Joe Curcuruto v. Minister of National Revenue, [1980] CTC 2770, 80 DTC 1676

The Assistant Chairman:—In 1969 Joe Curcuruto (the appellant) purchased a parcel of land consisting of approximately 100 acres situate in the Township of Oakville, just west of the Town of Milton, in the Province of Ontario, for the price of $1,800 per acre. In October 1972 the appellant sold a half interest in the said land for the price of $3,600 per acre. To ascertain whether the appellant had a capital gain or loss on the disposition, one has to ascertain what the Valuation Day (V-Day) value of the land was.

The appellant was of the view that the property had a value of $4,250 per acre on V-Day, which produced a loss of $245,000 on the sale plus disposal costs of $1,350. The total net loss was $246,350, or an allowable capital loss of $123,175. When the appellant filed his 1972 income tax return, he showed this amount of allowable capital loss and claimed $1,000 of it against his other income. For each of the years 1973 and 1974, he claimed a similar amount.

The Minister of National Revenue took the position that the V-Day value of the property was $125,000 and, after allowing for disposal costs of $1,350, held that the appellant in 1972 had a capital gain of $53,650, one-half of which—$26,825—was taxable. The respondent then disallowed the $1,000 loss claimed in each of the years, 1972, 1973 and 1974 and added to the appellant’s income in 1972 the sum of $26,825. After the assessments for the three years had been confirmed following objection thereto, the appellant appealed to this Board.

The issue thus becomes—Did the appellant, on the disposition in 1972, realize a capital gain or suffer a capital loss, and what was the quantum of the gain or loss? In addition to the appellant himself giving evidence, each of the parties called a valuation expert. The hearing was expedited as each party had seen the valuation report of the other party. If this were not done, the cross-examination of the experts would be a hit-and-miss affair and unduly prolonged as the hearing would in effect be trial by ambush or confrontation. Needless to say, I commend not only each of the parties but their counsel as well for exchanging those reports. I cannot see how one can dispute the other party’s valuation if one has not seen that valuation.

The property in question is about 3,000 feet west of the westerly limit of the Town of Milton, which town is about 30 miles west of the City of Toronto. The lot fronts on what is called Main Street and its westerly limit is on Tremaine Road. The lot is zoned agricultural and has the customary rural services. However, the water main for the Town of Milton—an eight inch pipe—ran along Main Street to the Milton reservoir, somewhat west of the town and this lot. While this water main had been in existence for many years, no one west of the Town of Milton had hooked into it. As at the date of valuation, V-Day, the property had no improvements. I believe, while the words are different, both valuators have in effect stated the same thing for the highest and best use of the land. The appellant’s appraisal stated:

. . . the highest, best and most profitable use to which the subject property could be put would be the continuation of its existing use until a higher density use would be permitted.

The respondent’s appraiser put it this way:

. . . Thus, the Highest and Best Use at the effective date is a speculative agricultural holding.

Both valuators agreed the best method of evaluating a property’s current market value was to search in the area for the sales of comparable properties and this is what each one did. Each considered in part at least thirteen sales. Others were looked at but rejected as not being comparable. in each appraisal, some of those listed with the comparables were not used as it was felt, for various reasons, that they were not comparables.

The appellant’s appraiser used as his main comparables, sales he numbered 1, 3, 7 and 13 (numbered 13, 14, 10 and 12 respectively on the Crown’s appraisal). The Crown’s main comparable sales were numbered 7, 8, 9 and 12 by the Crown (the first and third were not on the appellant’s appraisal and the second and fourth were numbered as 12 and 13 by the appellant). The appellant’s #1 sale, made in April 1970, was really two parcels—one within the town and zoned industrial and the other a portion outside the town. The parcel in the town, which was resold a year later, is sale #3. Sale #1 comprised a total of 91 acres, while sale #3 was 17 acres. The former sold at the rate of about $2,600 per acre while the latter sold for about $6,800 per acre. The latter parcel being smaller would, because of size, normally go for a higher price per acre. Sale #7 was also in town and was zoned development; that is, development was contemplated but first it would need further zoning and services. It was about one-half as big as the subject property. The final comparable which the appellant’s valuator thought was the best comparable was sale #13. This parcel consisted of about 72 acres and was immediately south of the town. In the latter part of 1972 it sold for $3,150 per acre. While the location was similar, it had no services. The subject property was superior as the water main ran immediately in front of it. As to the Crown’s #7 and #8 sales, the appellant’s valuator did not consider them as comparables as they were too far out of town and out of the potential development area. The subject property he contended had a higher value. Sale #7 sold in the early fall of 1972 for about $3,100 per acre while the other (sale #8) sold in December 1972 for about $2,200 per acre. With respect to the Crown’s sale #9, it was close to the eastern boundary of the town but less than one-half as big as the subject property and, in the opinion of appellant’s valuator, it was not a comparable. This sale price was $1,740 per acre. The subject property was actually closer to downtown Milton. The appellant’s valuator saw the property as borderline between development land and pure agricultural status, with only speculative value. Comparing it with development holdings in Milton would give the highest price and with agricultural lands would give the lowest price and it was his conclusion that it fell somewhere in the middle. His sale #13, he thought, gave the best indication of value, adding to that value a value created by the potential for the water main.

