Lance L. And Lucile A. Johnson v. Minister of National Revenue, [1988] 1 CTC 2478, 88 DTC 1334

Taylor, T.C.J.: —These are appeals on common evidence, commenced to be heard in Victoria, British Columbia, on September 24 and 25, 1987, and concluded on November 30 and December 1, 1987, against income tax assessments for the years 1981 and 1982, in which the Minister of National Revenue struck the relevant assessments based upon certain valuations of real property owned by the appellants at V-Day December 31, 1971, and disposed of by them in later years. There were three parcels of real property

— one on the mainland of Vancouver Island, adjacent to Parksville, British Columbia, which we shall refer to as "Parksville" (or "A"); and two other parcels on Lasqueti Island (a separate island along the eastern coastline of Vancouver Island), one small parcel consisting of two lots, which we shall refer to as "Lasqueti" I or ("B") and one larger parcel which we shall refer to as "Lasqueti" II or ("C").

At this juncture two points should be made. First, that any dispute noted by the appellants with respect to the taxation year 1983 concerned only the assertions that there would be a "loss carry-forward" to 1983 from 1982 — based on the appellants' valuation amounts for 1982. Obviously this issue (if any) would relate only to the determination of the valuation questions for the year 1982, and would stand or fall on the reassessment results (if any are required) for 1982 flowing from this judgment. Nothing further need be said about the 1983 taxation year therefore. The second point, is that in addition to the three parcels of real property noted above, there was a fourth property also situated on the Lasqueti Island — quite small — but nevertheless dealt with in 1982 by the appellants in the same manner as the other two Lasqueti Island parcels — disposed of — but no issue was raised at this hearing by either party regarding either the 1971 or the 1982 valuations attached to that particular transaction. Nothing more need be said about it, other than for the record it was described as “Plan 8932”, which description will appear later in this judgment.

One final point in this preamble might be useful. The appellants did not see fit to engage counsel for the trial, nor to utilize the services of the accounting firm involved in the preparation of the income tax returns, preferring instead to deal with the matter personally — which is their right and privilege. However, due to the complexity of the background material (not necessarily the issue at stake itself) and the procedures followed by Mr. Johnson in handling the case, considerable time, effort and explanation were required in order to identify and clarify the issues in dispute, as well as making forward and positive progress during the hearing. In many ways the situation presenting itself to the Court was similar to that decided in a recent judgment of this Court (Zimmer et al. v. M.N.R.,[1988] 1 C.T.C. 2443, from which the following comments are extracted at pages 2446-2452:

During the trial, there were numerous questions raised regarding procedure, matters of points of order, and in particular motions dealing with admissibility of certain documentation or testimony. Some of the time delays which arose in the hearing of these appeals may be attributable to this Court's efforts to be as informal and flexible as possible in giving to the appellants full opportunity for presentation, while at the same time acknowledging the accepted rules of court procedure in such matters, as they have been used and demonstrated in this Court.

. . . When the taxpayer challenges the Minister’s reassessment, it is then up to that taxpayer to examine and review the basis of his original submissions and to be prepared if called upon to do so as Mr. Maxwell puts it in a "Court of Law" to prove the validity of his submissions. In my view if no reasonable case is made by the appellant during such proof, to substantiate the valuations provided, then the purpose to be served by the Minister presenting documented evidence and testimony in support of the assessment is at the least questionable. But that is a procedural point to be determined by counsel for the Minister.

. . . He is proposing in effect that the Court accept (as the main or even sole proof) the visions of development held by the owners in 1971, while rejecting the facts which arise out of the subsequent actual events. That is not to say, that the optimistic view of value held by any owner should be ignored by the Court, and indeed it should be (if presented) listened to with care and caution. But to propose that this should be the main — perhaps sole — criterion, upon which a critical income tax assessment should be based does not appear to me to be sound reasoning. That leaves up to the appraisers presented by the appellants (or some other equally acceptable proof) to take such a "potential development" realistically into account when presenting evidence.

A major portion of the time of the appeals was taken up by the efforts of counsel for the appellants to show that, even if the appellants’ own appraiser had not established a case, the case for the respondent's number was equally weak. In my view these appeals must be dismissed because of the lack of acceptable proof brought forward by the appellants and dismissed they will be.

For these reasons many areas of the testimony and evidence need not be reviewed in detail by the Court — and it is my intention to cover in this judgment only material considered as directly relevant to the process of arriving at a conclusion and specifically supportive of that conclusion. I make no attempt to deal with exhibits, testimony or argument which I consider to be irrelevant or obtuse with respect to the only real question posed to the Court.

The notice of appeal filed on behalf of the appellants read:

We filed 1981 tax returns which included a sale of property and was reported with a Valuation Day value of $750,000.

This property was appraised by Revenue Canada Jan. 1984 for a Valuation Day value of $185,000.

Discussions were held with Revenue Canada Feb. 1, 1984 and an agreement was reached for a valuation Day figure of $400,000.

This agreement was cancelled by Revenue Canada on Feb. 14, 1984.

We filed 1982 tax returns which included property transfer to our next generation and was reported as follows.

Frac Sec 32 & Frac W / Sec 26

ABC	506,336
Proceeds	500,000
Capital Loss	(6,336)
Lots 3 & 4 Sec 21
ABC	44,741
Proceeds	62,050
Capital Gain	17,309
Lot 1 Sec 32
ABC	27,134
Proceeds	42,900
Capital Gain	15,766

Revenue Canada appraised these 3 properties in March 1984. Their results are attached.

Discussions were held May 17, 1984 without solution.

Reassessments were made June 27, 1984 according to Revenue Canada's appraisals and was [sic] received dated August 31, 1984.

Notice of Objection were [sic] filed Aug. 31, 1984.

Discussions were held with Revenue Canada Feb. 1, 1985, at their office. Discussions were continued through a lawyer to the end of 1986. An appraisal by a qualified independent appraiser for the 1982 large property August 2, 1985 (Frac 32 & Frac W'/2 Sec 26) and concluded with a vlue for the Proceed at $435,000.

Revenue Canada then sent their senior appraiser to reappraise both 1981 & 1982 properties in question.

These appraisals are now in the process of a revised reassessment according to their letter of Jan. 16, 1987. A copy is attached.

The grounds upon which we appeal is the 1981 comparables used by Revenue Canada are outside of the community of Parksville. The subject in question is inside the Town of Parksville.

The grounds upon which we appeal the 1982 is [sic] the comparables used by Revenue Canada are for the peak year of 1981 and the subjects were transferred after the collapse of the market in 1982.

Lot 3 & 4 Valuation Day difference appears to be replaced with a value change in the Proceed Value.

Frac 32 & W'/2 Sec 26 Valuation Day is now in question and will be defended.

For the Minister, in the reply to notice of appeal, the significant points were:

A. Statement of Facts

1. The Respondent admits the allegations of fact in the Notice of Appeal, as amended, that dispositions of property were made by the Appellant and his wife and reported as follows:

1981 - Parksville, B.C.

(a) Lot 1

D.L. 16

Nanoose Land District

Reported: Valuation day value of $750,000.

1982 - Lasqueti Island, B.C.

(b) Fractional west '/2 Section 26 and Fractional Section 32 (land and buildings)

Reported:	Adjusted cost base	$506,336
	Proceeds	500,000
	Capital loss	$ (6,336)
(c)	Lots 3 and 4 Section 21 Plan 29879 (land only)
Reported:	Adjusted cost base	$ 44,741
	Proceeds	62,050
	Capital gain	$ 17,309
(d)	Lot 1 Section 32 Plan 8932 (land and buildings)
Reported:	Adjusted cost base	$ 27,134
	Proceeds	42,900
	Capital gain	$ 15,766

2. The Respondent denies all other allegations of fact in the Notice of Appeal.

3. The Respondent reassessed the Appellant for 1981 on the assumption that at December 31, 1971, the value of the property sold by the Appellant and his wife in 1981 was not more than $148,300 for a total capital gain of $2,334,482.00 and a taxable capital gain of $1,167,241.00 of which the Appellant's half share was $583,620.50.

4. The Respondent reassessed the Appellant for 1982 as follows:

Lasqueti Island, B.C.

