Charles Garbutt v. Minister of National Revenue, [1980] CTC 2762, 80 DTC 1646

John B Goetz:—This is an appeal by the appellant with respect to an assessment for his 1976 taxation year. This issue relates to the amount of capital gain of the appellant on the sale of two-quarters of farm land in the 1976 taxation year.

Facts

On March 13, 1974, the appellant purchased from Marathon Realty Company Limited the south-east quarter of section thirty-three (33), in Township twenty-seven (27), in range sixteen (16), west of the second meridian, in the province of Saskatchewan for the sum of $11,200. By agreement for sale dated September 9, 1976, he sold this piece of land to one Steve Sich and Helen Sich, for the sum of $30,000.

On September 9, 1976, also by way of agreement for sale the appellant sold the north-west quarter of section twenty-six (26), in township twentyseven (27), in range sixteen (16), W2, whereby the land was arbitrarily Stipulated being worth $20,000 and buildings and residence and yard site were valued at $30,000. The allocation of the values was made by the solicitor for the appellant. This property was owned by the appellant prior to December 31, 1971 and he placed a value on his land of $16,000 and buildings and residence, $30,000, as of January 1, 1972. He calculated his capital gain on the following basis:

The Minister, on the other hand, calculated the appellant’s taxable capital gain on the sale of the farm land in the following manner:

In summary, the Minister valuated the north west quarter 26-27-16-W2, as of Valuation Day, at $10,000, and the south east one-quarter 33-27-16-W2, as the adjusted cost base, at $11,200, being the amount paid by the appellant to Marathon Realty Company Limited in March 1974. Further, the respondent calculated the fair market value of the buildings with improvements thereon and disposed of by the appellant, as at Valuation Day as being $10,000.

In assessing the appellant, the respondent relied, inter alia, upon sections 2, 3, 4, 38, 39 and 40 of the Income Tax Act, SC 1970-71-72, c 63, as amended, and upon subsection 26(3) of the Income Tax Application Rules.

The appellant placed great stress on the willingness of the purchasers to pay the price for the respective pieces of property as herein referred to. Although the appellant maintains that the north west quarter 26-27-16-W2 was worth far less than the south east one-quarter 33-27-16-W2, based on the texture of soil and cultivated acreage, his purchaser, in cross- examination, admitted that the acreage was about the same and the soil conditions were the same.

The appellant filed pictures of his house which was 24' x 32' with a 10' x 10' porch, being approximately 1,000 square feet. He described it fully as being insulated, having maple hardwood floors and all furnace, plumbing and water systems and surrounded by trees and hedge row. He felt that his house in 1976 was worth $18,000, and it was insured for that amount. He valued the hedge row at $6,000 and the fact that the house had water supply, at $2,000. He says the condition of the buildings between 1971 and 1976 had changed very little because he maintained his buildings well. He also stated he had not evaluated the property as of December 31, 1971, because he did not intend to sell at that time. The only evidence on behalf of the appellant was his own and that of one of his purchasers under an agreement for sale. Both gave subjective evidence and evaluations.

On the other hand, the respondent called as a witness S W Orthner, AACI, a senior real estate appraiser for the Department of National Revenue. Mr Orthner received his diploma in vocational agriculture from the University of Saskatchewan in 1949. From 1958 to 1966, he was credit adviser for the Farm Credit Corporation in Regina and Kindersley districts, which would include that of the period in question. From 1966-1977 he was a loan review officer with the Farm Credit Corporation, in the Regina Branch Office. As of April 1, 1977, he was appointed senior appraiser for Revenue Canada, Regina District Office and Chief of the Appraisal Section, which position he has held since that time. It was readily acknowledged that he was highly qualified to give an opinion with respect to the value of the property at all relevant times. The appraiser used both the “cost approach’’ and the “market data approach” in reaching his final appraisal. This was obtained from the data bank covering the rural municipality of Touchwood No 248 and adjoining rural municipalities 247, 277, and 278, their grain delivery point all being the Town of Punnichy, which was five miles west of the appellant’s property. He described the soils and topography as a black soil zone consisting of clay-loams, loams and light loams. The topography varied from undulating to rolling. He felt that the highest and best use for the appellant’s property was a grain farm with a small sideline of beef cattle.

In using the cost approach to value, Mr Orthner considered the following factors:

1. Estimate land value as though vacant.

2. Estimate the reproduction cost new of the buildings.

3. Estimate depreciation from all sources.

4. Add the land value to the depreciated value of the buildings.

The Cost Approach carries considerable weight in rural appraising as much of the value, especially in grain farming, lies in the value of the land base. For bare land sales, this approach is identical to the Market Data Approach.

For this valuation, Mr Orthner compared and analyzed 13 land sales to arrive at a market value as of December 31, 1971. All of these properties were sold during 1971 and 1972 and within a year of the effective date of the appraisal. The comparables were all within a 20-mile radius of the subject property. Except for one sale, all of the properties were of similar soil types, cultivated acreages, assessments and average yields.

Mr Orthner calculated the total floor area of the residence as 878 square feet, estimating that the house had a life span of 50 years and was already 30 years old. Therefore depreciation would be 60%, and using a sliding skill ratio of 44% depreciation, he reached a rounded figure of $5,900 as being the value of the family residence. The other buildings were rated $4,900 from observation of physical condition by the appraiser. Depreciation rates for the house were taken from the Marshall Swifts Manual which is updated every three months, plus his observed condition of comparable sales referred to. The adjusted values ranged from a low of $47.25 to a high of $70 per acre and the median for all sales was $63.50. Therefore, the value of the land, at the median price of $63.50 per acre, multiplying it by 159 acres, reaching $10,096, rounded to $10,000 for the bare land. This value was supported by the municipal average assessment ratio. His valuation estimate by the cost approach was as follows:

Mr Orthner then used the “market data approach” which involves the gathering, analyzing and comparing of data on similar properties that have been sold. This approach must consider the following:

1. Sales or asking prices of comparable properties.

2. Condition influencing each sale.

3. Location of each property.

4. Description of land and improvements of each property.

The “market data approach” involved 11 sales referred to in Addenda “D” in Exhibit R-1 (being the appraisal report filed by the respondent). Full particulars of these sales involving land size, price, buildings, etc, were given in this appraisal report. Of these, Mr Orthner used seven comparable sales in reaching a value estimate by the “market data approach”. He stated that the indicated value after adjustments range between $14,000 and $21,000 and the median value for all sales was $17,000. Making allowances for possible motive in some of the lower sales, his final value estimate, by the “market data approach” was $19,000. He gave as a correlation and final estimate of value:

(1) Cost Approach

— Land	$10,000
— Buildings	10,800
TOTAL	$20,800
(2) Market Data Approach	$19,000
(3) Final Value Estimate	$20,000
(4) Value Estimate Breakdown
— Land	$10,000
— Buildings	10,000
TOTAL	$20,000

Although Mr Orthner was subjected to an extensive and sometimes rambling cross-examination, the more that he was cross-examined, the more forcible his evidence became in support of his views as to valuation of lands and buildings.

The appellant called no expert witness with respect to an impartial appraisal of the property at the relevant times involved and really gave subjective evidence. I consider that the evidence of the appraiser called on behalf of the Minister was thorough, complete and fair and, in my view, was reasonable and equitable.

For the above reasons, I dismiss the appeal. (See: Donald Macaulay v MNR, [1980] CTC 2286; 80 DTC 1265; Russell Price v MNR, [1978] CTC 2498; 78 DTC 1375; William Earl Laycock v Her Majesty the Queen, [1978] CTC 471; 78 DTC 6349.

Appeal dismissed.