At the time of making his appraisal for a V-Day value, the appellant’s appraiser was aware that the property had sold in November 1972 for $360,000. While the opinion of the appraiser was that the subject property should be valued as “vacant agricultural property”, his sale #1 was partially agricultural, #3 was industrial, #7 was “D” for development, and #13 was agricultural. The valuator stated that the same price per acre would have been paid for sale #1 which was zoned partially agricultural and partially industrial even if it had been zoned entirely agricultural or industrial after having earlier stated that, generally other things being equal, properties zoned industrial would sell for a higher price than properties zoned agricultural. Development of the Town of Milton was to the north, east and south but basically north, however from a map, in the valuator’s opinion, it would appear development was southward. Adjacent to sale #13 was a lot with a hospital which, while just on the southern boundary of the town limits, did have full services—sanitary and water mains. To reach sale #13, those services might have had to be extended about one-quarter of a mile in distance and the existing pipes would have had to be increased in size to service that lot. The valuator suggested that since the subject property was on the water main, even though at that time the pipe had not been tapped into, it would still enhance the value of the property by $500 to $600 per acre. The subject property, he contended, could have been developed as half-acre lots on V-Day with no need for sewers, and application could have been made for hook-up rights at the time application was made for the subdivision. While agreeing that the Crown’s sales (#7, #8 and #9) were zoned agricultural, as was the subject property, he commented that sale #7 was too far south to be a comparable and there was no chance of development.

The appellant stated he sold the property as he was short of money. He commenced to negotiate with an officer of the purchaser and, having previously been informed by the then Mayor of the Town of Milton that his property would be developed soon, when he was asked for a price he stated $3,600 per acre. While the agreement pertaining to the sale was dated in the fall of 1972, negotiations commenced some five or six or seven months earlier.

Like the appellant’s valuator, the approach used by the respondent’s valuator to value this property was by endeavouring to get sales of comparable lands. He did not consider sales of small acreage and he discarded sales more than two miles from the town limits. In addition, sales within that area of property zoned other than agricultural were not considered comparable. If the property were zoned other than agricultural it would have an added value as it would not be necessary to have the zoning changed. He considered four sales as the best comparables. His sale #7 was zoned agricultural and it was nearly the same size as the subject lot. There was an adjustment upward as it was a little further from the town boundary but a downward adjustment for time and because sale #7 had farm buildings. Sale #8 needed very little adjustment as it was about the same size and distance from the town limits as well as being zoned agricultural. There was a downward adjustment for time. Sale #9 needed an adjustment for time as well as size, since it was not quite half as big as the subject property. The property was, as the valuator was advised by town officials, in the path of expected development as the drainage was from the northwest to the southeast. His inquiry of town officials regarding the subject property and the advice he received was that, even if permission were granted to the owner of the subject property to hook up to the water main running in front of it, there would not be enough pressure to service the lot. As far as that area becoming part of the town was concerned, it was the officials’ view that it would be a long time before that happened as development was to the south and east.

Counsel for the appellant submitted that the sale at the rate of $3,600 per acre in the fall of 1972 was, first of all, an arm’s length sale and, secondly, a sale after negotiations which commenced some months earlier. When the actual price was first agreed upon was not positively established but it seems as though it was only a few months after V-Day, which would in- dicate that the value of the Department of National Revenue was too low. Counsel also submitted that the Crown’s valuator considered properties which were not comparable to the subject property and ignored others which were comparable. Stress was also placed on the fact that there was an eight inch water main immediately in front of the land in question as well as its proximity to the Town of Milton.

Counsel for the Crown quickly pointed out that, although the water main did run in front of the land in question and also that the property virtually bordered the Town of Milton, no property outside of the Town of Milton had, to that time, hooked up to that water main and, he submitted, it was unlikely that any such property would, with the result that too much weight was given by the appellant’s valuator to the water main in arriving at his valuation. He also stressed that comparables should be comparables and, he submitted, that three of the appellant’s four main comparables were not comparables as they were not zoned agricultural.

The potential development of Milton was, in the opinion of the appellant, in a northerly direction which, of course, was in the neighbourhood of his property. The respondent’s position was that development was to the south and east, which was detrimental to the appellant’s position.

I find it difficult to decide what is the V-Day value per acre of the land in question. I do believe that both valuators are competent. It seems however strange to me, without an explanation, how the property could go from $1,800 per acre based on the date of purchase to $4,250 per acre some two years later and then in a period of a few months drop to $3,600 per acre as submitted by the appellant. It was not shown that there was a tremendous boom in Milton in 1969, 1970 and 1971, with a sharp noticeable drop in values from virtually the beginning of 1972. I am of the view that the appellant’s valuation is weak as the water main played too large a role. Insofar as the land in question was concerned, it had potential but I believe that potential was well down the road. Likewise the valuation of $4,250 per acre really was not, as I view the matter, based on comparables as sale #1 was part industrial and so could command a better price than agricultural. Likewise sale #3 (being the industrial part of sale #1) was entirely industrial. The valuation figure, I believe, was unduly increased by these considerations. As to the valuation by the respondent’s valuator, while I agree with his approach as to comparables I do think more weight could have been given to the proximity of the parcel to the Town of Milton. In addition, where was the path of development in the town? Even up to 1980 a real path of development does not appear to have been established. All things being considered, I do believe that the V-Day value of the property should be higher than that given by the respondent but less than that of the appellant. I am of the view that the appropriate valuation figure for an acre on V-Day would be $3,200.

The result is that, for 1972 judgment will go allowing the appeal and remitting the assessment to the respondent for variation based on an acreage valuation of $3,200. Since there has been a capital gain on the sale, there is no non-capital loss to carry forward to 1973 and 1974 and therefore judgment will go dismissing the appeal for each of those years.

Appeal allowed.