Franciss Enderes, Iem Management Limited v. Minister of National Revenue, [1980] CTC 2602, 80 DTC 1523

D E Taylor:—These are appeals heard on common evidence in the City of Toronto on April 17, 1980, against assessments for 1974 in which the Minister of National Revenue disallowed the claim of the respective appellants regarding the income tax treatment certain amounts received under Income Tax Application Rule 21 (ITAR 21). Several other matters were dealt with in the respective notices of appeal, and the replies to the notices of appeal but at the commencement of the hearing, counsel noted for the Board that the two issues remaining in dispute were: (a) the designation of the net amounts of $290,000 for IEM Management Limited (IEM) and $203,000 for Franciss Enderes (Enderes) as either “goodwill” or “government right”; and (b) if a “government right”, the V-Day value of the intangible assets where applicable.

History

With respect to IEM:

— IEM operated River Glen Haven Nursing Home (River Glen), formerly Sutton Nursing Home Ltd, prior to December 31, 1971.

—On October 31, 1973, River Glen was sold to Maynard Nursing Home Ltd (Maynard).

—The total selling price was allocated as follows:

—As at December 31, 1971, River Glen was licensed by the Government of the Province of Ontario to operate a Nursing Home with 60 beds.

With respect to Enderes:

—The appellant and his wife Margot Enderes were in partnership and operated a nursing home under the name and style “Taara Nursing Home” (“Taara”).

—The appellant and his wife each held a 50% interest in the partnership.

—The partnership acquired the nursing home in 1968 and part of the consideration for the transfer was $22,500, allocated to goodwill.

—On or about July 1, 1974, the partnership sold Taara to Novak and Gabrielle Bajin for $530,000, of which $218,000 was allocated to goodwill.

—As at July 1, 1974, the nursing home was licensed by the Government of the Province of Ontario to operate a nursing home with 55 beds.

The amounts at issue have arisen as a result of the following differing views with regar to the sale transactions:

Re: I EM

Contentions

For the appellants:

—The amounts in dispute were for the sale of licences, not the sale of goodwill.

—The fact that the Minister had allocated a portion of the amount received in Enderes to “licence” should preclude an argument by the respondent that there was no transferable value to the licences.

—The V-Day value of the licences can be shown to exceed the amounts received on the sales in 1973 and 1974.

For the respondent:

—The licence in IEM had no transferable value at either December 31, 1971, or October 31, 1973.

—The licence in Enderes had a value of $15,000 on December 31, 1971.

—The amounts in dispute represent the proceeds from the sale of the goodwill of the nursing homes.

Evidence

Mr Franciss Enderes noted that Taara, at acquisition in 1968, had consisted of only 16 beds, which he increased in 1970 to 55 beds.

Mr Donald Joseph Dal Bianco, CA, President of Extendicare Nursing Services Ltd, stated that the only goodwill in a nursing home was to be attached to the licence, and that irrespective of condition, location, etc, such licence sold “per bed”, in 1971 from $5,000 to $7,000, and in 1973 and 1974, sold for considerably higher, perhaps $9,000 to $11,000. Such “beds” were transferable from one nursing home to another within certain guidelines established by the Province. Economic and governmental restraints had made it very difficult to obtain new licences, and a brisk trade existed for any licences which became available. Mr Dal Bianco identified an “Offer to Purchase” dated December 14,1976 signed by him, which reads as follows:

OFFER TO PURCHASE

The undersigned, DEEM MANAGEMENT SERVICES LIMITED (“Deem”) and CEBY MANAGEMENT LIMITED (“Ceby”), as purchasers, hereby offer to purchase from Adolf Fiege, as vendor, all of the vendor’s right, title and interest in and to License issued the 28th day of June, 1972, under Number 2333, and renewed to the 27th day of June, 1977, which was issued by the Ministry of Health of the Province of Ontario to operate ten (10) licensed nursing home beds at a price or sum of $25,000 payable as follows:

Five Thousand Dollars by certified cheque to the vendor’s solicitor, Alan C MacRobie, QC, Trustee, on this date as deposit; and The balance of $20,000 in cash on closing.

