Exhibit A-7, corroborated the fact that it took approximately $260,000 to pay out the two existing mortgages, thus leaving $25,000 available to indeed pay out the vendor, Joseph Marlowe in trust, as specified in the "purpose" part of the Counsel Trust loan commitment. It may be considered as further corroboration that over the 15-month period, and notwithstanding many attempts by Mr. Markou to sell it at a higher price, the fair market value of the property had at least remained essentially unchanged. The respondent's evidence of the fair market value at August 31, 1984 was $345,000 (Exhibit R-8) and was $365,000 at November 30, 1985 (Exhibit R-9)—again at least corroborating no substantive change in value having occurred over this time period.

Having said this, then, the other matter to be determined is if the appellant was indeed a transferee pursuant to a beneficial interest via a trust, had she acquired that interest at a value in excess of the existing liabilities against the property.

Returning to the trust issue, the fact that Mr. Markou was then in a state of bankruptcy and had felt badly about his personal and financial treatment of the appellant a few months prior to the event must be considered. Of greater significance, however, is the absence of his evidence concerning the trust document, his representations to Counsel Trust on the appellant’s behalf and that after having conveyed the property to Marlowe in trust for $260,000 at the end of August Mr. Markou, an admittedly experienced and knowledgeable real estate trader, had listed it almost immediately thereafter for $135,000 more.

Mr. John Busgos

Mr. Busgos, a realtor called by the appellant, testified that the subject property was listed with his firm by Mr. Markou some six months prior to February 1985 at a price of $395,000 which puts the listing date at about September 1984. This date is almost immediately following the numbered company's registered conveyance to Marlowe in trust for some $135,000 less. Documents supportive of the listing agreement and the first offer were not available. Two offers were recalled as being generated through Mr. Busgos' efforts. One was for $280,000 and the other for $285,000. The document produced for the latter offer (Exhibit A-8) was materially incomplete and unreliable. It was purportedly dated as at late December 1984. Both offers were advanced after a reduction of the list price from $395,000 to $355,000 had been made. Mr. Busgos guessed this price reduction occurred some three to four months after the original listing.

With respect to the aforementioned December 1984 offer to purchase for $285,000, Mr. Busgos recalled it was negated and that Mr. Markou had countered at either $315,000 or $320,000 which the purchasers had refused. As noted earlier the listing terminated in approximately February of 1985. At all times material Mr. Busgos believed that Mr. Markou had owned the subject property; he had never heard of a Joseph Marlowe in connection with this property.

Analysis

The Trust

Did the appellant receive or enjoy a beneficial interest in the subject property by way of trust on or before August 31, 1984?

The respondent assumed that such existed. Indeed there is a preponderance of evidence supportive of the Minister having come to this conclusion.

This is a most unusual case in all of its aspects. The usual case is that of a taxpayer attempting to prove the existence of a beneficial ownership in someone else via a trust. Here, because of the Minister's factual assumptions, the documentary evidence and onus responsibilities, the appellant is attempting to disprove one. Her job becomes markedly difficult because of the written trust document bearing her own signature and also because at a time in 1985 when she was put on written notice, she carelessly and negligently chose to remain in the dark as to what was going on, even to the extent of the amount of the mortgage loan, and purposefully had allowed Mr. Markou to act exclusively as her agent with respect to all material representations required to be made in order to gain ownership of the subject property.

I do not accept the intimation that the appellant was not adequately apprised of the terms and conditions of the mortgage by her own lawyer. If anything she, objectively, was put on adequate notice of a deliberate representation to Counsel Trust of her purported interest in the property which she chose either to ignore or not to refute or disavow. I do not agree that since all she wanted was to have the building at a price affordable to her should be taken as responsible and acceptable behaviour. While it does underscore some naïveté in the matter, it does not shield her from the consequences of same, especially upon her having had the benefit of skilled legal advice and still remaining silent. During her testimony she presented herself as a competent and astute businesswoman who was careful and cautious with respect to the financial integrity of her own business. As she had not authored the statement of her personal net worth, she is hardly able to claim the benefit of any inferences that could be drawn from the omission of any interest in the subject property. In any event, a clear representation of same was being made concurrently on her behalf to Counsel Trust.

Notwithstanding the appellant's protestations, I find that she either knew or was put on sufficient notice so that she ought to have known that she had indeed acquired a beneficial interest in the subject property at some time prior to 1985, and that this event had occurred in August 1984 as assumed by the Minister.

