Estate of Robert Mody v. Minister of National Revenue, [1972] CTC 2089, 72 DTC 1112

J O Weldon:—This is an appeal against an assessment made under the Estate Tax Act, SC 1958, c 29 as amended, and was heard at Saskatoon, Saskatchewan, on October 12 and 13, 1971 under the Tax Appeal Board as it was then constituted. The sole matter in dispute herein involves the valuation for estate tax purposes of the deceased’s farm property described as being the West /2 Section 12, Township 49, Range 12 West 2nd Meridian, in the Province of Saskatchewan. The parties were represented by counsel as follows: James Eremko, Esq, QC, for Alexander Mody, executor of the appellant and S A Hynes, Esq, for the Minister.

The deceased Robert Mody, late of the District of Carrot River, in the Province of Saskatchewan, a bachelor and a farmer, died a resident of and domiciled in the Province of Saskatchewan on August 6, 1969 at 48 years of age having duly made his last will and testament dated July 18, 1963 in which he appointed his brother (several years younger) and farming partner, the said Alexander Mody, the executor thereof. By his will, the deceased left his entire estate to his said brother subject to a life interest to his mother in the NW 74-12-49-12 W2, ie the N /2 of his above-described farm property, and all improvements thereon including a humble-appearing home and some farm buildings but not including portable buildings. The deceased’s mother was wholly dependent on him and her said son Alexander Mody.

The following is a summary of the assets of the above estate as of August 6, 1969, the date of the deceased’s death, as prepared by Alexander Mody for the purposes of the estate’s tax return signed by him as the executor thereof on October 21, 1969 (it was received by the Director-Taxation at Saskatoon on October 24, 1969):

Total Value $51,129.72

*The dispute in this appeal arises out of this property.

Deduction for funeral expenses and
Surrogate Court fees	880.20
Aggregate Net Value	$50,249.52

it should be noted that no tax is payable under subsection 8(4) of the Act upon the aggregate taxable value of the property passing on the death of a person, where the aggregate net value of the property passing on the death of that person, computed in accordance with Division B, does not exceed $50,000, and that the tax payable on an estate the aggregate net value of which is $50,249.52, as in the present matter, is subject to the so-called “notch provision” contained in subsection 9(4) of the Act. So, it would seem to be safe to assume that the amount of tax payable by the appellant estate on the assets thereof as valued above would not have the effect of reducing the total value of the estate below the amount of $50,000 set out in said subsection 8(4) of the Act. According to Mr Hynes, the tax payable by the estate on the above basis prior to the issuance of the disputed assessment herein dated May 7, 1970 would have amounted to only $125. After the issuance of the said assessment — which increased the declared value of the deceased’s farm property by $4,500, from $24,500 to $29,000 and the aggregate taxable value of the estate to $54,749.52 — the tax formally assessed against the estate amounted to $2,374.76 plus interest at 5% commencing 6 months after the death of the deceased or from February 6, 1970. In other words, assuming the tax has not been paid, 2 years’ interest will be payable on the additional tax assessed on February 6, 1972.

Since the onus is on the appellant estate to show that the assumptions relied on by the Minister in making the disputed assessment are unsupportable in whole or in some material part or parts, regard should be had at the outset to the assumptions set out in the Minister’s Reply to Notice of Appeal. Passing over assumptions 4(a), (b) and

(c) which are routine statements of fact not in dispute, assumptions (d) and (e) — which appear to define the issue in this appeal — can be summarized by saying that the Minister assumed that the deceased’s farm property had a fair market value on August 6, 1969 of at least $29,000, and that that amount had been properly included in computing the aggregate net value of the deceased’s property passing on his death. The Minister supplemented the assumptions mentioned above with the following two allegations:

5. In 1967 the deceased was offered $40,000.00 in cash for the subject property, but refused to sell.

6. Following receipt of the Appellant’s Notice of Appeal, he caused an appraisal of the subject property to be completed by a duly qualified appraiser who has determined that the market value of the subject property at the time of death was $32,500.00.