PROVIDED that this offer is conditional upon the transfer of such license to the purchasers in such a manner as to permit Deem and Ceby to operate a total of a further ten (10) licensed beds at their respective facilities in such manner as they and the Ministry of Health may agree upon; but, if the Ministry of Health refuses to consent to such transfer, then this offer shall be null and void and the deposit shall be returned to the purchasers forthwith without interest and without deductions.

The within transaction is conditional upon the Purchasers assuming the care, supervision and management as required by the Regulations under The Nursing Homes Act, 1972, of all patients of Bethany Nursing Home, who are willing to be transferred to the Purchaser’s Nursing Home for the duration of the respective Contracts of such patients or for so long thereafter as they may desire or arrange.

THIS OFFER is to be accepted by the 14th day of December, 1976; otherwise the same shall be void and of no effect and the deposit shall be forthwith returned to the purchaser without any deductions whatsoever. The sale shall be completed on or before the 31st day of January, 1977. Time shall be of the essence of this agreement.

IN WITNESS WHEREOF the purchasers have executed this offer this 11th day of December, 1976.

DEEM MANAGEMENT SERVICES LIMITED per

(Sgd) D J Dal Bianco

President

CEBY MANAGEMENT LIMITED

per

(Sgd)

Secretary

THE UNDERSIGNED hereby accepts the above offer and covenants, promises and agrees to and with the purchaser to carry out the same on the terms and conditions above set forth.

DATED this 14th day of December, 1976.

Witness: )

)

(Sgd) A Linton	)	(Sgd) A Fiege
	)	Adolf Fiege

The above was entered as part of Exhibit R-1, and was attached to the following covering letter:

ROSENBERG & COMPANY Chartered Accountants

PO BOX 95	AREA 416 727-9451
50 Yonge STREET SOUTH	887-5720
AURORA, ONTARIO L4G 3H1	883-1664
Leonard R Rosenberg, BCom, FCA, CMC
Ralph W Morley, CA
October 27, 1977
Mr S Nardi
Appeals Section
36 Adelaide Street East
16th Floor
Toronto, Ontario
Dear Mr Nardi:
RE: IEM Management Limited

Further to our recent telephone conversations and further to the Notice of Objection filed by our office on behalf of the above client, we are herewith enclosing the following documents:

1. Copy of an Offer to Purchase, whereby you will note that Deem Management Services Limited and Ceby Management Limited purchased a Licence issued by the Ministry of Health of the Province of Ontario to operate ten (10) Nursing Home beds. You will note upon examination of this offer, that the only consideration received for the $25,000 was the vendor’s right, title and interest in and to Licence issued the 28th day of June, 1972, which gives evidence to our argument and contention that Nursing Home Licences can be traded and gives further credence to our arguments supporting the fact that IEM sold its Licence and did not sell goodwill.

2. We are also enclosing documentation from the Department of Health dated July 16,1971 and July 29,1971, giving approval for the additional thirty (30) beds on completion of the third floor expansion, which was for all intents and purposes, completed by December 31,1971 and could have been traded as a ninety

(90) bed unit as at December 31, 1971, therefore, supports our contention that the valuation of the Nursing Home Licence as at December 31,1971 was ninety

(90) beds @ $3,200 a bed, rounded out to $290,000.

Should you require any further information regarding this matter, please do not hesitate to contact the writer.

Yours very truly,

(Sgd)

I Siderson/dh

ends

cc Mr M Binions

The referenced documents dated July 16, 1971 and July 29, 1971 were entered as Exhibits A-7 and A-8 by a later witness, Mr Murray Binions, a former officer of IEM. The documents read as follows:

Exhibit A-7

PUBLIC HEALTH DIVISION

Toronto 5, Ontario

Ontario

DEPARTMENT OF HEALTH

Telephone: 365-5081

Area Code: 416 July 16, 1971

Mr M Binions,

Administrator,

River Glen Haven,

High Street,

Box 368,

SUTTON WEST, Ontario.