Fractional west '/2 section 26 and fractional section

32 (land and building)

Adjusted cost base	$ 471,900.00
Proceeds	1,176,400.00
Capital Gain	$ 704,500.00
Lots 3 and 4 section 21
Plan 29879 (land only)
Adjusted cost base	$	74,500.00
Proceeds		115,800.00
Capital Gain	$	41,300.00
Lot 1 Section 32
Plan 8932 (land and buildings)
Capital gain — as filed	$	15,766.00
Total capital gain	$ 761,566.00
Appellant's '/2 interest	$ 380,783.00

5. In so reassessing the Appellant for 1982, the Respondent assumed:

(a) the Appellant disposed of the property to persons with whom he was not dealing at arm's length;

(b) the fair market value of the Lasqueti Island property disposed of in 1982 was no less than:

		At Dec. 31/71	At Mar. 8/82
(i)	fractional west /2 section 26 and frac
	tional section 32
	— land	452,200	$1,141,600
	buildings	19,700		34,800
		471,900	1,176,400
(ii)	lots 3 and 4
	section 21
	plan 29879	74,500		115,800
(iii)	lot 1
	section 32
	plan 8932	27,134	$	42,900
		(as filed)		(as filed)

(c) the taxable capital gain on the disposition of the Lasqueti Island property was:

(i) fractional west '/2 section 26 and fractional

section 32

	Deemed proceeds of sale	$1,176,400
	Less: Adjusted cost base		471,900
	Capital gain		704,500
	Taxable capital gain		352,250
	Appellant's share — 50% x 3,168		176,125
(ii)	lots 3 and 4
	section 21
	plan 29879
	Deemed proceeds of sale	$ 115,800
	Less: Adjusted cost base		74,500
	Capital Gain		41,300
	Taxable capital gain (1/2)		20,650
	Appellant’s share ('/2)		10,325
(iii)	lot 1
	section 32
	plan 8932
	Deemed proceeds of sale	$	42,900
	Less: Adjusted cost base		27,134
	Capital Gain		15,766
	Taxable capital gain (1/2)		7,883
	Appellant's share (1/2)		3,941.50

B. The Statutory Provisions upon which the Respondent Relies and the Reasons which he Intends to Submit.

6. The Respondent relies, inter alia, on sections 3, 38(a), 39(1)(a), 40(1)(a), 53, 54, 69(1)(b) and 251(1) of the Income Tax Act and section 26 of the Income Tax Application Rules.

7. The Respondent submits that the fair market value at December 31, 1971 of the property disposed of in 1981 was not more than $148,300.

8. The Respondent submits that the fair market value of the property disposed of in 1982 was not more than:

		At Dec. 31/71	At Mar. 8/82
(i)	fractional west '/2 section 26 and frac
	tional section 32
	— land	$452,200	$1,141,600
	buildings	19,700		34,800
		471,900	1,176,400
(ii)	lots 3 and 4
	section 21
	plan 29879	74,500		115,800
(iii)	lot 1
	section 32
	plan 8932	27,134	$	42,900
		(as filed)		(as filed)

Moving ahead somewhat, in the interest of brevity, I would note that at the conclusion of the hearing — before argument — both parties agreed with the Court that the following summary of the situation fairly represented the dispute, and that the various appraisal reports indexed thereon represented the main contributions by each party to a determination:

Parksville

	Valuation	Sale
	Dec. 31, 1971	Jan. 30, 1981
As filed in Tax Returns	$750,000.00	$2,500,000.00
Valuation Reports
— Minister	$148,300.00	N.A.
	(Exhibit R-3)
— Appellant	$869,700.00	N.A.
	(Exhibit A-2)
		Valuation
		March 8, 1982
Lasqueti 1
As filed in Tax Returns	$44,751.00	$62,050.00
Valuation Reports
— Minister	$74,500.00	$115,800.00
	(Exhibit R-4)	(Exhibit R-4)
— Appellant		$66,000.00
		(Exhibit A-12)
Lasqueti //
As filed in Tax Returns	$506,336.00	$500,000.00
Valuation Reports
— Minister	$471,900.00	$1,176,400.00
	(Exhibit R-5)	(Exhibit R-5)
land	$452,200.00
buildings	$19,700.00
— Appellants	$740,000.00	$435,000.00
	(Exhibit A-18)	(Exhibit A-15)

The appellants' final position was put forward eloquently by Mr. Johnson and the following are some quotations therefrom:

None filed — Appellants agreed to amount of $74,500.

It was the taxpayers’ responsibility to supply the Valuation day value for the 1981 sale and to supply Valuation day values and Proceed values for the deemed disposition for the 1982 transfer to our children.

With due respect to the importance of the task, these figures were supplied; with the hope that they would be accepted without delay and hassle and with the realization that they may have to be defended.

Four out of six figures reported for 1982 were accepted by Revenue Canada on their first reassessment. This was changed to only two on the reassessment now before the Court.

We have examined all the appraisals for all the subjects in dispute. Our position has been adequately defended. Indeed it has been shown that we have over paid Our tax.

The examination of Mr. Burnett's appraisal led to some questions and his answers revealed inaccuracies and incompletion of research of his comparables and the Subject.

The best than can be concluded from his report is that Mr. Burnett's appraisal is for a property of 148.3 acres situated somewhere outside of Parksville that comes under the Local Service Act — a Provincial Act, (page 29) that has no access, that has no water service, that has no sewer service and has no prospect of a sewer service.

Examination of comparables of similar size show that land inside of Parksville has sold for many times the price per acre to those outside of Parksville.

Summary for Lots 3 & 4 Plan 29879 Sec 21, Lasqueti Island:

We have accepted the reassessed valuation of the Lots 3 & 4 for December 31, 1971 which is:

Lot 3	$37,300
Lot 4	37,200
Total	$74,500

There is a problem with the March 8, 1982 Proceed.

Lot 1 has been described by Mr. Cavazzi as a comparable in his appraisal. (Page 13 comp 2).

He did not describe the magnificant view that this property has. There is no study to equate the value of a view; the value of a view is left to the buyer to value and appreciate.

Mr. Burnett’s appraised value of $1,400 per acre demonstrates that $54,040 is more than double the reality of a proven sale that has been adjusted with Mr. Burnett's adjustments to March 8, 1982 — $26,700 — which is $691 per acre.

at $700 for lot 3 — 41.4 acres is $28,980

$700 for lot 4 — 41.3 acres is $28,910

Or 50% of $115,800 is $57,900 and that is the figure that I believe represents the fair market value for Lots 3 & 4 for the Proceed of March 8/82.

Re Proceed March 8, 1982, Frac Sec 32 & Frac West 1/2 Sec. 26 (Lasqueti ll)

In addition to other differences, the Time Adjustment is now considered. There is no evidence to show that Sale 5, Revenue Canada's West Pt. which sold Aug. 1980 would have been any higher in 1981. There is evidence to show that the market collapsed.

It can also be concluded that this collapse represents the market demand and value on Lasqueti Is. for large foreshore acreages on March 8, 1982.

This collapse places in doubt the usefulness of the other large sales of 1980 & 1981 by Revenue Canada to determine the value of the Subject on March 8, 1982.

The examination of Mr. Burnett's appraisals and the questions asked and the answers sought revealed errors in fact and in opinion.

It is also noted that there is no dispute with the appraisal value for NW 1/4 Sec 26 as it is appraised for $51,600 by Mr. Burnett and Mr. Cory.

The differences are with Frac SW 1/4 Sec 26 & Frac Sec. 32.

The greatest difference is its size and this has been adaquately allowed for (35%) when used by Mr. Cory who appraised the Subject for Valuation Day as Frac SW 1/4 Sec 26 for $183,500. and Frac Sec 32 for $489,900.

Plus $15,000 for the improvements.

NW 1/4 Sec 26	$ 51,600
Frac SW 1/4 Sec 26	183,500
Frac Sec 32	489 ,900
Improvements	15,000
Value Dec. 31/71	$740,000

Time. This problem was created with the sale in 1981 and the land transfer in 1982. It is now 1987. Time matters little to the office of Government for it exist[s] indefinately [sic]; but for the individual in his declining years, time is threatened by death. This problem has handicapped every year of my retired life.

Cost. We have been put to many thousands of dollars of expense in defense of our position with Accountants, Lawyers, Appraisers, Research and Witnesses.* [1]

While acknowledging the effort and complexity of the argument presented by counsel for the Minister, I will refer to it only as I find need, otherwise I shall deal directly with the disputes noted above.