In support of allegation 5 quoted above, Mr Hynes called one H C Enns as a witness to testify on behalf of the Minister. Mr Enns owns the farm adjoining the subject property. Several matters were put in their proper perspective by the evidence of the above witness, namely, he did not make any formal offer to the deceased in 1967 for his farm property but suggested to him that he might be willing to pay $40,000 for the property if he “could raise the money”, that he was basically interested in the subject property because of its location next to his farm, that, when he threw out the above suggested idea of an offer of $40,000, he was quite sure even then that he could not get the total sum from the Farm Credit Corporation, that the man there discouraged him from proceeding with his idea, that he made no further efforts to obtain financing and promptly dropped the whole matter. It follows that, since no offer recognizable as such was made by Mr Enns to the deceased, it is incorrect to allege that the deceased refused to sell his farm property in 1967 to Mr Enns for $40,000 in cash.

Mr Eremko was understandably aggravated, in my view, each time Mr Hynes persisted in using the term “offer” to what was clearly no more than a feeler put out by Mr Enns. It should be observed: that, while Mr Enns seemed to be trying to be helpful in his testimony before the Board, his memory was very hazy as to when he made his offer, to whom it was made — the deceased or Alexander Mody, the circumstances under which the offer was made, and as to why he happened to adopt the figure of $40,000, and so on, and that, accordingly, no weight should be attached to the above evidence in determining for estate tax purposes the value of the deceased’s farm property at the time of his death which occurred about two years later on August 6, 1969. It should be further observed: that there is something fundamentally wrong with giving credence to the evidence of the above witness of a conversation or conversations which took place between him and the deceased some two years prior to his death because the deceased’s view of what had transpired, if it were known, could place a whole new complexion on the matter, and that, between 1967 and his death on August 6, 1969, the deceased, himself, had been ailing, he had suffered two successive crop disappointments in connection with his farm property, and farming economic conditions in the area thereof at the time of his death had, admittedly, been very bad.

A second neighbour of the Modys, N Panchyshyn, was also called by Mr Hynes to testify on behalf of the Minister. His evidence was of a similar type to that given by Mr Enns and, accordingly, no weight should be attached to it, in my view, in solving this appeal. Mr Panchyshyn testified, in effect: that, in 1970, after the death of the deceased, he was looking for a farm for his daughter and his prospective son-in-law who were about to be married and indicated to Alexander Mody that he would consider paying $48,000 for three quarter sections of land, namely, the deceased’s farm property containing two quarter sections and Alexander Mody’s own one quarter section situated kitty-corner thereto. However, Mr Panchyshyn qualified the above evidence later by stating — “I’m under oath and I just can’t swear that it was $48,000”. Beyond driving into Nipawin to speak to Mr Brooks of the Farm Credit Corporation accompanied by Alexander Mody, Mr Panchyshyn did not appear to do anything further to follow up his alleged tentative offer. He further testified, as follows:

that —

I wanted to take Alec along just for — so that he would hear what Mr Brooks had to say, how much I! could borrow in case we did go into the procedure of buying land and we talked to Mr Brooks and I just can’t quite remember what his answer was, and we got back and for some reason or other, which I can’t remember, we didn’t go through with the deal;

that the full amount of the purchase money was not available at the Farm Credit Corporation; that he did not think he could finance the property elsewhere at that time, and that —

Truthfully speaking, I can’t tell you the honest answer why we didn't go through with it right at that time.

That brings me to allegation 6 of the Minister’s Reply to Notice of Appeal quoted earlier herein which states, in effect, that a duly qualified appraiser had determined the market value of the subject property as of the time of death to be $32,500. That was done within a month or so of the hearing of the appeal and over two years after the death of the deceased. In weighing the above appraisal as evidence, it should be observed at the outset that the Minister’s position herein was greatly weakened, in my view, when he built his case substantially around the expert evidence of a land appraiser employed by the Veterans’ Land Administration in Saskatoon whose work is to make appraisals of properties for the purpose of making loans to veterans — which is a vastly different type of purpose to that of making an appraisal for estate tax purposes — instead of coming to grips with the taxpayer’s objection herein by putting the assessor who made the disputed assessment into the witness box and by endeavouring to establish through him that he did have sound and legally acceptable reasons for increasing the declared value of the deceased’s farm property from $24,500 to $29,000. After listening to a mass of evidence in this appeal, and also to extensive argument by counsel for the parties, it can only be concluded, in my view, that the disputed assessment herein was made in a casual and arbitrary manner without proper supporting evidence. As a matter of fact, neither the assessor nor the appraiser subsequently retained to value the deceased’s farm property for the purposes of this appeal appears to have taken the trouble to make any enquiries from the logical person to look to for general information of the property, namely, the Secretary-Treasurer of the Rural Municipality of Moose Range No 486.