Dear Mr Binions:

Re: River Glen Haven,

Sutton West, Ontario.

On April 26,1971 the Honourable Darcy McKeough announced in the Legislative Assembly that nursing home level of care would be an insured service as of April 1, 1972.

On May 17, 1971 the Minister of Health announced that further expansion and approval of new homes would only be granted depending upon areas of need as defined by a guideline figure of 3.5 beds per thousand of population.

We have received authority to proceed with processing of the plans of your third floor expansion. Would you kindly forward to this office any revisions that have been made to your plans in order that we might again review them and assist you in making recommendations that would contribute to a functional nursing home unit.

Yours sincerely,

(Sgd) F Ellingham

F H ELLINGHAM, MD

Physician-in-Charge,

Chronic Care Section.

FHE/mam

cc Dr J O Slingerland, MOH

NUTRITION «© DRUGS AND BIOLOGICALS DEPARTMENT OF HEALTH

	SPECIAL HEALTH SERVICES
EPIDEMIOLOGY	MATERNAL AND CHILD HEALTH	TUBERCULOSIS
PREVENTION	MEDICAL REHABILITATION AND CHRONIC CARE

Exhibit A-8
PUBLIC HEALTH DIVISION	SPECIAL HEALTH SERVICES BRANCH
	HEPBURN BLDG, QUEEN’S PARK
	TORONTO 5, ONTARIO
	ONTARIO

July 29th, 1971

Mr. M Binions

President

River Glen Haven

High Street

SUTTON WEST, Ontario

Dear Mr Binions:

re: Proposed Third Floor

Expansion, River Glen Haven

We have examined your proposal contained in your plan, and hereby approve the changes which you have indicated.

When construction of your proposed expansion is complete, the Medical Officer of Health will have the home inspected and will establish the number of residents who may be accommodated in the addition, and the nursing staff required. Our Provincial Fire Safety Inspector will inspect the home and ensure that the fire safety provisions have been met.

We request that notice in writing be given the office of the Medical Officer of Health and this office, if possible, one month prior to the completion of the expansion. This will facilitate arrangements for final on-site inspections by both offices and will expedite the granting of approval for increased occupancy before residents are admitted to the addition.

A nursing home licence for the increased capacity may be issued following final inspection of the home, providing the following conditions are met:

1. The extension has been constructed in accordance with the approved plans and specifications, and complies with all the provisions of Ontario Regulation 37/67 made under the Nursing Homes Act of 1966;

2. The Medical Officer of Health and the Fire Safety Inspector approve of occupancy, and the Medical Officer of Health recommends the issuance of the licence for increased capacity.

Upon receipt of the licence for the increased capacity, residents may be admitted to the addition.

Yours very truly,

(Sgd) Barbara Blake

Barbara J Blake, MD, DPH

for

F H Ellingham, MD

Physician-in-Charge, Chronic Care

Zmjd

cc: Dr J O Slingerland

SPECIAL HEALTH SERVICES

EPIDEMIOLOGY MATERNAL AND CHILD HEALTH TUBERCULOSIS PREVENTION MEDICAL REHABILITATION AND CHRONIC CARE

NUTRITION

DRUGS AND BIOLOGICALS

Mr Binions also noted that he had first acquired an interest in the nursing home in question in 1969, and that it had then 30 beds, later he added 30 more, and was in the building stage for the final 30 beds (to make the total of 90 beds) at December 31, 1971.

Mr Moor Merchant, Group Manager for Revenue Canada, related the calculation of the goodwill to the assured business of the appellants.

Ms Laurie Christianson, Administrative Assistant with the Ministry of Health, directly involved with the granting and transferring of licences, gave evidence for the respondent. Generally, Ms Christianson did not regard the licences as valuable or difficult to obtain, but she did confirm the economic and governmental restraints which had existed during the period. She read and explained certain portions of The Nursing Homes Act, 1972, (SO 1972, c 11) regarding the issue of licences, and subsequent inspection of the homes upon which was dependent the renewal of the licences. There had been few if any occasions upon which licences had been successfully revoked, or not renewed.