Lasqueti I

Since both Lasqueti I] and Lasqueti I are located on Lasqueti Island, it will materially aid the comprehension of this judgment to quote parts from each report — appellants and respondent — providing general description of the island and area. During the hearing it was evident that there were certain differences of opinion between the experts regarding conditions, limitations, zoning, access, etc., for the island, but in my view the general picture which was there is consistent.

For the appellants — prepared by Mr. D.C. Cavazzi, AACI, FRI, RI(BC):

Letter dated August 27, 1987.

In accordance with your instructions of August 17, 1987, we are pleased to enclose our appraisal of the property referred to above, consisting of approximately 82.7 acres of vacant and undeveloped land on Lasqueti Island.

In arriving at an estimate of value of the property, we reviewed a number of acreage transactions and there appears to be little rationale for the reasons why people purchase land on Lasqueti relative to factors that are common in most other areas, such as developable land, available services and access. Our observations suggest that the prime motivation for individuals purchasing land, on the Island are for privacy and seclusion as conditions are usually difficult with no power available and generally very little water and the Island is generally heavily treed and very rocky. While the subject property comprises 82.7 acres in total, Main Road, which traverses the property from west to east, passes through the southerly portion of both lots, effectively severing approximately 4 to 4-1/2 acres from the remainder of the property and this portion is generally hilly and rocky and considered incapable of development. However, our investigation indicates that this is not a particularly unusual circumstance and we do not consider that it has any detrimental effect on the overall value of the property.

Neighbourhood Data

The property is located on Lasqueti Island which contains approximately 19,000 acres and is situated about 20 miles to the northeast of the Village of Parksville. Ferry service from Parksville to the Island is available only throughout the weekdays. Air service is available between the Village of Qualicum and Vancouver. Qualicum is a small retirement community located approximately 15 miles north of Parksville. A “Location Map” has been provided opposite [not included in the judgment].

The population of the Island of Lasqueti is approximately 1,500. There are virtually no economic base industries on the island providing employment for the residents. The majority of residents have come to the island for retirement, isolation from the outside world and/or to create a new lifestyle. In general, the residents find temporary employment on the Vancouver Island Mainland to support their existence on Lasqueti. There is limited development throughout the Island, with one small grocery and restaurant development located on False Bay. False Bay is situated at the southwest sector of the Island and serves as the docking facility for the ferry service from the mainland. There is also a small elementary school on the island offering only grades one to seven. In general, the remaining portion of the Island consists mainly of undeveloped rural acreage with some modest homes and small farms situated on a number of properties.

At date of valuation, the Island had no power facilities, the main source of water was from annual precipitation and telephone service was available.

In summary, Lasqueti Island represents an isolated community linked to the Vancouver Island Mainland by ferry service. The Island has resisted any form of major development as well as upgrading of existing services resulting in minimal changes in developments on the Island over the past 15-20 years.

For the respondent, prepared by Mr. A.R. Burnett, AACI:

Lasqueti Island is located in Georgia Strait. This Island’s general location is described as north of Parksville and immediately south of Texada Island.

Access to the Island is by foot ferry only. Regular scheduled runs are made from the government wharf at French Creek, which is just north of Parksville. While small cargo can be taken on this ferry, any larger items must be barged over.

The road network on Lasqueti Island is surprisingly extensive. Gravel road access to most parts of the Island is possible. The Department of Highways maintain a works yard on the Island. From this yard, the road network is very well maintained.

Population figures for 1971 are not available, however, the 1981 Census suggests there are approximately 300 residents living on the Island. Of the 300 people, 30 percent are under the age of 15 while 20 percent are over the age of 40. This suggests that the majority of the Island’s residents are quite young. Due to the level of non-resident ownership at both appraisal dates, it is expected that the level of population increases marginally during the summer months.

The major economic activities appear to be fishing, forestry and farming. There has never been any lasting support services on the Island. This is due to the low population and the cost of bringing over supplies.

As at both appraisal dates, the school at False Bay has provided education for children in grades 1 to 8. Further education to grade 12 requires children to live in Parksville.

Services to the Island are basically non existant with the only exception of telephone. In summary, the local residents must be very self sufficient so as to enjoy the very rural tone of Lasqueti Island.

With specific reference to Lots 3 and 4 (Lasqueti I in this report) the following comments were made by Mr. A.R. Burnett AACI for the respondent:

The subject properties are located on Main Road, which is the only east-west connector across Lasqueti Island. Based on Plan 29879, the subject property's road frontages are as follows:

Lot 3 — Main Rd - 1,017.78 ft Lot 4 — Main Rd - 856.24 ft

Due mostly to level topography on the north side of Main Road, access onto the subject property lots is quite easy. Access onto that portion of Lot 4, south of Main Road is far more difficult due to the more rapidly increasing elevation off Main Road.

The topography of the subject properties is described as gentle, but continuous increasing elevation in the southern half of both properties with rapid increasing elevation in the northern half. This increasing elevation overall follows a northwest direction. The difference is actual elevation between the southeast corner of Lot 4 and the northwest corner of Lot 3 is estimated at 262 feet.

Services to the subject property are basically non existant at both appraisal dates. The RCMP and Canadian Coast Guard provide emergency services. The only utility available at both appraisal dates is telephone. Hydro is non-existant and if it is required, gas or diesel powered generators must be brought in.

I will note merely for the record that there was some evidence provided that Mr. Cavazzi, supra, had prepared a similar report for the appellants — for a valuation on V-Day (December 31, 1971) which came to $33,000, rather than the $44,751 used by the appellants in filing the relevant tax return, or the $74,500 now accepted by the appellants. However that earlier report can have no direct bearing on this decision, in view of the current state of affairs

— the acceptance by the appellants of the $74,500. There was no dispute from the appellants or from Mr. Cavazzi that the $33,000 report had dealt with the same property. I point out this situation only out of regard for Mr. Cavazzi, to show that the figure of $66,000 at March 8, 1982, at the minimum, represented a recognition by Mr. Cavazzi of some increase in value over the years. Mr. Johnson's own originally filed figures (see above) of $44,751 (December 31, 1971) and $62,050 (March 8, 1982) indicates an increase in value of some 40 per cent over that 11-year period — a modest enough percentage in my view, but nevertheless sufficient to indicate to me that the agreed amount of $74,500 (December 31, 1971) must be increased by at least a similar amount to be consistent. That would make a value on March 8, 1982, of some $104,300. In view of the total lack of support for the valuation presented by the appellants, and I say without needed detail, the inadequacy of the report of Mr. Cavazzi regarding Lasqueti I on this aspect of the matter, I fail to see how it can be said that the Minister’s valuation has been successfully challenged, or even seriously questioned — a requirement sine qua non, for the appellants as I understand the case law. I should also point out that the report of Mr. Burnett on this aspect of the matter was professional, concise and complete. Minor adjustments or deficiencies in it brought out under cross-examination did nothing to undermine its substantial propriety. The March 8, 1982 value for Lansqueti I Lots 3 and 4 remains at $115,800.

Turning to Lasqueti II, I would refer to the following specific description of the subject property by Mr. Cavazzi:

Property Size and Area

The site is located at the southwest sector of Lasqueti Island and, based upon assessment records, has an approximate overall site area of 567.9 acres. A “Subject Site Plan” has been provided opposite for reference.

Topography

In general, the property has a rolling topography, heavy bush and timber growth, a rocky soil base, a cleared area of about eight acres where the main residence is located, and approximately 8,000 feet of waterfrontage.

Street Impovements

Access is available to the property from a two-lane, gravel road. However, the road has a severe grade within the property limiting its use. Accordingly, the effective access is from a gravel road which passes through a private property just north of the subject near McKinnel Lagoon. The access agreement is simply a verbal understanding with no compensation paid. Access is also available to the property from water near a shallow bay, McKinnel Lagoon, near the northern area of Section 32.

Services

Both telephone service and a I //' gravity fed water line are available to the property although service from the latter is seasonal and undependable. Sewage disposal is septic tank or cesspool.

