Aiierton Cushman and Harry Cavanagh, Executors of the Estate of Renee Scharf Cushman v. Minister of National Revenue, [1976] CTC 2122, 76 DTC 1102

A W Prociuk:—The executors of the estate of Renee Scharf Cushman, deceased, appeal from the reassessment by the respondent wherein the fair market value of the real property (and improvements thereon) known as Circle “S” Ranch, and located at Dog Creek in British Columbia, was assessed by the respondent at $536,000 as of August 24, 1969, the date of death of the deceased.

The executors filed the estate tax return on November 13, 1970 and declared the fair market value of the estate as at date of death to be $450,000. Their ground of appeal is that the fair market value at the material time was not in excess of the said amount. The issue before the Board is to determine the said value on the basis of the evidence adduced by both parties.

The deceased in her lifetime was a rancher, resident and domiciled in the State of Arizona, one of the United States of America. At the date of her death, she owned Circle “S” Ranch in British Columbia, which consisted of approximately 21,500 acres of freehold and leased land, with improvements thereon such as houses, sheds, barns, corrals, fences and bunkhouses. The cattle and ranch equipment thereon were owned by Sun Cattle Company Ltd, of which the deceased was the principal shareholder. Her husband, Allerton Cushman, one of the executors of her estate, was also a shareholder in the said company and a director thereof. S Hebenton, Esq testified on behalf of the appellants. He practises law in Vancouver, British Columbia, and acted for the deceased as her solicitor from 1965 to the date of her decease in 1969, dealing particularly with the Circle “S” Ranch and with some of her other business activities in British Columbia. He described the deceased as vigorous, active and a very shrewd business woman. The ranch was well established and was regarded as one of the bigger ranches in the area. He further stated that the deceased, to his knowledge, had no need to sell property at any time, but it was common knowledge that any property or interest therein that she owned in British Columbia was for sale if the price was right. This latter part of the above statment was also repeated in testimony by Mr Allerton Cushman aforesaid.

In July of 1969 the deceased and her husband were in Switzerland, where Mrs Cushman was undergoing certain medical treatments. A certain Mr Charles Gorecki became interested in purchasing the ranch and, on or about July 3, 1969, made an offer of $750,000, plus payment of selling broker’s commission, as a total walk-out price to a Mr Don Pyle who Gorecki thought had a listing of this ranch. Not having received a reply from either the owner or Mr Pyle, Gorecki contacted Mr Hebenton. They met on July 11, 1969 and some discussions took place about the ranch. Mr Hebenton then communicated the offer to Mrs Cushman, who counter-offered to sell the ranch as a going concern for $750,000 plus cattle at market price. This counter-offer was relayed to Gorecki by Mr Hebenton in a letter dated July 21, 1969 (see Exhibit A-4). Gorecki stood by his first offer of July 3 and, by letter of July 21, 1969, advised the agents with whom he had placed the said original offer, that he, on July 28 next, would withdraw his undertaking to pay the sales commission. A copy of this letter was forwarded to Mr Hebenton (see Exhibit A-5). It is obvious that these two letters crossed in the mail. On July 28, 1969 Mr Hebenton received a telegram from Mrs Cushman offering to sell the ranch as a going concern for $800,000. Said telegram was filed as Exhibit A-8 and reads as follows:

ADVISE GOREKI (sic) IMMEDIATELY WE NEVER RECEIVED ORIGINAL OFFER HENCE DIDN’T COUNTER INFORM GOREKI CATLE (sic) VALUATION 275000 BASIS KAMLOOPS SALE JULY 15 STOP MAKE HIM COUNTER OFFER 800000 CASH FOR PACKAGE TELEPHONE RESPONSE IMMEDIATELY CUSHMAN

This offer was transmitted to Gorecki by Mr Hebenton in a letter dated July 29, 1969 (Exhibit A-9). Gorecki did not reply. The proposed sale fell through. Mr Hebenton stated, and this was confirmed by Mr Cushman, that the $800,000 offer to sell was apportioned as follows:

$450,000 land and improvements

$275,000 livestock

$ 75,000 equipment

Gorecki’s offer, excluding sales commission, on the basis of the above valuation of cattle and equipment, was $400,000 for the real estate and improvements. The executors, through their counsel, took the position that $450,000 was the amount the deceased was prepared to accept less than a month before the material date and, accordingly, this was the best indicator of the fair market value thereof, taking into account all the circumstances.