The sale agreements in question were provided to the Board and these referred to the amounts in question in the present appeals as “goodwill”. A balance sheet of Sutton Nursing Home Limited as at October 1, 1969 was also provided, which contained an amount of $25,000 shown as “goodwill”.

Argument

Counsel for the appellants commented:

all the evidence from the applicants (who are) in the industry indicates that goodwill in the industry is synonymous with value of a licence.

there is a disposition in a sense that the vendor parts with a right so that he no longer can use it to earn certain income, parts with possession of it.

at the very minimum, the transactions in this particular case concern the allowing of the expiry of the government right.

On the V-Day valuation question, he stated that the lower estimate of Mr Dal Bianco, which was supported by Mr Binions, should be accepted at $5,000 per bed, making the licence of IEM worth $450,000 and that of Enderes, $275,000. There was therefore no gain between V-Day and either sale date—if anything there was a loss.

Counsel for the respondent asserted:

the main issue .. . is what on the sale of these two nursing homes, what constitutes the nature of the intangible assets of the business which were sold by the two vendors?

With regard to the $15,000 allocated to licences by the Minister in Enderes, that matter was not before the Board in counsel’s opinion. Counsel confined his argument mainly to the issue of “goodwill” or “licence”, while at the same time not agreeing to any of the propositions of counsel for the appellants regarding V-Day valuation.

. . . I think the starting point for the Minister’s position is the very Act itself by which nursing homes are permitted to operate in Ontario. Filed with the Board is the Act and we heard perhaps the best evidence concerning the operation and the administration of the Act through Miss Christianson with the Nursing Home Inspection Service.

Section 3 of that statute, which was in operation as of the date of sale of both nursing homes:

No person shall establish, operate or maintain a nursing home except under the authority of a licence issued by the Director. . . .

Section 4:

(1) Subject to subsection 2, any person who applies in accordance with this Act and the regulations for a licence to establish, operate or maintain a nursing home and who meets the requirements of this Act and the regulations and who pays the prescribed fee is entitled to be issued the licence.

Both Miss Christianson and the Act and I rely on sections 3, 4, section 4 particularly. (In) subsection 4 a licence is not transferable, and section 5 (notes) where the director may revoke or refuse to renew a nursing home licence, and the grounds are set out.

The government department issues licences as a matter of privilege and not as a matter of right, that the licence is at all times government property and that at no time is this or can this be considered in terms of an asset, an intangible asset of that business because it is never an asset of the business. It is always property of the government.

The purpose of this licence or the cost of this licence is $10. We have heard that evidence. I think from an examination of the legislation itself and the regulations, and also the opinion evidence of Mr Merchant, it is clear, in my submission, as a matter of law, that these licences have no commercial value on the open market.

If licences and goodwill are synonymous, the ultimate, as I say, the logical conclusion of the argument is that every purchase and sale of a business that is required to operate by municipal or provincial licence or federal licence results in a disposition in respect of a government right and the entire absence of goodwill.

Counsel relied very heavily upon the facts and the decision in Metropolitan Taxi Limited v MNR, [1967] CTC 88; 67 DTC 5073.

What the purchaser acquired, both in the case of Taara and Sutton, was no more than the expectation that he would be standing in the vendor’s shoes in front of the nursing home Ministry and that is the nature of the acquisition.

(In Metropolitan Taxi (supra), at 98 and 5079 respectively) the judge goes on to Say:

I am convinced that what the appellant paid for was a long-term commercial benefit. When the appellant bought the assets of Adolph’s it succeeded to Adolph’s position before the Taxicab Board and, because of the well known policy of that Board, could reasonably expect to be able to operate an expanded fleet of taxicabs from year to year. For that expectation and privilege the appellant was prepared to pay and did pay a substantial amount.

