Byers’ Dry Goods Limited v. Minister of National Revenue, [1983] CTC 2011, 83 DTC 27

D E Taylor:—This is an appeal heard in Toronto, Ontario, on September 23, 1982, against an income tax assessment for the year 1976 in which the Minister of National Revenue established the fair market value of a certain parcel of real estate (the subject property) at V-Day to be $127,000. In so assessing, the Minister relied, inter alia, upon sections 3, 38(a), 39(1 )(a), and 40(1 )(a) of the Income Tax Act, SC 1970-71-72, c 63, as amended, and subsection 26(3) of the Income Tax Application Rules, 1971.

Members of the Byers family and/or the appellant carried on a dry goods business from the same location, the property municipally known as 569- 571 Danforth Avenue, Toronto, Ontario, for about 60 years until 1975. In November 1974, the appellant sold the said property for a sale price of $277,500. The appellant says that it realized a capital gain of $24,610 on the disposition of the said property, computed as follows:

Evidence

Appraisal reports were submitted on behalf of the appellant by Mr John D Weir of R Hilton & Associates and on behalf of the respondent by Mr Wayne J Miller, an appraiser with Revenue Canada. For the appellant the report arrived at $162,000, and for the respondent $127,000. it was established during cross-examination of Mr Weir that, at the time he performed his review and analysis leading to the report, he had not yet completed his academic training as an appraiser although he was employed by the firm in appraisal work. The report, however, was co-signed by the principal of R Hilton & Associates.

There are certain critical comments to be found in each report:

By Mr Weir:

Extensive renovations were carried out to the entire building in 1968. We have no cost figures pertaining to the renovations, however we have viewed photographs taken at various stages during the construction. Considering the major structural and cosmetic changes carried out, we feel that costs must have been in the range of $30,000. We understand that some further alterations have been carried out by the current owner.. .

A search of the surrounding area revealed sales of properties which were somewhat similar to the subject.

All of the foregoing sale properties are considered to be physically inferior to the Subject property. It is our view that upward adjustments of approximately $1,000 to $1,200 per front foot should be applied to the comparable sales to account for this factor. Other minor adjustments have been made for time, location and motivation. Considering that the unadjusted sale figures show a range of $3,160 to $4,741 per front foot, we have formed the opinion that the subject property reflects a rate of $5,100 per front foot.

By Mr Miller:

Description of the Subject Improvements (Page 6)

The subject improvements consist of a 60 year old 2 storey brick building with a one storey addition comprising a gross floor area above grade of 4874 sq ft. There is a basement area under the northern section of the building which has a gross area of 1902 sq ft.

The building has a brick foundation, brick load bearing walls and a flat roof with a far end gravel finish. Heating is via oil fired furnace and hot water radiators and lighting in the ground floor area is open strip flourescent light fixtures.

The interior finish on the ground floor and second floor is a mixture of tile and hardwood floors, plaster walls and acoustic tile and plaster ceilings. There is no finish in the basement area other than a 2 piece washroom.

As at the date of this appraisal the first floor was utilized for retail sales and was improved with the standard aluminum and glass store front. The second floor was divided to provide apartment units.

According to data available the improvements were in average condition at the date of this appraisal.

Extensive renovations have taken place since the property was acquired in 1975 in the form of interior finish, air conditioning and an altered store front.

Estimated Value VA the Market Data Approach

Prior to adjustments the seven sales included in this report provide a range in value for the subject property of $2,400 to $5,050 per Front Foot of land.

After considering location, date of sale, building size and condition etc the sales indicate that the subject property would have a market value of 3,800 to $4,000 per Front Foot of land.

On the basis of $3,800 to $4,000 per Front Foot the market value of the subject property is

$3,800 * 31.75 feet	$120,650
$4,000 X 31.75 feet	127,000

After considering the data available I am of the opinion that the market value as defined in this appraisal of the subject property as of December 31, 1971 is $127,000.

During the presentation of Mr Weir’s report and testimony, Mr Miller was excluded from the hearing at the request of counsel for the appellant. This exclusion also extended to testimony provided by Mr Allan Byers, a shareholder and director of the appellant corporation who not only identified the property through certain photographs which were introduced, but described its condition both before and after certain renovations which, Mr Byers stated, were done in 1968 and which were very substantial — $25,000 to $30,000 in labour and materials. No documentation other than the photographs was presented in support of either the renovations or the cost. In summary, Mr Byers stated that the subject property by 1971 was the best in the general area and the most desirable — no other comparable store had done the extensive renovations carried out there. This point was critical in the view of counsel for the appellant (and it was the reason for the exclusion of Mr Miller earlier in the hearing) since counsel contended that Mr Miller had, in effect, “assessed the wrong property” because it was not evident in this report that he had taken into accout a major plus factor — that the renovations to the property had been done before V-Day and not in 1975, after the sale by the appellant.

Argument

In a very efficient manner, Mr Cappell provided the Board with a summary of the points he wished to raise in argument and, since this summary is not only detailed but concise, it should be quoted:

Notes for Argument on Behalf of Appellant

— South Side

— Best Location

— Renovate

— Proven Premium Value

Same approach in two appraisals. Obviously market data on basis dollars per foot frontage is correct.

