Georges H Bouthiette, Léon Tétrault Et Fils Inc v. Minister of National Revenue, [1979] CTC 2567, 79 DTC 452

Roland St-Onge [TRANSLATION]:—The appeals of Mr Georges Bouthiette and Léon Tétrault et Fils Inc came before me in Sherbrooke, Quebec on May 30, 1978. These appeals were brought against income tax assessments for the 1973 and 1974 taxation years.

The issue is the adjusted cost base as at December 31, 1971 of certain pieces of land sold by the appellants.

In June 1971, the company purchased pieces of land from Dominion Stores Limited for $24,000, or $0.21 per square foot. In April 1972, it purchased additional pieces of land behind the Dominion Stores land from the Avery family, for $10,000 or $0.22 per square foot.

In June 1971, Mr Georges Bouthiette purchased a piece of land adjacent to the company’s land from Ball Bros for $60,000 or $0.34 per square foot.

On April 18, 1973, Mr Georges H Bouthiette sold his piece of land to Westcliff Development Ltd for $194,500.

On the same date, Léon Tétrault et Fils Inc sold its land to the same company for $169,500.

In calculating the capital gain made on the sale of the said pieces of land, the Minister of National Revenue assessed the adjusted cost base as follows:

The taxable capital gain resulting from the said transactions was assessed by the Minister as follows:

The appellants retained the services of Eugène Therrien Inc of Montreal, which submitted its appraisal report on April 10, 1975 indicating an appraisal of $0.895 per square foot.

Pursuant to a reassessment on March 4,1976, the appellants retained the services of a second independent firm of chartered appraisers, namely Morin, Pelletier, Roy et Associés of Sherbrooke, which submitted its report on June 9, 1976, indicating an appraisal of $0.92 per square foot.

The appellants request that the assessments be revised and that the appraisal of the parcels of land be the average of the two appraisals, that is, $0.91 per square foot, representing an adjusted cost base as at December 31, 1971 of:

According to the figures provided by counsel, the appellants realized a capital gain of:

If the respondent is correct, the taxable capital gains would be

If the appellants are correct, the taxable capital gains would be

As will be seen, the appellants sold their pieces of land 15 /? months after Valuation Day and 22 months after the purchase.

Six witnesses testified at the hearing: the two appellants, Mr Jean Avery, Mr Métras, a chartered appraiser, who explained the appraisal report made by the late Mr Rosaire Morin, Mr Bernatchez, from the firm of Eugene Therrien, who prepared the second appraisal report, and finally Mr Léon-Paul Morin, Senior Real Estate Appraiser for the Department of National Revenue.

The appellant, Mr Bouthiette, explained that he had already purchased pieces of land from Les Immeubles Avery Limited, which was in the business of selling property, and had purchased them for a very low price, namely $0.24 per square foot. He also stated that the subject land had been purchased from Ball Bros for $0.34 per square foot, that Mr Avery was the only person owning land in this location, and that the Ball Estate which sold it did not know that A & W had purchased land in this location. Mr Jean Avery testified that in 1971 he had offered lots Nos 1,2 and 3, mentioned on page 2 of Mr Rosaire Morin’s report, at $1 per square foot, and that he was not aware of A & W’s arrival.

Mr Gaston L Tétrault, president of Léon Tétrault et Fils Inc, explained that he had seen the advertisement of Dominion Stores Limited and had made an offer of $24,000, or $0.21 per square foot, to the said company. This offer was accepted by telegram.

Dominion Stores Limited was going to move into a shopping centre. According to Mr Tétrault, there was no other commercial land with services and frontage on rue Principale.

Mr Métras, a chartered appraiser, explained that he had examined Mr Morin’s file and he adopted Mr Morin’s appraisals. Mr Morin chose nine sales from 1965 to 1973, explaining that in accordance with a certain line of authority a later sale can be used provided that it is free. He stated that in all the sales used for comparison the pieces of land were much smaller in area than the appellants’ land, and that he could not find any pieces of land comparable in area.

Mr Morin used the average method, whereas Mr Métras generally uses the comparison method without considering the average.

Mr Métras was not able to explain the physical and economic criteria used by Mr Morin, and admitted that sales close to Valuation Day by independent parties could constitute good subjects for comparison.