What obviously the purchasers were buying in the nursing homes, the tangible value based on in effect the ready market of customers, the waiting list at the door of customers and the virtual, the known policies of the Board in renewing licences.

The purchasers here were buying that same long term benefit which was the result of the goodwill generated by the restricted market of the nursing home operations.

There is an assured source of demand or source of 95% capacity anyway, if not 100%, through a constant supply of customers. That is the nature of the goodwill that the vendors bought from Taara and from Sutton.

The value of a goodwill of a business is what a purchaser would be willing to give to keep the connection with which it consists, and I think that is precisely what was paid for in terms of the intangible value of both these businesses in 1973, 1974.

Findings

The Board will deal with the main issue first and quotes ITAR 21(1) and 21(3):

21. Goodwill and other “nothings”.

(1) Where as a result of a transaction occurring after 1971 an amount (in this section referred to as the ‘actual amount’) has become payable to a taxpayer in respect of a business carried on by him throughout the period commencing January 1, 1972 and ending immediately after the transaction occurred, for the purposes of section 14 of the amended Act the amount that has become so payable to him shall be deemed to be the aggregate of

(a) an amount equal to a percentage, equal to 40% plus the percentage (not exceeding 60%) obtained when 5% is multiplied by the number of full calendar years ending in the period and before the transaction occurred, of the amount, if any, by which the actual amount exceeds the portion thereof referred to in subparagraph (b)(i), and

(b) an amount equal to the lesser of

(i) the percentage, described in paragraph (a), of such portion, if any, of the actual amount as may reasonably be considered as being the consideration received by him for the disposition of, or for allowing the expiry of, a government right, and

(ii) the amount, if any, by which the portion described in subparagraph (i) exceeds the greater of

(A) the aggregate of all amounts each of which is an outlay or expenditure, made or incurred by the taxpayer as a result of a transaction occurring after 1971, be an eligible capital expenditure of the taxpayer, and

(B) the fair market value to the taxpayer as at December 31, 1971 of the taxpayer’s specified right in respect of the government right, if no outlay or expenditure was made or incurred by the taxpayer for the purpose of acquiring the right or, if an outlay or expenditure was made or incurred, if that outlay or expenditure would have been an eligible capital expenditure of the taxpayer if it had been made or incurred as a result of a transaction occurring after 1971.

21.(3) Definitions. In this section,

(a) “Government right”.—a “government right” of a taxpayer means a right or licence

(i) that enables the taxpayer to carry on a business activity in accordance with a law of Canada or of a province or Canadian municipality, to an extent to which he would otherwise be unable to carry it on in accordance therewith,

(ii) that was granted or issued by Her Majesty in right of Canada or a province or a Canadian municipality, or by a department, board, agency or any other body authorized by or pursuant to a law of Canada, a province or a Canadian municipality to grant or issue such a right or licence, and

(iii) that was acquired by the taxpayer

(A) as a result of a transaction occurring before 1972, or

(B) at a particular time for the purpose of effecting the continuation, without interruption, of rights that are substantially similar to the rights that the taxpayer had under a government right held by him before the particular time;

(b) “Original right”.—a taxpayer’s “original right” in respect of a government right means a right or licence

(i) described in paragraph (a), and

(ii) acquired by the taxpayer as a result of a transaction occurring before

1972 for a purpose other than the purpose described in clause (a)(iii)(B),

if the government right was acquired by the taxpayer for the purpose of effecting the continuation, without interruption, of rights that are substantially similar to the rights that the taxpayer had under the right or licence; and

(c) “Specified right”.—a taxpayer’s “specified right” in respect of a government right means a right owned by a taxpayer on December 31, 1971 that was

(i) an original right, or

(ii) a government right that was acquired by the taxpayer in substitution for the original right or that one of a series of government rights acquired by the taxpayer for the purpose of effecting the continuation, without interruption, of rights that are substantially similar to the rights that the taxpayer had under the original right.