Improvements

The majority of the improvements on the property are situated near the northern area of Section 32, just to the south of McKinnel Lagoon. The improvements in this area consist of an older, two storey, 2,500 square foot, woodframe dwelling. Approximately one-half of the dwelling was constructed woodframe dwelling. Approximately one-half of the dwelling was conctructed in 1933 and the residual in 1965. This dwelling is of low cost construction consisting of a concrete foundation, shiplap wood exterior siding and a gable duroid roof. Electrical wiring is available in the residency, but it does not meet code standards. The only electrical power to the dwelling is by means of a portable power plant which is sufficient only for approximately three to five lights. Water supply to the dwelling is by means of a small spring and gathered rainfall.

Internally, the dwelling has two bedrooms, a small two piece bathroom and a kitchen/eating area on the main floor. The second floor accessed by stairs consists of four bedrooms. It is reported that the upstairs is generally only used during the summer months. Internal construction consists of unfinished planked floors or asphalt tile flooring, painted plywood walls and fibre tile ceilings or insulated ceilings with furring strips. In general, the main residence is in poor condition and has an estimated remaining economic life of ten years, as at date of valuation.

The other improvements in the area are a small, low cost construction toolshed and a hay shed with respective overall building areas of approximately 400 and 900 square feet. There is also a small 100 square foot watershed structure. All of these improvements are situated within a cleared area of approximately eight acres which has been cultivated to support hay and also includes a large garden area.

The other improvement on the property is a one storey, one room, 600 square foot, woodframe cabin which is situated near the central southern border of the property facing the ocean. The cabin was constructed in 1975 and was expanded after 1982. In general, construction of the cabin consists of wood timbers mounted on wood and concrete posts, a woodframe and a gable duroid roof. Internally, construction consists of drywall ceiling and walls, stained plywood floor, and floor to ceiling rock fireplace.

The property also, at date of valuation, had a considerable amount of barbed wire fencing (approximately 10,000 lineal feet) situated mainly along the northern boundary of the property. There is also a small amount of cross fencing near the property's eastern and western borders.

Also I would quote from the report of Mr. Burnett on that property:

The total acreage of the subject property as at December 31, 1971, and March 8, 1982, is estimated at 570.7 (+/—) acres. The subject property's size encompasses a variety of land forms that both enhance and detract its overall appeal. Please refer to Plot Plan found in Addenda "A".

The subject property is located approximately 1 mile south of False Bay. Weldon Road provides narrow gravel road access to that portion of the subject property knows as the North West A of Section 26. In fact, Weldon Road continues in a southeasterly direction, bisecting the North West A of Section 26.

Access onto the subject property begins in what appears as trespass over that portion of Section 32 described as an exception. The access road then winds along the south side of a lagoon and ends at the lagoon's southwest side, where the main residence is located. In general, the access road is more properly described as rough trail, where access can become impossible during the winter.

The topography of the subject property is best described in three separate areas.

The First area is that portion of the subject property known as the Fractional West /2 of Section 32. The topography in this area is described as undulating with a variance in elevation of 60’ (+/-). These undulations are described as gentle with no dramatic changes Within a small area.

The Second area is described as the Fractional East /2 of Section 32 combined with that portion of West '/2 of Section 26 south of Weldon Road. Within this area, thetopography is constantly increasingtoa maximum elevation of 164’ (+/—). This increasing elevation, while continuous to the northeast, occurs in stages and as a result, the increase is described as gentle to moderate.

The third area is described as the Fractional East /2 of Section 26 north of Weldon Road. Here the topography rapidly increases to a maximum elevation of 328'(+/-).

The majority of the subject property is covered by trees. This coverage is mainly moderate, but there are areas where it ranges from broken to heavy cover. The predominant spiecies [sic] is Douglas Fir, followed by Cedar and Arbutus. There is open pasture and grazing areas located west of the main residence. However, this area represents less than 10 percent of the total subject property's acreage.

The subject property enjoys very sheltered anchorage. The salt water lagoon where this anchorage is found offers the subject property over A of a mile (+/—) of waterfront. This waterfront is very tidal with relatively easy water access found on the west side of the lagoon. Due to upland topography, water access found on the west side of the lagoon. Due to upland topography, water access on the lagoon's east side is restricted. On the west and south side of the subject property the ocean waterfront covers approximately 3 miles (+/—). Two bays are found on the west side; however, only one offers some sheltered moorage. The shoreline is described as predominantly rugged with exposed rock rising very quickly out of the water making water access difficult.

Services to the subject property are basically non-existant at both appraisal dates. The RCMP and Canadian Coast Guard provide emergency services. The only utility available at both appraisal dates is telephone. Hydro is non-existant and if it is required, gas or diesel powered generators must be brought in.

Again I would note out of regard for Mr. Cavazzi that there were areas of disagreement between the experts about such things as access, roads, water levels, arable land, etc., but the general perception that one gained — from both reports is not one of lush green pastures surrounded by gentle rolling hills, streams and forests. It is a rugged, large piece of property ideally suited to the purposes and the proud and independent character of Mr. Johnson and his family, certain aspects of which one cannot help but admire. In continuing this review of Lasqueti Il, I note that the appraisal report as at December 31, 1971 (Exhibit A-18) was not prepared by Mr. Cavazzi, but by Mr. Gordon Cory, FRI, of Hub City Appraisals. We therefore do not have even the common thread of preparation to be found in Lasqueti I — that is Mr. Cavazzi involved with both time periods. Obviously Mr. Johnson in filing the original tax return, regarded the valuation situation between 1971 and 1982 ($506,336 and $500,000 respectively) as having changed very little — in fact regressing. If one is to take the relative position of Mr. Cory ($740,000 in 1971) and Mr. Cavazzi ($435,000 in 1982) as having merit — at least as compared to each other, the regression (if such) was marked indeed. Therefore it would seem to me to be in order to review and identify the methodology used in each case.

Mr. Cavazzi, in his report dealt with Lasqueti II on the basis that it was just one large block of property — without much reason to identify different sections of it as having different potential values. That is one major methodology distinction between the report of Mr. Cavazzi at March 8, 1982 and that of Mr. Cory at December 31, 1971, and indeed Mr. Burnett (for the Minister) followed a similar procedure in valuing to that of Mr. Cory — he made distinctions based on topography, accessibility, waterfront, etc., by dividing the subject property into three theoretical sections. I note this at this juncture since I can understand and accept some of the reasoning behind the separate (but virtually identical) perspective of Mr. Cory and Mr. Burnett, as opposed to that of Mr. Cavazzi, but as will be highlighted later, I do not wish to leave the impression that the "one parcel of property" view of Mr. Cavazzi is the major — and only unacceptable element in the report. While both Mr. Cory and Mr. Burnett (see later) strongly defended their approach — mandating a division into three different sections for valuation purposes — I am not persuaded that approach was an essential to a proper evaluation as it was claimed.That is not to minimize the professional nature and qualifications of either Mr. Cory or Mr. Burnett — merely that I do not believe that the fundamental error in Mr. Cavazzi's report rests in that perspective. The problem with Mr. Cavazzi's report, as I see it, is that the comparables he selected, the treatment he accorded them and the conclusions he reached from the data leave much to be desired, and the attack on these methods and calculations mounted by counsel for the Minister was strong, direct and effective. Mr. Cavazzi selected the "cost approach" for valuation of the improvements, and the "market data” approach for the land component — both completely acceptable and proper for this situation. As is so often the case there were no really comparable sales — size, time, topography, etc., almost always different. Nevertheless he did suggest the following summary of sales as useful:

For purposes of clarity, outlined below is a “Summary and Rating Chart" of the comparable sales transactions analyzed, together with comparative data relating to the subject site. These ratings include adjustments for all dissimilarities.

Comparable	Sale	Sale	Area	Price/
No.	Date	Price (Acres) Acre Rating
No.	Date	Price (Acres) Acre
1.	January/82 $110,000 162 $ 679 Superior
2.	March/81	$195,000 146		$1,336 Significantly
					Superior
3.	January/82 $ 75,000 80 =$ 938 Superior
4.	Decern be r/81 $ 85,000		80	$1,063	Superior
5.	February/81 $400,000 133 $3,008 Significantly
					Superior
6	May/80 $120,000 167 $ 719 Superior
Subject			567.9

Indicated Value of Subject

$ 607

776

758

851

1,201

679

In our opinion, the market data indicates a market value for the land component of the subject property, as of March 8, 1982, of $700 per acre of site area, or for approximately 567.9 acres say:

THREE HUNDRED NINETY-SEVEN THOUSAND FIVE HUNDRED ($397,500) DOLLARS.