No evidence was presented to the Court from those individuals who were able to give the best evidence. Mr. Marlowe was not called, nor was Mr. Markou recalled. I find that the circumstances of the entire matter justify the overwhelming inference to be drawn therefrom that such evidence would have been adverse and harmful to the appellant's case.

I know of no authority requiring a knowledge or acceptance on the part of a beneficiary before a trust could legally be perfected at the time of its making. Once knowledge may be inferred or imputed, however, some form of positive renouncement or disclaimer on the part of the beneficiary would be mandated before the trust, prima facie in existence, may then be set aside or legally impugned.

In discharging her onus, which is an evidentiary one based on a civil balance of probabilities, the appellant has failed to adduce probative evidence to reverse the Minister's assumptions and the presumptions logically and reasonably drawn from all of the documentary evidence. As noted earlier, I am unable to accept the appellant's evidence and explanations without reservations.

The Arm's Length Relationship

I do not accept the veracity of the alternative position that the numbered company and the appellant were at arm's length when the appellant received the one-half interest in the property. There was not shown to be either adversity of interest nor any bargaining at all in 1984; Mr. Markou had made all the decisions before that time, during that time and after that time. This alone is a strong indicator that a prima facie non-arm's length relationship was operating at the time of the trust, August 1984. The appellant's blind acquiescence and trust in whatever Mr. Markou chose to do at any material time lends further support to this being the correct characterization of the relationship.

The Fair Market Value of the Subject Property

The evidence before the Court with respect to this matter was two-fold in nature.

Firstly, there was the aforenoted evidence of Mr. Busgos of his unsuccessful attempts to sell the subject at a higher price in the fall of 1984. He also had testified that the market at the time had been buyer-orientated, that the subject was fully leased, it was in good condition and in an excellent location for commercial retail use. To him a capitalization rate of the rental income stream of 12 per cent to 15 per cent would have been what a buyer at the time would have expected although a lower purchase price may have been offered during the conditions extant at the time.

In my view, while the above situation may be somewhat of an accurate recollection of the state of affairs, it is too heavily representative of a buyer's perspective only. It is not a reliable indicator of the fair market value components which encompass both a willing and informed vendor and a willing and informed purchaser. Indeed, the oral evidence premised on recall was only that Mr. Markou had rejected an offer of $285,000 and had countered at $315,000 to $320,000.

Both counsel have accepted the definition of fair market value as outlined in the report of the respondent's appraiser, Mr. A. Tonin, thusly:

The most probable price estimated in terms of money which a property would bring if exposed for sale in the open market by a willing seller, allowing a reasonable time to find a willing buyer; neither buyer nor seller acting under undue compulsion, both having full knowledge of all the uses and purposes to which the property is adapted and for which it is capable of being used, and both exercising intelligent judgement.

I agree with counsel for the respondent that the Department's acceptance of value of $345,000 for section 116 withholding purposes, while relevant, should receive no weight in and of itself. It is and remains just one small piece of background evidence, like the evidence of Mr. Busgos' involvement and recall.

Counsel for the appellant called an admitted expert in real estate appraisals, Mr. Charles Whitney, to testify on behalf of the appellant. During the course of the hearing it was discovered that his report was merely a letter opinion of value and not an appraisal report, and that it had opined the fair market value of the subject as at December 12, 1985 and not August 31, 1984 which is the material date at issue. Following lengthy cross-examination, and Mr. Whitney's repeated testimony that he had not done an appraisal report, counsel advised the Court that he was withdrawing Mr. Whitney's report as evidence on behalf of the appellant and that they do not propose to rely on it.

The only expert appraisal report and evidence heard was that given by the respondent's witness, Mr. Al Tonin. He has been employed by Revenue Canada since 1973. Mr. Tonin received his Appraisal Institute of Canada (AIC") accreditation in 1976 following which he became a senior appraiser in the Department. He received rectification of his AIC accreditation in 1989.

Mr. Tonin's appraisal experience is lengthy and varied. It included all types of industrial and commercial properties in the Kitchener district, as well as in the areas of Cambridge, Waterloo, Kingston and Belleville. He said he was very familiar with property values in Kitchener-Waterloo as well as in Cambridge and Guelph. His expertise in real estate appraisals has been accepted by the Federal Court as well as by this Court and the Tax Review Board. He acknowledged that all of his court appearances had been at the behest of the respondent.