That main issue is whether or not the amounts in the relevant sales represented what is called by the respondent “goodwill”, or what is called by the appellants “a government right”. I find no merit in the ancillary argument proposed by counsel for the appellants that because the Minister allocated a portion of the amount in Enderes to “licence” and valued it at $15,000 on V-Day, he (the Minister) cannot pursue the argument any further on the point of principle. The issue is simply whether or not the Minister was correct in refusing to consider the amounts in question ($290,000 and $203,000 respectively) as “government rights”.

Where the Board uses the term “property”, it will be taken to mean that which was included in the agreements and which is in dispute only as to its characterization—whether “goodwill” or a “government right”. Within that context, it is my opinion that it was not “disposed of” by the appellants since it clearly could not be sold or transferred. To succeed therefore, the appellants must place themselves within the parameters of the term “for allowing the expiry of”, even presuming the property as a “government right”. As I see it, they have done so since the agreements in question contemplate and are conditional upon the issue of new licences to the purchasers. I can only comprehend that as an implicit understanding by the appellants that they would agree to the surrender of the licences held in their own names. While it was not specifically argued at the hearing, I fail to see any reasonable distinction which should be made between “expiry” and “cancellation” as such distinctions would be relevant to the wording of ITAR 21 for the purposes of these appeals. Accordingly, the issue comes down to whether or not the property as “goodwill” or ‘‘a government right”. From that very narrow perspective, the property comes under the definition of a “government right” as described in ITAR 21(3) as I read it.

In argument, counsel for the respondent relied heavily upon Metropolitan Taxi (supra) (as subsequently confirmed by the Federal Court of Appeal) cited at [1968] CTC 163; 68 DTC 5098. While in counsel’s mind that case and the instant matter are “on all fours”, in my opinion there is one vital distinction. In Metropolitan Taxi (supra) the learned judge noted at 98 and 5079 respectively: “I am convinced that what the appellant paid for was a longterm commercial benefit”, and then he proceeded to dismiss the appeal, thereby denying the taxpayer’s claim to include as part of the depreciable capital cost of the subject taxicabs, the amount in question. As I see it, my views on the instant matter are completely in accord with those in Metropolitan Taxi in that “a long-term commercial benefit” was the disputed property both in that appeal and the instant appeals, but for purposes of ITAR 21 applicable to these appeals only, that “benefit” is specified to be ‘‘a government right”. While the learned judge agreed in Metropolitan Taxi that some part of the amount at issue was goodwill, he was not called upon to make any determination of which part was goodwill and which part was attributable strictly to the licences. To what degree such reference to “goodwill” made in 1967 would be relevant to ITAR 21 enacted in 1972 does not appear to me to be critical to a determination of the question before the Board since, by definition, any “benefit” at issue here is “a government right” specifically exempted from the tax imposed by the Minister.

Also in this same general context, the Board would make reference to the recent decision of the Federal Court of Appeal (Canadian Industries Limited v Her Majesty the Queen, [1980] CTC 222; 80 DTC 6163), in which some sober- ing and profound thoughts are eloquently expressed by the learned Justices regarding the respective “capital” or “income” characteristics of transactions under circumstances in which may be perceived some similarities to those at issue in this matter.

On the second point at issue, the factual evidence upon which to base any opinion regarding V-Day licence value is slim indeed, and it is largely opinion testimony. In reviewing it, however, I have been unable to determine that any other type of valuation procedure, or even more extensive information, would be greatly beneficial due to the narrow and controlled market involved. That evidence is nevertheless convincing to me in at least one respect—new licences could not simply be acquired indiscriminately by the payment of $10 as a fee. There were governmental, economic and financial constraints. As these constraints increased over the years relevant to these appeals, the value attributed to such licences as a commodity in any nursing home sale also increased. The patient loan circumstances in the relevant year, would strongly suggest that value would be attributable to the “extra 30 beds” for IEM which were under construction at December 31, 1971 (and indeed may have been completed). I am prepared to accept that no distinction should be made between the basic 60 beds and the new 30 beds in view of the fact that the value is allocated by the Board to the licence, not too goodwill. However, that is as far as the evidence and testimony can lead in this situation—it does not support a conclusion that on December 31, 1971, the “per bed” value was $5,000, or anything close to