It can readily be seen from the above, that there were no sales subsequent to March 8, 1982 which Mr. Cavazzi considered comparable, and that fact was born out by the other experts. The thrust of the assertion from this fact urged upon the Court by Mr. Cavazzi and the appellants was that the real estate market had literally collapsed about March 8, 1982 — the critical date for this part of the appraisal. On this point, I am quite prepared to reject that assumption. It is quite possible that in earlier years — sometime during the late 1970s — one could see limited signs of interest in real estate activity on Lasqueti Island, but the market for such property was always marginal and weak, in my view, and such things as interest rates etc., so strongly pressed by the appellants would simply not have the effect of total collapse, as the relative 1971 and 1982 valuations presented by the appellants, supra, were designed to demonstrate. I would suggest that the real estate activity shown by the above comparables summary by Mr. Cavazzi might just as easily demonstrate that the then market for Lasqueti acreage had been quickly exhausted. Certainly there was still plenty of rugged land on the island — the subject property representing only about 3 per cent of the total of the island. Mr. Cavazzi and his analyses and comments regarding the comparables, to arrive at his “indicated value of subject" column above, did not specify the proportionate effects which differing factors (size, waterfront, access, etc.) had on his conclusions, but always made some allowance for "time". It is my impression that (except for his #5 comparable), the major factor which affected his thinking, and resulted in decreased per acre values for the subject, was that of size. I have not criticized Mr. Cavazzi's method of looking at the subject property as one parcel (rather than three as did the two other experts), but obviously if he conceded relative size for the subject to be a distinct and dramatic disadvantage, then he did have the option of theoretically breaking it down into smaller parcels more akin to the comparables he selected. I can only conclude that in deciding not to do so, he rejected ab initio the very factor upon which he seemed to rely so heavily later on. Further, I did not find in Mr. Cavazzi’s responses any support for a view that his sales #1 and #3 above, because they occurred in 1982, represented a drastic drop in the market from 1981, simply by virtue of the lower price paid per acre. To be consistent, I do not believe Mr. Cavazzi can bring in that factor at the “calculation” stage. There were other much more important difficulties in and between these comparables which provided that result. Of the six comparables listed above, as I understand it, four do not have waterfront — #1, #3, #4, and #6. My acceptance of Mr. Cavazzi's methodology of valuing the subject property as one parcel does not extend to him ignoring entirely the lengthy waterfront at the subject — which was consistently pressed by the appellants as of great, almost central value. That leaves Mr. Cavazzi's comparables #2 and #5 — and the rationale for virtually "gutting" the price per acre to calculate very low “indicated values for subject" (see above) totally escapes me. Each could require some upward adjustment for time, and any other differences such as access, topography etc., simply would have limited end effect — not possibly the reduction of 50 or 60 per cent indicated by Mr. Cavazzi. For Mr. Cavazzi, the project was simple — he located sales of properties which he asserted had characteristics something like those of the subject — and then he adjusted their sales for a variety of factors — and selected an average per acre of $700 for entire parcel of more than 500 acres. As I see the methodology of Mr. Cavazzi it was not designed to give the maximum, or probably even a realistic, valuation to the property for its only possible use — as recreational — "a rural acreage holding property" to use his own words. I cannot visualize that the interior portion of this huge parcel would be developed before or even concurrently with any development which might occur on the coastline areas. At the same time — and I point this out in Mr. Cavazzi's defense — I heard very little from any experts including Mr. Burnett, to convince me that in 1971 or in 1982 there was any great demand for any of the property, and we shall return to that point later on. I would point out that the comparables, the adjustments, and the conclusions of Mr. Cavazzi, when put together in his report, and subjected to cross-examination by counsel for the Minister, did not hold up at all. Mr. Cavazzi's report, of itself, could not serve to provide a reason to challenge the viability of the Minister's assessment — I do not say the Minister’s appraisal at this point — just the assessment! While Mr. Cavazzi's report was not intended to serve a purpose for V-Day (December 31, 1971), it now can serve little purpose if any for March 8, 1982 — which is crucial to the appeal of Mr. Johnson. There is no reason for the Court to attempt some more reasonable calculation — but Mr. Cavazzi would be hard pressed to refute a simple calculation of the average between #2 and #5 as reasonable — ($1,336 + $3,008) —t— 2 = $2,172 per acre for the subject property on March 8, 1982. The Court's only role in this matter is to simply reject Mr. Cavazzi's result of $700 per acre as being unacceptably low.

Turning to the report of Mr. Cory, for December 31, 1971, he did divide the large parcel of Lasqueti Il, for appraisal purpose, into three parcels — almost identical to the three parcels used by Mr. Burnett for the Minister. As noted earlier, Mr. Cavazzi, for March 8, 1982, treated the parcels as one parcel. The respective results were:

Mr. Cory's report and the results obtained by Mr. Burnett, and just looking at the known information (already referenced), the Court is treated to the prospect that while Mr. Johnson agrees that three was at least a 40 per cent increase in the value of Lasqueti I during the same time period, and there were limited indications from Mr. Cavazzi that there had been about a 100 per cent increase (his $33,000 December 31, 1971 figure and his filed report for March 8, 1982 at $66,000) we find quite the reverse — and dramatically so

— for a much larger parcel of property on the same island, but with considerable waterfront exposure while lots 3 and 4 above (Lasqueti I) did not have waterfront exposure. To add to that, there had been a substantial increase in the value of the improvements — $15,000 to $38,000, according to Mr. Cory. When the available description of the improvements are considered — together with photographs, it is difficult indeed to see much real value in these improvements, and there is no indication they had been dramatically upgraded between 1971 and 1982. The improvements at best have only a nominal value in either case, in my view, and really do not affect this determination. So, that leaves a review of the land values — Mr. Cory $725,000 in 1971, Mr. Cavazzi $397,500 in 1982 — and one or both must be suspect.

Without agreeing at this time, that Mr. Cory's figure of $725,000 — has merit, I would simply point out that we have already rejected the methodology and the results provided by Mr. Cavazzi of $397,500 for March 8, 1982. As noted there are clearly demonstrable differences in certain areas of this huge (570 acres) property. Perhaps these differences may or may not be as distinct, valuable, or marked as indicated by either Mr. Cory or Mr. Burnett

— but at least the section (about 167 acres) Mr. Cory's Parcel #1 (Mr. Burnett's Parcel 'A") completely land bound, in the northeast quadrant cannot easily compare to the utility or the prospects for other quadrants. Next would appear to come Mr. Cory's Parcel #ll — still largely inside land, but with certain waterfront exposure, and finally in order of increasing value Mr. Cory's Parcel #lll — with coastline and direct water access. Mr. Cory proceeded to find — as well as possible — comparables which he asserted matched to some degree the different qualities of each of the three parcels.

And so we turn to the report of Mr. Cory — and fortunately we have some material with which to compare methodology — the report of Mr. Burnett. The results of the appraisal of these two experts for December 31, 1971 were:

Clearly, since there is no dispute about Parcel I (A) at $51,600, there is no purpose in reviewing it — but it can serve as the basis for looking at the validity of the other appraisal amounts (parcels II and III) as seen by Mr. Cory. I note with interest the final sentence of each of the three analyses by Mr. Cory of the characteristics of the three parcels, which follows:

PARCEL 1

This Parcel is serviced with a gravel roadway. As of the effective date, there were few controls as to development although we understand that the Ministry of Highways did have the responsibility of approving any plans. A brief investigation into Plan 25495 lying within Section 29 has revealed parcel sizes ranging between 1 acre to 2 '/2 acres. In this example, the majority of the Parcels are ocean fronting and totally unserviced with the exception of gravel roadway. This plan was registered in 1972, well after the effective date.

It is conceivable that the Subject Parcel could be divided into smaller Parcels. However, the demand for smaller Parcels, other than water fronting Parcels, would appear to be very slight. When considering the lengthy holding term to market the Parcels, it is our opinion that the Highest and Best Use of Parcel I would be that of a single holding site for recreational-residential use only.

PARCEL II

As of the effective date, this Parcel did not have legal access to any municipal roadway. It is doubtful whether or not this Parcel could be further subdivided. However, it could be argued that an access to the Weldon Roadway could be purchased at a reasonable cost. However, for the purpose of this report, we will value this Parcel as a single block with the Highest and Best Use being that of a single residential Parcel for recreation uses.

