John J Neder v. Minister of National Revenue, [1980] CTC 2031, 80 DTC 1040

Delmer E Taylor:—This is an appeal against several items in income tax assessments for the years 1974 and 1975. It was heard in the City of London, Ontario, on November 8, 1979. At the commencement of the hearing, counsel for the appellant agreed to the dismissal of all items in dispute save two—the firse dealing with the valuation of $22,000 at December 31, 1971 placed on a certain parcel of real estate (the subject property) by the Minister of National Revenue, and the second the “disposal costs’’ of the subject property determined by the Minister of National Revenue at $1,530. It was the contention of counsel for the appellant that the proper figure for disposal costs was $2,530. On evidence immediately supplied, counsel for the respondent conceded the point and requested that, whatever the determination of the Board on hearing the appeal with respect to the valuation issue, the decision refer the $1,000 adjustment in the taxpayer’s favour back to the Minister for reassessment. Therefore, the sole issue with which this decision will be concerned is that to settle the V-day (December 31, 1971) value of the subject property.

In the original reply to notice of appeal, the respondent relied, inter alia, on sections 3, 38, 39, 40 and 54, subsection 248(1) and paragraphs 12(1 )(a), 12(1)(h), 12(1)(n) and 18(1)(h) of the Income Tax Act, SC 1970-71-72, c 63 as amended and subsection 26(3) of the Income Tax Application Rules, 1971.

Background

In April 1971, the appellant purchased the subject property, namely an 105-acre farm being lots 13 and 14, Concession 8, Zone Township, in the Province of Ontario, known municipally as RR # 1, Bothwell, for a consideration of $10,000. A Class 6 asset, namely a pre-cut cottage, was added in 1971 at a cost of $5,969.73. On April 30,1975, the appellant disposed of said property for a consideration of $45,000.

Contentions

For the appellant:

. . . the V-day value should be $45,000, . . . .

For the respondent:

The fair market value of the subject property as at December 31, 1971 was $22,000.

Evidence

Mr Alex Bodon, a real estate agent, testified that in 1971 he had approached the appellant to see if he had any property for sale, was told of the subject property which was about 50 miles from London, Ontario, and that the price would be $50,000. There was no formal real estate “listing” of the property by him, he did advertise it in the local newspaper and put his business sign on the property. He did not have available a copy of the newspaper advertisement to present to the Board. He had received an enquiry, met a man whose name he does not remember at the site of the subject property, received a signed offer of $48,000, a $500 deposit cheque, the offer calling for $10,000 down and the appellant to hold the balance by way of mortgage. On presentation to Mr Neder, Mr Bodon was told that he wanted all cash. There was no written counter-offer by Neder, Mr Bodon’s client did not accept the counter-proposition to pay all cash, the $500 deposit cheque and the offer to purchase were destroyed, and now there is no record of the proposal. Mr Bodon did not visit the property again, the appellant told him in about a month that he was no longer interested in selling it, and that was the end of the matter for him. He thought the property had been worth $45,000 in 1971 and knew it had sold in 1975 for that same amount, but it was his view that such farm or hobby farm property in that area had not increased in value in the intervening four years (1971-1975).

Mr Neder stated that he had been looking for some property in the area in 1971, saw a real estate sign on the subject property or read about it in the paper (he wasn’t certain which), met the dealer there who showed him a “listing” for about $20,000 or $22,000 by the vendor, offered the agent $8,000, had it turned down with a counter-offer of $12,000 proposed, and made a final offer himself of $10,000 in cash which was accepted. He gave no explanation for turning down the subsequent offer from Mr Bodon to sell at $48,000, or for wanting all cash at that time.

Mr Patrick Fleming, evaluator with Revenue Canada, presented his report and summarized its contents. His conclusions were:

As a result of my investigation and analysis, it is my opinion that the value of Pt Lot 13 and 14, Con 8 is $22,000, all in the township of Zone County of Kent.