that, irrespective of location, record, management, etc, as suggested by counsel for the appellants. The testimony of Mr Dal Bianco that in 1976 Exhibit R-1, at $2,500 per bed, represented a “depressed sale”, may be correct but there is no evidence that such a depression was from some $9,000 to $11,000 per bed down to the amount paid of $2,500 per bed. Even more notable is that by accepting the proposition of the appellants, the average paid with respect to the instant appeals in 1973 and 1974 was about $3,200 per bed, and there was no suggestion that these were depressed sales. In my view, the amounts paid in these appeals represent fairly the value attributed by a prospective purchaser to the licences included in the agreements at the relevant dates. That in itself aids very little, however, in a determination of the “per bed” value of a licence on V-Day. On that point, the evidence of Mr Merchant that licences, whether in 1971 or 1974, did not have any value, has not been accepted by the Board but neither has the Board accepted the precisely contrary testimony of Mr Dal Bianco that values of $5,000 to $7,000 per bed in 1971, and up to $9,000 to $11,000 in 1973-74, are appropriate. In essence, the Board has only one solid piece of information upon which to draw any conclusion on the point—the opening balance sheet of Sutton Nursing Home Limited at October 31, 1969, in which the value of $25,000 was assigned to “goodwill” (this balance sheet is entered as Exhibit R-2). It would also appear that since a “New Construction Account” is noted on the same balance sheet, the building of the accommodation for the extra 30 beds (to make 60 beds) was in progress at

that date—the granting of a licence for these additional 30 beds then must have been already approved.

To follow the logic of counsel for the appellants adapted from the Enderes appeal, the $25,000 which the unincorporated Sutton Nursing Home received and called “goodwill” on the sale (transfer) to the Sutton Nursing Home Limited upon its incorporation, really represents the value of the licence for 60 beds. To be consistent, therefore, counsel might agree that the ‘“‘per bed” value at October 31, 969 was $25,000 divided by 60 = $417 per bed. If any part of the $25,000 actually represented “goodwill” as contrasted with “licence” (a position which would probably be adopted by the respondent), this figure of $417 per bed at that date would be reduced even further. Also, the Board makes reference to the contention in the respondent’s replies to notices of appeal, unchallenged by the appellants, that in 1968 the partnership of the appellant Franciss Enderes and his wife Margot Enderes had paid $22,500 as “goodwill” in the purchase of Taara. Using the same perspective as that indicated for Sutton above, it would appear that the “per bed” value of Taara in 1968 was $1,406. Finally, the Minister did accord some value ($15,000) to the licence of Taara at December 31, 1971 which, in view of the 55 beds then in operation, would calculate out to $273 per bed at that date. As I follow the evidence and testimony therefore, the following schedule develops for “per bed” value of a nursing home licence:

Obviously, little partern can be seen from that schedule, and speculation or conclusions which might be reached therefrom serve little purpose. Suffice it to say that while the evidence indicates that some value should be attributed to a licence on a “per bed” basis, as at December 31, 1971 the appellants have not supported any substantive determination of the amount. Further, I am satisfied that in this set of circumstances, there is no precise basis upon which the appellants could establish that “per bed” valuation, and the Board therefore would be in order to arbitrarily allocate such a valuation using the above information as parameters. That valuation, as at December 31, 1971, will be $1,000 per bed for purposes of the transactions involved in these appeals.

Summary

The appellants have established that, for income tax purposes, the amounts in dispute relate to the agreement of the taxpayers “for allowing the expiry of a government right”, and that government rigth, for V-Day valuation purposes, is determined at $1,000 per nursing bed.

Decision

The appeals are allowed in part and the entire matter is referred back to the respondent for reconsideration and reassessment accordingly.

Appeal allowed in part.