PARCEL III

As in Parcel II, this Parcel does not have legal access to any municipal roadway. However, in the case of this Parcel, the Highest and Best Use certainly would have been the acquisition of lands so as to provide legal access and the subdivision of the Parcel into smaller lots of say two acres each so as to provide an incoming producing enterprise. For the purpose of this report, and due to the fact that we are unable to determine a value for such access, we will value Parcel as a single block for residential use. [Emphasis added.]

So, as I see it, and it was suggested by Mr. Cory's testimony, there is no difference between the characteristics of Parcel I and II, if any difference — a very slight one. Since the parcels are not the same size — Parcel I about 126 acres and Parcel II about 172 acres, there seems to be no reason to attribute increased value to anything other than the waterfront and water access. I would agree, but I fail to see that making a difference of some $132,000 — from $51,600 to $183,500. There is simply no indication that waterfront property while undoubtedly a valuable asset for various purposes on Lasqueti Island was that much in demand. We shall return later to the fact that there was little evidence adduced that there was demand at all — let alone such a dramatic one as this would indicate, at December 31, 1971. The comparables presented on behalf of either party were few — and isolated. Both parties agreed there was not much to indicate a concerted drive toward habitation of the island, certainly not development as it would be more understood on the mainland of British Columbia, or Vancouver Island itself. Lasqueti Island appeared to be in 1971 a grand and isolated place, where people with certain wants and lifestyles could be very happy and self-sufficient — but there was no indication that in 1971 this constituted a large and expanding group. To continue, while Parcel Ill, which provided almost total waterfront access and consisted of some 273 acres, undoubtedly should be accorded additional value in 1971 — but from $51,600 for 172 acres, to $489,900 for an additional 100 acres was not shown to be supportable. In general terms, the best comparable (for Parcel 111) would be Mr. Cory's #6 (which turned out to be Mr. Burnett's #5). As I followed Mr. Cory's testimony however he did not show that the 15 per cent increase for "access", and the 20 per cent increase for “utility” to be added to the price per acre for the #6 sale to get to a comparable for the subject was warranted. It appeared to me that in most respects the subject and his #6 were quite similar. But I conclude that Mr. Cory further accentuated the problem when he rationalized that "the sheltered lagoon, the two attractive bays and a much larger frontage . . . and the distance to the road allowance" gave the subject a further approximately 25 per cent advantage. Mr. Cory's value of $1,800 per acre for the subject and Parcel 111 (calculating into the $489,900 amount) is simply too great by far.

So that leaves me to conclude that Mr. Cory's land value of $725,000 on December 31, 1971, is far too high — even allowing for the fact that I have accepted the basic value of $51,600 for Parcel I — simply because there was no disagreement from the Minister's appraiser. I should note at this juncture, that in argument the appellants altered their filed valuation, so that they contended the proper ones for the Minister to use would be 1971 — $740,000 (Cory) and 1982, $435,000 (Cavazzi). I have rejected both of these, so the appellants have failed to overturn the Minister's valuation at either date for Lasqueti ll. That should be the end of that matter — there is no reason to reverse Mr. Burnett's 1971 valuation. Without going into details it is supportable by the opposite perspective of the same rationale which overturns that of Mr. Cory. As I noted above whether Mr. Burnett's various valuations for the three parcels is precise and accurate becomes an irrelevant factor — even though it was the subject of most of the attack by the appellants. The simple fact is that there was no support presented by Mr. Cory for the heightened distinction in value per acre to be attributed to the waterfront, or that the waterfront itself provided increased current (1971) opportunity for residential development, over simple aesthetic or recreational purposes. Mr. Burnett did recognize that some value should be added for the waterfront, and he did so in my view with utmost consideration for the appellants. My acceptance of even Mr. Burnett's figures is moderated by my view that I have the greatest of difficulty based upon the information and data brought out at the hearing, in concluding that there was a market at $299,400 in 1971 for even the choice piece of the subject property — Parcel C of Mr. Burnett’s appraisal. In other words, if anything, the appraisal report conclusion of Mr. Burnett, may itself be too high, rather than much too low as contended by the appellants. The V-Day value of Lasqueti II will be $471,900 which includes the improvements.

We finally turn to the critical part of the Lasqueti Island proposition of the valuation at March 8, 1982 of Lasqueti I] by the Minister at $1,176,400, and now by the appellants at $435,000, which I have rejected. In view of the most satisfactory record Mr. Burnett has achieved at this hearing — his 1971 and 1982 Lasqueti I (lots 3 and 4) appraisals accepted by the Court, and his 1971 Lasqueti 11 (570 acres) accepted by the Court, it is with considerable temerity that I look at his conclusions with regard to the 1982 Lasqueti II appraisal. It can well be argued (and I have done so in other judgments) that there is no compunction on the Court to do so under the circumstances where little or no damage has been done to the Minister’s assessments by the appraisal evidence and testimony brought forward by the appellants — and that is the case here. But in view of the concerted efforts of the appellants to discredit the report of Mr. Burnett (as contrasted with making more supportable effort to establish values of their own) a review of Mr. Burnett's March 8, 1982 Lasqueti II appraisal would be in order. Leaving aside the "improvements" category which I have virtually ignored, because I do not think it is important in this case, the summary prepared by Mr. Burnett reads:

Land Value Estimate (March 8, 1982) Summary

As mentioned on page 24, the subject property required departmentalization for valuation purposes. The subject property's three areas have been identified as A, B and C. The previous pages contain the individual value estimates for each of these areas. The value estimates are summarized as follows:

Area "A"		$	111,900.00
Area "B"	=	$	240,400.00
Area "C"		$	789,300.00
Total		$1,141,600.00

The Land Value Estimate of the entire subject property, as at March 8, 1982, is estimated at:

$1,141,600.00

ONE MILLION, ONE HUNDRED AND FORTY-ONE THOUSAND, SIX HUNDRED DOLLARS

Obviously, the major component in the above, is that for Parcel C — $789,300. If it cannot be successfully attacked, then it would be difficult to do so with the other components. I believe that the quote from the report of Mr. Burnett directly serves the purpose and his methodology included selecting three comparables — which he used for both Parcels B and C, but with differing emphasis because of their physical differences between B and C, but our purpose will be served by referencing only the portions of his report which specifically deal with Parcel C:

Area "C" — Waterfrontage @ 272.17 Acres

		March 8, 1982
Sale #	5	6	7
Location	West Point	Richardson Cove	Squitty Bay
Sale price	$320,000	$385,000 (R)	$195,000
Sale Date	Aug. 11/80	Mar. 08/81	Mar. 12/81
Area (acres)	103.0	133.0	146.0
Price Per Acre	$3,106	$2,895	$1,335
*Time Adjustment	- 9%	- 12%	—12%
Time Adjusted
Sale Price	$2,826	$2,548	$1,175
*Size Adjustment	NIL	NIL	NIL
Indicated
Unit Value	$2,826	$2,548	$1,175
*Please refer to Sales Location Map, Addendum 'C'

★Time Adjustment — The above comparable sales predate the appraisal date by a total of 19 months. No repeat sales transactions on or about this period could be located. It is commonly accepted that in most markets there was [sic] some dramatic increases and decreases between 1980 and 1982. It is the opinion of the Appraiser that both increases and decreases in market values between 1980 and 1982 have been far less dramatic on Lasqueti Island as compared to other areas. Therefore, during 1980, an increasing time adjustment of one percent per month is applied. While a decreasing time adjustment of one percent per month for 1981 - 1982 has been applied to the above sales.

★Size Adjustment — No size adjustment was applied since, it is the opinion of the Appraiser that, the concept of a decreasing unit value to increasing parcel size ceases after 100 acres.

Sale #5 at the indicated unit value of $2,826.00 per acre is rated overall as comparable to that portion of the subject property described above. The topography is similar with an equally as good shoreline, that provides similar sheltered moorage.

Sale #6 at the indicated unit value of $2,548.00 per acre is rated overall as slightly inferior to that portion of the subject property described above. This is primarily due to the lower amount and quality of shoreline and sheltered moorage.

Sale #7 at the indicated unit value of $1,175.00 per acre is also rated overall as inferior to that portion of the subject property described above. This is due to this sale's rugged topography, lower quality shoreline and lack of sheltered moorage.