Miller’s comparables 4, 5, and 6 are off the mark — but his figure of $127,000 would nevertheless be in the range of value in 1971 if the subject had not been renovated until 1975. Page 6 all wrong.

Question of bias Miller.

Weir’s appraisal $162,000 sensible.

But neither appraiser could know of special value as a result of points made by Mr Byers.

Submission: $175,000

for the following reasons:

1. No weight to Miller’s appraisal because —

(a) he appraised the wrong property — see page 6 of his report; and

(b) his “unconscious” bias is flagrant.

Laycock 78 DTC 6349 at 6353 (FCTD)

Brunet 82 DTC 1308 at 1309, 1311, (TRB)

— although his figure of $127,000 may be within a reasonable range for the property which, mistakenly, he did appraise.

2. Weir’s appraisal of $162,000 should serve as a base.

3. The value should be raised from $162,000 because of the special factors here which could not be noticed by any appraiser:

(a) South side

(b) Best Location

(c) Renovate

(d) Proven Premium Value.

During argument, counsel for the appellant dealt vigorously with what he saw as bias on the part of Mr Miller resulting from his position in Revenue Canada while Mr Weir’s point of view could only be regarded as objective, and I quote:

First, you cannot attribute much weight to Mr Miller’s appraisal for two reasons. First, he appraised the wrong property in a manner of speaking.

Second, his unconscious bias is flagrant. It is impossible for a civil servant who must work in a group of 18 men day after day for his career to pick up a colleague’s appraisal of $102,000 and go out and do another appraisal of the same property and come up to $170,000 or $160,000. He can’t. You will notice his appraisal, he admitted that his internal manuscript appraisal wasn’t even $127,000. He has boosted it since then. His internal appraisal was in a range of low 120’s to 127. Obviously he has doctored it to make it come out at $127,000 when he sees there is going to be an appeal. He has doctored it. He knows darned well his colleague has made a dreadful mistake. You can’t buy a shop on the Danforth in this condition in 1971 for $102,000. You couldn’t buy an unrenovated shop in this particular location for $102,000 in 1971, although I might say again his figure of $127,000 is reasonable for the property which mistakenly he did appraise.

Look at Weir’s approach. Weir’s approach — he came out to $4,000 a foot also, if you ignore the renovations. Weir said, “Look, I have read Miller’s report. He doesn’t seem to realize this property had been renovated. Unrenovated I agree with him at $4,000 a foot. I have got to go up from that: How much do I go up? Ideally I find out how much to go up by going out on the same strip and finding other properties that are renovated, but there weren’t any. The truth of the matter is there were no properties comparable to this one because the others hadn’t yet been renovated. Obviously I have to go up. I have to take a gut feel. . . How much do I go up? He went up about $35,000. Not out of line.

I put to you Weir’s appraisal should serve as a base. If you want to, you can use the $127,000 (Miller’s) as a base. Make an allowance for the renovations and that will bring you into the $160,000’s. Then you have got to allow for some special factors which no appraiser could know.

The significant comments by counsel for the respondent were:

Now, with all respect to Mr Byers, he is hardly a person who is not interested in the outcome of these proceedings and, with all respect as to his own beliefs, he is also not qualified to give real estate values and he has no practical experience to give real estate values . ..

Now, with respect to his evidence on renovations, it was helpful to the extent that it went. With respect, Mr Chairman, I was surprised that it wasn’t of greater depth and of more help. Certainly no one had any greater knowledge, I would assume, of what occurred at the time and all he had was a rough estimate, I would assume, of what he thought were the costs and the pictures, and an indication that one of the floors had been restored.

Now, it is interesting to note that Mr Weir made it quite clear that he had no basis at all on which to give any estimate of value. He indicated $30,000 in his report and we all know he made it quite clear that he had no basis for that. In my respectful submission, if there had been any real evidence of what the cost had been, that evidence would have been made available to Mr Weir and the Board. That evidence was not made available. In my respectful submission, there is just no reasonable evidence before the Board from which any inference could be drawn concerning what it might have cost to make whatever renovations or repairs were done in 1968.

. . . to put it charitably, Mr Weir is somewhat underqualified to give evidence before this Board.

. . . Mr Weir said that he gave a premium price for the property, went from $4,000 to $5,100 because of a gut reaction, his gut feeling. There appeared to be no basis in his background to establish any gut reaction.

There was no evidence led by the appellant of improvements in its own comparables which would somehow indicate that these were not properly accounted for in the market. All we had was the cursory approach by the appellant’s appraiser.

Findings

To deal first with all the comments regarding the qualifications of the witnesses to give expert testimony, I would refer to a quotation from Fambau Limited v MNR, [1982] CTC 2228; 82 DTC 1027 at 1034:

. . . I find little merit in the argument that an appraiser, with otherwise acceptable qualifications on one side, is unable to overcome his environmental and occupational constraints in order to provide an independent opinion, while another appraiser, on the opposite side, is able to do so with ease and certainty. In my view, and certainly in the circumstances of this case, the qualifications and competence of the author of a report to express a reliable opinion may be demonstrated more adequately in the examination of the report itself than in a detailed examination of the author. As a general rule, possible exposure to imperfect, even inaccurate information and opinion, is a risk which the Board must often take and weigh as a factor in arriving at a decision on the merits of a case.