Mr Maurice Bernatchez used a list of thirteen sales from 1965 to 1973 to prepare his appraisal.

He explained that he had not taken into account two sales used by the appraiser of respondent, and I quote:

Perhaps I was aware of facts which prevented me from using these two sales as comparisons. I rejected the sales at $0.25 to $0.35 per square foot; I had thirteen sales at arm’s length: let’s say I was mistaken. I had thirteen very comparable sales, therefore I did not look any further.

Counsel for the respondent cross-examined the witness on each sale used in order to show:

(1) that too many adjustments had been made in certain cases, and

(2) that not enough adjustments had been made in other cases, and as a result the sales which he had used were not the best comparisons under the circumstances.

The witness ended by saying that there are fewer purchases made of large pieces of land than of pieces from 15,000 to 20,000 square feet, that a piece of commercial land having a wider frontage also has a greater commercial value, and that the subject land was one of the rare pieces of land suitable for a shopping center.

Mr Léon-Paul Morin used 20 sales. He selected 6 because they were the most comparable, and rejected 16 because they required too many adjustments and therefore the possibility of error was too great.

He stated that buildings were erected on six of the nine comparable sales relied on by the appellants, and that the sales made by the appellants were the most comparable sales since they were made at arm’s length, and also because there was no evidence the prices paid were too low.

He gave Mr Bouthiette an additional 10% because his pieces of land had two frontages. He maintained that there were at least three other locations where shopping centres could have been erected in Granby, and he named them.

Mr Morin rejected the comparable sales used by the appellants and justified his own by saying that one cannot compare a greater quantity with a lesser without adjusting the yardstick.

Counsel for the appellants argued that the Board was faced with two contradictory appraisal reports. Mr Léon-Paul Morin’s report omitted important sales because buildings had been erected on the said pieces of land and also because they required too many adjustments. He said that he himself used some of these sales, but admitted that it was done arbitrarily.

According to him, none of the eleven sales used by Mr Bernatchez should be rejected in determining the value of the pieces of land at December 31, 1971. He maintained that the respondent’s appraiser rejected them solely because the price was too high.

Counsel for the respondent argued that the burden is on the appellants to prove that the assessments of the Minister are unjustified in fact and in law, and that in order to find the actual value of the real estate at December 31, 1971 for taxation purposes, one should not consider appraisal methods used for expropriation but rather the actual or market value at December 31, 1971.

He also mentioned that the respondent should use the sales of Mr Bouthiette and Tétrault Inc, since they had been made at arm’s length and there was no reason for disregarding them. He stated that they were the best comparable sales since there were practically no adjustments to be made.

According to the new Income Tax Act, the issue is the actual value at December 31, 1971 of the real estate sold on April 18, 1973.

The respondent claimed that the best method of determining this is to use the comparable sales method, taking the sales closest to December 31, 1971.

For this reason, Mr Morin examined approximately twenty sales in his appraisal report, but only used those which were the closest to this date.

Moreover, the other sales required so many adjustments that in his opin- ion they did not make good comparisons. The sales close to Valuation Day were made at a much lower price than those used by the appellants. This explains the very contradictory appraisal reports.

However, there is no evidence that the sales used by the respondent were fraudulent or fictitious sales. They were all made at arm’s length, at prices which represented the actual value of the pieces of land. The appellants, who had the burden of proof, did not establish the contrary. They used sales much too far away from Valuation Day. These sales were comparable but they required so many adjustments that they were no longer appropriate.

The Board agrees with the long line of cases cited by counsel for the respondent, in particular with the definition of the market value of real estate, having already examined these cases on many past occasions.

The sales used by the respondent meet the requirements of this definition: a purchaser and a vendor not acting under duress who agree on a price in an open market.

In the circumstances, the Board feels that the respondent used the best method to appraise the actual value of the subject land, by using the sales which were the closest to Valuation Day and the most comparable with respect to area, location, date, volume of business on rue Principale and the possible locations for other shopping centres in Granby.

The Board accepts Mr Léon-Paul Morin’s appraisal report as being the most correct.

For all these reasons, the appeals are dismissed.

Appeals dismissed.