Argument

Counsel for the appellant placed major emphasis on the view that there was a critical point of law to be determined arising from the evidence of Mr Fleming—in substance that the valuation for the Minister had not checked into and determined the particular circumstances surrounding each sale Fleming had used as a “comparable” in arriving at his evaluation. This view, according to counsel, was based upon the recent decisions of Re Debellen Investments Ltd and Regional Assessment Commissioner, Region No 14 et al (23 OR (2d)—1978 at 307) and Karam v National Capital Commission— 1977 at 327. Two quotations therefrom are provided:

Re Debellen Investments Ltd (supra) at 309:

With respect to the sales of lands located within the scope of the Regulation all examples used by the assessor as being comparable to the subject lands involve transactions wherein Her Majesty the Queen was the purchaser. There was no evidence before the Board about the circumstances surrounding each of these transactions which on their face appear to me to be unusual from the point of view of adopting them as comparable for the purpose of determining the market value of the subject property. I cannot see how the Board could have known, without further evidence, what bearing these sales had on the issue of market value of the subject lands keeping in mind the definition of ‘market value’ as contained in the Act. In my opinion, the Board committed an error in law in admitting evidence of such sales and in considering them in arriving at their decision without further evidence about the circumstances of each sale referred to and how it related to the market value of the subject lands.

Karam v National Capital Commission (supra) at 329:

5. The significant fact in this connection is that knowledge of the ‘comparable’ sales on which the experts based their opinions in this case appears to have been, without any significant exception, obtained from copies of conveyances of agreements with no accompanying information as to the surrounding circumstances or the purposes for which the properties were acquired. That being so, it is impossible to say that the values established were for agricultural, subdivision or speculative purposes. It follows that it is impossible to say that the value that the learned Trial Judge used as a base was not for an estate lot subdivision purpose or, in any event, was less than value for such purpose.

Further, counsel relied upon the fact that the appellant’s evidence regarding the offer to purchase in 1971 had been given under oath, was uncontradicted and had been supported by the evidence of Mr Bodon, also given under oath. According to counsel, this fulfilled the conditions to be found in David Friedman, Hyman Friedman v MNR, [1978] CTC 2809; 78 DTC 1599, in which the Board accepted as persuasive evidence an offer to purchase at $1,500,000, as opposed to the Minister’s valuation of $861,000.

Counsel’s position was summarized in this way during the course of the hearing:

. we have no evidence of the circumstances. I asked Mr Fleming in cross- examination if he had any knowledge or information about the circumstances surrounding each one of these sales and his answer was—No, I do not.

... I submit . . . The Federal Court of Appeal . . . said . . . very clearly that you should reject comparable sales unless there is evidence of the surrounding circumstances.

. . . I am suggesting . . . that Mr Bodon has given his evidence in a very straightforward manner. He was asked about his opinion as to whether properties have gone up much in this type of property from ’71 to ’75 and he indicated, as I recall his evidence, that they had not.

it was a bona fide arm’s length offer. Unfortunately, we do not have it, but we have Mr Neder’s and Mr Bodon’s evidence which corroborates (it).

. . . but I submit you have the uncontradicted, unshaken evidence of both of these witnesses, Mr Bodon who has no interest in these proceedings whatsoever. He didn’t even make a commission out of the arrangement. One can say I suppose that Mr Neder having an interest in this, in the results of this appeal, he is not totally unbiased, but his evidence is corroborated in every material respect with Mr Bodon. Mr Bodon gave his evidence first.

We have the additional evidence of Mr Neder. First he got a good buy on the property he says that it was listed for something in excess of $22,000 and I submit he does have some difficulty with the language, but he is clear on the evidence that I asked him in chief whether it was a listing and he said yes. He then changed, I think he didn’t understand my friend’s questions, but the latter came out that because there was a listing book and the sales were negotiated through a real estate broker, so I think the inference is that the property was listed in ’71 and he went through a broker and bought it for $10,000.