In the instant matter, I would suggest Mr Cappell is on very shaky ground to question either the bias or the competence of the Minister’s appraiser, in view of the modest background in the subject acknowledged by Mr Weir. In any event, the Board has examined this matter in the light of the comments made in Fambau (supra) and attributed to each report the value it appears to deserve.

At this juncture it would be useful to note a comment from a recent decision of the Board, Nan M Goodwin v MNR, [1982] CTC 2675; 82 DTC 1679, at 2676 and 1680 respectively:

. . . I have not been asked to act as “arbitrator” in the dispute, and arrive in some manner at a “fairer” valuation. The Board’s primary role, as I see it, in a valuation case, is to decide whether the evidence presented by the appellant supports a different valuation than that used by the Minister in assessing. The mechanism chosen by the appellant in this appeal, and in most such appeals, is to present evidence in support of a different valuation — in this case $6,000 per acre. Unless there is good “prima facie” evidence to support that alternative valuation, I am not of the opinion that the Board is required to consider at all whether the valuation used by the Minister is correct or incorrect.

Looking at the matter from that perspective, the facts are simple:

— No Valuation-Day appraisal had been made in 1971 or early 1972 (as at V-day) — an understandable risk taken by the taxpayer at that time, but nevertheless one which is at the base of the dilemma now facing the company;

— The appellant attributed a value to the property of $240,000, apparently based solely on a subjective view, on filing its tax return;

— The report of Mr Weir was entitled “Letter of Opinion and Valuation Analysis” (not “Appraisal Report” as in the case of Mr Miller);

— Mr Weir’s report arrived at an unadjusted amount of $3,160 to $4,741 per front foot;

— Mr Miller reached $2,400 to $5,050 per front foot;

— Mr Miller provided reasons for minimizing the impact on his conclusions of the highest and the very lowest comparables in his list, and effectively related to two medium-range sales, both included in the report of Mr Weir — but in Mr Weir’s report they are the two highest comparables:

— From these sales, after making adjustments for differences with the subject property, Mr Miller arrived at a figure of $4,000 per front foot, while Mr Weir arrived at a figure of $5,100 per front foot — after taking into account some $30,000 in improvements unique to the subject property, allegedly missed by or unknown to Mr Miller. That would mean that Mr Weir’s net amount comparable to that of Mr Miller would have been about $132,000, or some $4,157 per front foot.

— Finally, counsel for the appellant suggested in argument that a more appropriate figure would be $175,000, or some $5,511 per front foot.

Dealing first with Mr Cappell’s $5,511 per front foot, obviously the Board has no evidence to support it — it would appear that Mr Cappell has a “gut feeling” of some sort that it would simply be appropriate. I do point out, however, that in my view, based on that final proposition of counsel, the Board might be completely in order to follow Goodwin ( supra) and dismiss the appeal since, as noted above, there is no support at all, let alone substantive support, for that number of $175,000, even though counsel has clearly moved far away from the appellant’s original position of $240,000.

With regard to Mr Weir’s $5,100 per front foot, counsel for the respondent has pointed out in argument all that need be said — Mr Weir has no basis upon which to conclude that $30,000 was spent on the renovations, other than the comments of Mr Byers. For all the Board is aware (or for that matter, Mr Weir), the subject property may have been in a sad state of repair before the alleged renovations, and these may have only served to bring it up to a reasonable condition. But what is more important, counsel for the appellant attributes to Mr Weir also some “gut feeling” that a figure higher than even the highest possible comparable ($4,741) should be attributable to the subject property.

I readily admit that the respondent’s valuation of $127,000 appears modest to me, just as it appears to be to counsel for the appellant. I tend to believe that the subject property had been improved to a degree somewhat greater than the average of the surrounding properties — but whether that was to the extent of $30,000 or not I do not know, and whether those improvements were considered as an advantage by the purchaser I do not know. Further, even if it could be shown (as counsel asserts) that a “premium” was paid for the property, I could think of at least one possible reason for this other than the alleged “mint” condition of the property. It was a recognized and established clothing store — granted a ladies’ clothing store, but nonetheless clothing — and, to the degree the purchaser might consider the established customer practice of at least coming to that location as an asset even greater than the condition of the building, I do not know.

Accordingly, my own impression as to value can only be described as a “gut feeling” also, and it would be no more proper for me to accede to it when making a decision than it would be to accept an equally subjective expression of either the appellant’s appraiser or counsel’s, as a substitute for an objective appraisal. The simple fact is that the appellant has not presented to the Board an appraisal report with supporting evidence and testimony which would reasonably lead to acceptance of even the specific amount proposed by Mr Weir as the valuation for the subject property — $162,000. Any possible deficiencies in the Minister’s appraisal report fade into irrelevance when that hurdle has not been overcome.

Decision

The appeal is dismissed.

Appeal dismissed.