Correlation and Land Value Estimate

Sale #6 at $2,548.00 per acre and Sale #7 at $1,175.00 per acre set the lower limits of unit value to the subject property. This is due to both sales reflecting differing degrees of inferiority to the subject property. Sale #5 at $2,826.00 per acre is considered very comparable with no major offsetting inferior or superior features to the subject property. No superior sales transactions could be located. Most weight must be placed on Sale #5 with Sales #6 and #7 considered in a supportive context. Therefore, as at March 8, 1982, the unit value of the subject property is estimated at:

$2,900.00 PER ACRE

I note that comparables #6 and #7 above are the same as comparables #2 and #5 from the Cavazzi report (Exhibit A-15, supra). My conclusions, already reported in this judgment regarding Mr. Cavazzi's #2 and #5 is that an acreage (appraisal per acre) for the subject property would be $2,172 for the entire subject property — I can find little quarrel with Mr. Burnett attributing a value of $2,900 per acre to that which he regards as the choice portion thereof, particularly when he takes into account a third comparable #5 (above) which seems to fit into the same general pattern.

Mr. Johnson's basic assertion (by virtue of the submitted figures from him) was that the "high point” in value was in the early 1970s — 1971 to be exact, and while this may have increased somewhat over the subsequent years, it reduced dramatically between 1981 and 1982. That assertion of a dramatic crash, which would amount to 40, 50, 60 per cent in a short space of time simply has not been shown to be correct. Mr. Johnson's filed amount of $506,336 as the value of Lasqueti II on December 31, 1971 is not too far removed from accurate — we have agreed with the Minister at $452,200 for the land value alone and a total of $471,900. There is every indication (and some data were presented to prove it) that over the years 1971 to 1982 relatively normal — in some instances quite substantial — land value increases occurred on Lasqueti Island, just as they occurred in other places. I do not regard Mr. Burnett's valuation increases over this period (1971 to 1982) of some two to two and one-half times as being unreasonable, particularly as some additional demand for waterfront property may have developed. The total value at March 8, 1982 remains at $1,176,400 for assessment purposes, as concluded by the Minister.

The remaining item on the agenda is the parcel of property near Parksville, British Columbia. To set the stage for this review reference to the two descriptions of the subject property, as provided in the appraisal reports from the parties would be in order.

For the appellants — Appraisal report prepared by P.G. Jackson, FRI, RI(B.C.), AACI:

Description of the Subject Property

A rectangularly shaped lot containing 153.93 acres. Each side measures 2,700 ft. or thereabouts excluding the Esquimalt Nanaimo Right-of-Way which cuts across the southwest corner thereof. The land rises gently upwards from the north to the central plateau which gently increases in height towards the south boundary. Carey Creek cuts through the north half of the lot and Romnay Creek passes through the southeast quarter of the lot, close to the municipal waterworks.

The soil, with the exception of the stream beds and small swamps, is a mixture of marine type and well drained land which is stone free. The lot supports stands of alder and second growth timber with isolated mature tress and light underbrush. Old logging roads give easy access to all parts of the lot.

Morrison Road and Pym Road, which were fully paved and gazetted to 66 ft. in width, are close to the northerly boundary of the property. There is a road access close to the southeasterly corner. Renz Road and an unnamed road, both gazetted but unopen, terminate at the northerly boundary of the subject. Hirst Road was open as a "Class 6" Road from Finholm to Pym Road.

The subject was annexed by the Village of Parksville on the 2nd of December 1966. It had excellent subdivision potential having ample access to good roads and other services. The land is easily worked, has few rocks or steep grades, large trees or other features which might present difficulties. Two streams would make excel- lent park sites. The land rises gently in a number of directions affording views over the surrounding countryside.

The natural drainage is in the direction of the sewage line at Mollet Street and Morrison (Municipal records F177) which eliminates the need for pumping stations. A 10-inch sewer connection was under construction to Hirst Street at Pym Road to serve future subdivision of District Lot 16, this subject. There was a 12-inch water main on Morrison Street and Hirst Street within the northerly border of the subject. The subject has an actual water connection.

An examination of the sales from 1968 indicates a constant and increasing demand for lots in the area of the subject. The subject land is, therefore, considered ideally suited for subdivision into residential lots of 8,400 sq. ft. in size (By- Law #262 26th May 1969), served by sewer and water, allowing for parks, road and other items.

Historical Record Concerning the Subject Property

1. Annexed by the Municipality from Unorganized Provincial Territory on the 2nd of December, 1966.

2. Lane L. Johnson purchased the lot by way of an agreement for sale, Document #350790 G November 14th, 1967, Document 350790 G from Brian Tyner an elderly out-of-town vendors [sic], who were [sic] represented by an agent and by Ruby Frances, Moggridge, — as Attorney in Fact.

The property was registered in the name of L.L. Johnson on March 2nd, 1970. Document #49879 W.

3. 1976 District Lot 16 was subdivided by Plan 31745.

4. 3rd August, 1979. 3.8 Acres sold under threat of expropriation to the Town of Parksville at market value $37,354.19 or $9,830 per acre including timber which had been valued by T.B. Scott, Timber Cruiser, at $5,850 or $1,539 per acre.

5. No change in property from 1971 to 1981, except for selective logging to improve access.

6. District Lot 16, including Plan 31745 sold January 1981 at $2,500,000.00.

Zoning

Municipal By-law 295 — December 7, 1970

Residential II — Rural Low Density

The use of land, buildings and structures is restricted to: —

(a) single family dwellings;

(b) schools and churches;

(c) parks and playgrounds;

(d) greenhouses, nurseries and horticulture;

(e) golf course;

(f) buildings and structures accessory to the uses permitted in clauses (a) and (e) inclusive.

Highest and Best Use

In 1971, the surge of urbanization was evident.

The value of land was increasing at a greater rate than any other investment.

There was no technical or legal reason which would prohibit the subdivision of the subject property when it was economically ripe.

Therefore, the highest and best use of the subject property in 1971 was a land bank.

For the respondent — Report prepared by A.R. Burnett, AACI:

Physically there was no road access to the subject property. Interpretation of the aerial photograph on page 4 suggests that trails to the subject property existed south from Pym and Morrison, west from Hirst Avenue and east from the E&N railway line along the southern boundary of District Lot 21. Also apparent, is a trail along the full extent of the subject property's eastern boundary.

The topography of the subject property is described as a slight and increasing elevation to the southwest. Only at the northern side of the E&N rail line does the subject property's elevation increase more rapidly. Also, within this area, some wetlands are located. This is caused by ground water run off that originates south of the E&N rail line and west of the subject property. This area also results in the start of Carey Creek that flows in a northeast direction to Parksville Bay.

. . . The combination of a relatively shallow soil and moisture-deficient climate indicates that irrigation is needed for maximum crop yields. The Dashwood series is not considered good for agriculture use. The stoniness, coarse texture, low fertility and low moisture-holding capacity are factors militating against development of this soil. This soil is best suited for forestry growth due to the presence of a perched water table that is maintained well into the summer months. Forestry cover of the subject property consists of Douglas Fir, Hemlock and Alder. The subject property cover appears to be second growth to the northeast of the E&N rail line and some original stands along and to the southwest of the E&N rail line.

Under the village of Parksville zoning By-Law #295, the subject property was zoned Residential II (Rural Low Density) as at December 31, 1971. The Permitted Uses (Section 2.2.0.2) for this zoning coverage are restricted to the following:

1. Single family dwelling;

2. Schools and churches;

3. Parks and playgrounds;

4. Greenhouses, nurseries and horticulture;

5. Golf courses;

6. Buildings and structures necessary to the uses permitted in clauses 1 to 5 inclusive.

The minimum site area (Section 2.2.3) per dwelling unit except when applied to a comprehensive development is as follows:

1. 7,200 sq ft with community water supply and community sewer system.

2. 18,000 sq ft with community water supply but no community sewer system.

3. 21,780 sq ft with neither community water supply nor community sewer system.

Since the subject property was under no program of utilization as at the appraisal date, no conclusions are necessary in the areas of legal use and conformity to Zoning By-Law #295.

Location

While the direct road access is not present, proximity to existing road, services and developing residential areas results in the subject property's northeast portion to be considered in a good location. However, the location of the E&N rail line and associated cost of access to the southwest portion suggests that this area is very nearly land locked. Therefore, this area's overall location is considered poor.