In the fall of 1971 the executors decided to have the ranch appraised and engaged the services of Murray Hume Agencies Ltd for this purpose. The valuation placed by the appraiser on land and improvements as of November 30, 1971 was $536,000, but if the sale were to be for cash, he placed a value of $486,000 on it. This information was elicited by learned counsel for the respondent in his cross-examination of Mr Allerton Cushman.

The respondent called Mr lan Dean, presently chief appraiser for Central Mortgage and Housing Corporation, and formerly a senior appraiser for the Department of National Revenue. He states that he was requested to appraise the fair market value of the Circle “S” Ranch land and improvements as of August 24, 1969. He inspected the subject property late in August and early in September of 1974. His appraisal report, filed as Exhibit R-1, is quite extensive, and contains much information which he gathered at the time of his inspection of the subject property. He used the “market data” approach. At page 7 of Exhibit R-1, Mr Dean states in part as follows:

Value of Land by Market Data Approach

This method is by far the most reliable since It takes into consideration all the factors affecting the value of the property, providing the proper adjustments are made to compensate for the passage of time, location, productivity, size, etc., etc. . . In order to arrive at a value by this method, sales of similar ranch properties were investigated. Market value and prices emanate from the market place wherein dwell the influences of supply and demand and the many other forces that predominate over all real estate. Market Value has been generally described and accepted as the “highest price estimated in terms of money which a property will bring if exposed for sale in the open market allowing a reasonable time to find a purchaser who buys with full knowledge of all the uses to which it is adapted and for which It is capable of being used”.

Attached to this report is a schedule of sales of similar ranch properties which are considered to be arms-length transactions covering land and Improvements only. (See Schedule “A” in the Addenda).

The 19 sales involve 14 difference ranches ranging in size from 595 acres to 27,000 acres the average size being approx. 9800 ac. deeded @ 2440 ac. leased land. There are also 3 listings and one appraisal covering 4 ranches in the period 1971-1972.

The 19 sales have been analysed to give indications of value on the following unit basis:

(A) per Acre of Deeded Land

(B) per Acres of Total Deeded & Leased Land

(C) per Animal Unit

(D) Assessment Ratio

After making some adjustments, he stated that, in his opinion, the fair market value as of August 24, 1969 was $625,000.

He was ably cross-examined by counsel for the appellants, and he conceded that there were some errors in his adjustments. I do not consider it necessary to deal in detail with his report and the cross- examination in respect thereof. The respondent, in reassessing the appellants, appears not to have relied too heavily, if at all, on the fair market value as therein stated, but used the figure of $536,000. It may be a mere coincidence that this is the same figure as that arrived at in November of 1971 by another appraiser whose report is not before the Board. Nor was there any direct evidence in respect thereof.

The subject property was sold by the executors in 1972 for $550,000 (see Exhibit A-12). Whether or not this had a bearing on the position taken by the respondent as to the fair market value when he reassessed on March 14, 1973, or when he confirmed the said reassessment on January 15, 1975, is also a matter of conjecture.

Learned counsel for the respondent pointed out that the offer by the deceased to sell the land and improvements for $450,000 (Exhibit A-8) was a distress offer when one considers her first offer of July 21, 1969 (Exhibit A-4). On the assumption that the market value of the cattle was in fact $275,000 at that time, one cannot say what the deceased had in mind when she made that first offer. It is possible that, being a shrewd business woman, she was merely sizing up the situation, as counsel for the appellants suggested.

In considering the evidence in its totality, I cannot conclude that either party before the Board has satisfactorily established its position as to the fair market value. The onus is on the appellants and, in my humble opinion, they have succeeded only in part. In the circumstances, I think the value of the property is half way between $450,000 and $536,000 and therefore it is hereby established at $493,000.

Accordingly, the appeal is allowed in part, and the matter is referred back to the respondent for reassessment on the basis that the fair market value of the subject property as of August 24, 1969 was $493,000.

Appeal allowed in part.