Accordingly and in summary, Mr Chairman, I submit three things. Firstly, as a matter of law you should reject the Fleming appraisal for the reasons set out in the Debellen case and in the decision of Karam and the National Capital Commission.

Secondly, I submit with respect that you should follow the fairly recent decision of Mr Cardin, the Chairman, in the Friedman case to find that an Offer to Purchase on acceptance can be evidence of the value of the property at valuation day.

And thirdly, that you should accept the evidence, uncontradicted, unshaken evidence of the witnesses Neder and Bodon that there was in fact an offer presented and rejected in 1971.

Counsel for the respondent pointed out the areas of the oral testimony of both Bodon and Neder which left some questions unanswered because there was no physical corroboration at all, when it might reasonably be expected some corroboration would have been provided—eg the listing, the newspaper advertisement, the name of the alleged interested purchaser in 1971, etc. In counsel’s view, the Board was being asked to place great weight on such testimony when no valuation report at all had been presented by the appellant. In the Friedman matter (supra), there had been provided to the Board a formal documented offer to purchase and the reasons for its rejection by the appellant at the time it was made were reasonable and logical —not a situation counsel was able to see in this instant case. Counsel also noted with respect to the Debellen matter that the distinction was that the Queen had been the purchaser of one type of land but not the other; and that a distinction in both purchaser and use was also easily discernible in the Karam matter (supra).

Findings

Taking the points made by counsel for the appellant one at a time, the Board notes that it is difficult to draw any comparison between the cases of Karam (supra) and Debellen (supra) on one side and that of this appellant on the other. The essence of counsel’s point in this matter is that the professional evaluator bringing forward evidence for the Minister must ensure in so doing that all factors relevant to comparable sales apply to the subject property and, to that end, he is required to examine in detail a wide range of such factors which might impinge upon the conclusion. I find nothing in the referenced judgments to support such a constraint and no reason therein to burden the Minister’s witness with that total responsibility. When the appellant chooses not to present a professional evaluator (as in this case), in my view it would be for him to show that there were factors taken into account or left out in the Minister’s evaluation which rendered it worthless, or at a minimum, warranted its modification. Nothing of this order was presented to the Board at the hearing on behalf of the appellant, and the Board has no reason to conclude that there is anything inadequate or unsuitable for comparison purposes about the material provided by the Minister’s witness. That there could be or should be such significant distinction is for the appellant to underline—which was done in the Karam and Debellen cases (supra) by the affected parties. As the basis for the Minister’s evaluation, Mr Fleming’s report is accepted and must be judged only against the different information provided by the appellant in support of his own valuation amount.

Turning to this point of the testimony—the statements of the appellant and Mr Bodon are not accepted by the Board as evidence of the proposed real estate offer and sale in 1971 since they are not accompanied by any proper corroborating documentation. A comment given in a recent decision of the Board in P Litvinchuk v MNR, [1979] CTC 3141; 79 DTC 899, with reference to credibility might bear repeating.

It is my view that the Tax Review Board Act provides little if any latitude for the exercise of discretion by the Board in deciding an appeal even though there may be flexibility and informality in the hearing procedures. Acceptance by the Board on the basis of credibility alone of simple statements offered by an appellant, without corroborating evidence, comes exceedingly close to the exercise of discretion in my opinion. Conversely, determination by the Board that unsubstantiated testimony provided by or on behalf of an appellant is insufficient to discharge the onus placed upon him under the Act should not automatically be construed as a reflection on the credibility of an appellant.

In view of the fact that the information presented on behalf of the appellant in this matter is not seen as equivalent to the offer to purchase available to the Board in Friedman (supra), little further comment is needed. Nevertheless, the Board does point out for the record that in Friedman, the property in question had been purchased in 1952, and not in the year 1971 which is the case here.

Decision

The appeal is allowed in part so that the disposal costs of the property are determined at $2,530 rather than at $1,530. The entire matter is referred back to the respondent for reconsideration and reassessment accordingly.

In ali other respects the appeal is dismissed.