Zoning

Well established and enforced zoning restrictions that are not felt to change in the future.

Size/Shape

The size and shape of those portions of the subject property northeast and southwest of the E&N rail line do not affect their utility when considering both existing and alternative uses.

Topography

The gentle increasing elevation over the majority of the subject property does not hinder either the existing or alternate uses. Consideration of alternate uses must take into account the existence of wet areas located northeast of the E&N rail line. Existing Use

There is no apparent marketable program of utilization over the entire subject property as at the appraisal date.

Surrounding Uses

Small vacant and improved acreages to the north and northeast. Large undeveloped acreages to the east, south and west.

Potential for Alternate Uses

Due to the location of the E&N rail line, the potential for alternate uses varies between the northeast and southeast portions of the subject property. The presence of smalll acreage holdings northeast of the subject property, location of services, access and demand for residential lots, suggest the short term potential for the northeast portion of subject property is poor. However, the long term potential for an alternate use is considered favourable. Due to the somewhat land locked situation of the southwest portion, both the short and long term potentials for an alternate use are considered poor to fair. This area’s potential is directly linked to the pace of development over the subject property's northeast portion.

After considering the foregoing factors, the Appraiser is of the opinion that the Highest and Best Use of the subject property, as at December 31, 1971, is:

LARGE ACREAGE HOLDING PROPERTY

PENDING FUTURE RESIDENTIAL SUBDIVISION DEVELOPMENT

Clearly there were areas of disagreement between the two experts and these were further highlighted during testimony with regard to such matters as which (if any) roads, water and sewers were on or near the property at December 31, 1971, and to what degree the existence (or absence) of these elements should affect the valuation of the property. I quote a portion from the report of Mr. Jackson:

The subject property was one of the largest unsubdivided parcels lying within the boundaries of the Village of Parksville.

The necessary municipal sewers, water and road access were available to the subject.

There was no legal or technical reason which would frustrate the subdivision.

And from the report of Mr. Burnett:

Services to the subject property as at December 31, 1971, were non existent. The closest sewer and water lines were located in the 600 block of Morrison, which is approximately 800 feet north of the northeast corner of the subject property.

For the reasons which I shall deal with later on, I am not at all sure that the total availability of services, or the total lack of them is the very vital factor which Mr. Johnson feels it to be for the purposes of the decision of this Court. I am quite prepared to agree that access to or availability of water, services and roads would be an asset — and I am quite prepard to agree that at least some of these facilities were at or near the subject property on December 31, 1971. I am equally satisfied that the appellants did not prove that all of the services they contended were there, were in fact there, and certainly not in size or capacity or condition to fully service a subdivision — which is the main proposition of Mr. Jackson. Mr. Jackson's methodology in approaching this subject property was to analyse four sales of undeveloped property which occurred in 1972 and 1973, ranging from 40 to 114 acres, calculate amounts to be added to the raw land costs for as he called it "cost to bring said property(ies) to the standard of subject", made an upward adjustment of 20 per cent for "the lack of usual amenities" on three of his comparables, and a downward adjustment of 20 per cent on his comparable #4 because it was “beside an existing subdivision”, take an average and set the 1971 value of the subject property at $5,650 per acre — an amount of $869,700. A further “corroborative” study was done by Mr. Jackson to show that there was feasibility for a subdivision on the property in 1971.

Mr. Jackson forgot two important things! First, that we would not likely be here looking at this assessment of income tax if Mr. Johnson's understood purpose objective and conduct supported a conclusion that he had purchased the property for the purpose of selling it for subdivision. I am more than moderately of the view that it was the intention of Mr. Johnson to do so — nothing he said or did detracted from that opinion, and virtually everything he said or did led the Court to conclude that objective (selling for subdivision) to be the only realistic purpose in his mind. I quote from direct comments made by Mr. Johnson to the Court:

Q. Now you purchased the property in 1967 and finalized the deal in 1970. Why did you buy it?

A. I bought it to live on. I've been living on farms, on Lasqueti Island. When we moved to Parksville, I had bought that property. I recognized the potential down the road, but I bought it to live on temporarily or in the meantime until the subdivision, encroached or made it more feasible to develop.

And at that time we put up a barbed wire fence and we had, two horses for the girls and one or two calves and we fed them daily. We had hoped, we had planned that down the road to build a house there, and if and when progress came, we would progressively subdivide it. In the meantime we would enjoy it as a piece of farmland.

Q. You would subdivide it or sell it for some form of subdivision?

A. Whatever came first. The cost of servicing was beyond my financial means and it would be necessary to sell it.

I was not apprised during the hearing of anything which inhibited Mr. Johnson and his family from moving into the Parksville property in 1970 when he obtained title. In fact, made aware of the difficult conditions under which the family lived on Lasqueti Island, if indeed Mr. Johnson ever intended to use the Parksville property as a home site, it would have been understandable had he done so at an early date. All the data point to one conclusion — that Mr. Johnson saw an opportunity to acquire at a low price ($20,000) in 1970, a large parcel of property in Parksville already with some services, and then to hold it for later sale at a profit. If that were the issue before the Court (and it is not) I would not hesitate to regard the profit arising out of the sale as on income account, based on the evidence provided so far. That prime proposition of Mr. Jackson that this property was in 1971 a subdivision property just waiting for Mr. Johnson to sell it (for $869,700) to a developer undermines the very purpose for which this hearing is necessary. I do not accept his basic assertion in any event that the property was as ready for development and building in the short run as he suggests that it was in 1971, even though I find little other purpose for it in the long run in Mr. Johnson's hands. It is only this tenuous position that the property was not yet a "development property" (which is directly opposite to Mr. Jackson's assertions) that leaves any shred of foundation for the assessments at issue having been struck on the “capital” as opposed to on "income" basis.

The second point that Mr. Jackson has neglected, goes back to the last portion of the immediately preceding paragraph. Mr. Jackson simply did not show there was any reasonable demand for the development of such a subdivision. In my view to have put on the market at Parksville two or three hundred more houses for sale would be completely unrealistic. Mr. Jackson did present in his report, a glowing picture of what he remembers as the prospects and hopes for the area in 1971, and he presented population figures which indicate a consistent increase in the town. But when related to developments under way, or planned, which he also notes — including some of the properties he selected as comparables — such a thought — an economically viable major housing subdivision — was far far premature in 1971 — and it may still be as of this hearing, since little has changed since then.

No, Mr. Jackson's valuation takes into account factors which did not exist in 1971, and casts them in an imminent light. That is not satisfactory.

I would repeat the basic conclusion in the report of Mr. Burnett:

As with the subject property, it is my opinion that there was no immediate subdivision potential apparent in any of the comparable sales. [Emphasis added.]

Certainly Mr. Burnett has made some allowance for the subdivision potential of the property in 1971 — it would appear even as an expert, he could see no other reason for Mr. Johnson buying and holding the property. I have certain minor reservations, which leave me with the thought that the appraisal figure of $148,300 is not very generous, and that some concessions could have been made, but nothing of substance came out under questioning of Mr. Burnett, and I would have no real reason or basis for making any changes. It is a bit unsettling though to accept as an appraisal amount — $452,200 for the 570 acres of rugged isolated, underdeveloped land at Las- queti II for the 1971 valuation (see above), and only an amount of $148,300 for 153 acres on the mainland (of Vancouver Island) in the town limits of Parksville, already serviced to some degree. Obviously the two of these are not comparable, but I have the feeling that if I were offered the 153 acres at Parksville for $148,300 or the 570 acres on Lasqueti for $452,200, I would take the Parksville very quickly, and regard it as the better bargain of the two. But I do not follow a practice of simply setting some alternate figure from rather vague reasons — the Solomon approach does not appeal to me. In this case the appellants have had ample opportunities to dissect and diffuse the Minister's appraisal, and present a more realistic one. They did not do that, but rather chose to present a totally unrealistic one, which in its premise contained potentially added problems as noted above in the comments regarding the “capital” or "income" nature of the Parksville property.

The December 31,1971, valuation for the Parksville property will remain at $148,300. Further, there has been no evidence presented which would warrant adjustments in the valuations used in the assessments for either of the Lasqueti Island properties.

The appeals are dismissed.

Appeals dismissed.