Counsel for the appellant acknowledged he was satisfied that Mr. Tonin was qualified to give expert opinion evidence on the relevant appraisal matters. In argument however, counsel made the submission that the Court should place less weight on the report and evidence because of Mr. Tonin's exclusive and long-term, close professional employment with Revenue Canada. I indicated to counsel then, and reiterate now, that the mere retainer aspect, standing alone, is not particularly remarkable.

Mr. Tonin has withstood a lengthy, arduous and very thorough examination and cross-examination. In applying a two-method approach to his valuation, being the market data or direct sales approach on the one hand and income approach on the other, he said he had to all intents and purposes discarded the former because the best comparable sales he was able to find were too dissimilar to that of the subject requiring too many arbitrary adjustments to have much meaning. In the end he came to the conclusion that that approach should have no weight, and he therefore confined it to one of mere information. The subject's estimated value by the direct sales approach was $335,000.

In employing the income approach, Mr. Tonin said he examined all the leases then provided to him and, after taking all relevant factors into account, he applied a capitalization rate of twelve per cent. Counsel for the appellant said he had no quarrel with this rate. Page 9 of Mr. Tonin's report, Exhibit R-8, reads thusly:

Income Approach

Income Approach is a method of estimating value based on the earning capacity of the property.

In this approach determination is made of the economic rent, which a property is capable of producing and after deducting typical allowances and operating costs, the net income is capitalized at an appropriate rate into an indicated value.

Calculation

Income estimate;

Basement— (J. Lessard)	750 x 12	9,000.00
(Vacant space)	E200 X 12 = 2,400.00
Main Floor—(Marriott et al)	2166 x 12	25,992.00
2nd & 3rd Floor (527519 Ont)	1000 x 12	12,000.00
Total		49,392.00
Less expenses & allowances
(Management, Taxes, Insurance, Utilities)
(Repairs and Misc expenses)		£8,000.00
Income		41,392.00
Capitalization Rate		12%
Indicated Value (344,933 R to)	$345 ,000.00

Mr. Tonin conceded that he deliberately made no attempt to average the income approach ($345,000) with the market-sales data approach ($335,000) because the latter one, to him, was almost useless. As the Court has not been provided with any expert evidentiary opinion upon which to base its own averaging, it declines appellant-counsel's invitation to speculate and do so.

I also decline to make any adjustments to the net income of $41,392 arrived at on page 9 of Mr. Tonin's report, supra, in pursuance of the argued basis that because the first-, second- and third-floor leases were in fact triple-net leases the expenses and allowances amount of $8,000 was too high. As was pointed out by respondent's counsel, this would simply result in an increased estimated total income capability with a corresponding reduction to the expenses with no real or significant change ensuing to the net income figure.

Counsel for the appellant then attacked Mr. Tonin's income approach through argumentative submissions concerning his alleged failure to consider matters of prevailing market rental rates as comparisons to the lease-rates and in not having assessed and rated the tenants' credit worthiness and reliability. In my view these submissions, while innovative and intelligent, do not transpose to evidence. The evidence, as noted by respondent's counsel, is missing upon which appellant's counsel could properly argue these theories. I agree. This same flaw also follows appellant-counsel’s argumentative submissions respecting a minor variation as to lot size, finished versus unfinished floor areas of rentable buildings and the state of construction and repair.

In my view neither the appraisal evidence nor the opinions expressed by any of the other witnesses on this issue would support a reduction of Mr. Tonin's indicated value of $345,000 by $85,000, or by any other amount for that matter.

Accordingly on the issue respecting the fair market value of the subject property on August 31, 1984, the appellant has not met her onus in establishing error on the part of the respondent in this regard and therefore his appraised value of $345,000 stands.

As this finding is sufficient to dispose of the issues raised, I see no need to comment on the matters and evidence introduced by the respondent with respect to Mr. Tonin's appraisal report and opinion as to the subject property's value as at November 30, 1985. The quantum of the appellant's liability for tax under subsection 160(1) of the Act under which she has been assessed turns on the fair market value of the subject property transferred to her as a beneficiary under a trust on August 31, 1984.

Conclusion

For all of the above reasons, the appellant's appeal is dismissed.

Appeal dismissed.