It should be noted that the correct value of the deceased’s farm property for estate tax purposes, according to the definition of “value” contained in paragraph 58(1 )(s) of the Act, was its “fair market value” computed as of the date of the death of the deceased, namely, August 6, 1969, without regard to any increase or decrease in such value after that date for any reason. In discussing the term “fair market value”, Mr Jameson in his textbook entitled Canadian Estate Tax, 1960 edition, states at page 310:

Of necessity the predominant word is value, and opinions differ as to whether the term “fair market” adds to or detracts from value. It may be argued that fair market anticipates an actual market and if no market can be demonstrated then no value can be shown, whereas the Ontario Act which refers to value alone is not limited within these bounds.

So, the above quotation would appear, at least, to partly confirm my own view that what the Board should be trying to ascertain in this appeal is what price would the deceased’s farm property have brought if it could have been sold on the open market at the time of his death to a willing purchaser having the money to complete the transaction. It would appear to follow from the above statement of the Board’s function herein that, if the Minister were unable to proffer evidence at the hearing of the appeal that there had been such a purchaser or purchasers available at the relevant time in the open market — which he did not succeed in doing — it can only be assumed that, following the death of the deceased, Alexander Mody, as his executor, had no alternative but to make whatever enquiries as were indicated and to seek whatever advice he required from the solicitor for the estate to enable him to estimate the fair market value of the deceased’s farm property for estate tax purposes. It should be carefully noted that Alexander Mody had to bear in mind at all times that the deceased had devised to their mother a life interest in the N /2 of the farm property, and all improvements thereon. In other words, the N /2 of the deceased’s farm property was specifically dealt with by him in his will. In that regard, it seems to me that the fair market value of the above property as a farming unit was adversely affected when the deceased divided it up into two parts for the purpose of creating the above-mentioned life interest in favour of his mother with respect to one of the parts. That point was not argued in this appeal but it will be a factor in my mind in its disposition.

During the hearing of this appeal my mind was carried well over the point of equilibrium by the evidence of Alexander Mody, executor of the above Estate, and that of the other witness on its behalf E P Johnson, Secretary Treasurer of the Rural Municipality of Moose Range, No 486. So, my plan will now be to very briefly explain why the evidence of the appellant’s two witnesses mentioned above has been accepted by me in preference to the expert testimony of A H MacDonald supplemented as it was by his undated professional-looking appraisal report. According to the material before the Board, the Director-Taxation at Saskatoon wrote the Veterans’ Land Administration at Saskatoon on July 26, 1971 requesting a complete appraisal of the deceased’s farm property setting forth its fair market value as of August 6, 1969. Mr MacDonald appears to have based his valuation of $32,500 on data which he had assembled with respect to ten sales of farm acreages and farm properties six of which are in Township 49 and four in Township 50.

Alexander Mody testified, in effect, as follows: that he is a rural telephone lineman servicing 90 miles of telephone pole lead — that means lines of telephone poles carrying the wires and equipment to provide service — in the Carrot River area; that he started farming with his father when he left high school in 1947; that he farmed the property now under scrutiny situated five miles from the town of Carrot River in partnership with his brother, the deceased herein, from 1951 until his death on August 6, 1969, some 18 years; that he commenced his duties as a telephone lineman about 1963 which he performed along with his farming activities; that from 1947 to 1969 he had had experience in farming five quarter sections of land (800 acres) including the deceased’s two quarter sections; that he discontinued the operation of the deceased’s farm property at the end of 1969 having then had about 24 years of farming experience; that, as a telephone lineman, he has had to do everything for his line and has acquired a first hand knowledge of soil conditions over a wide area of the municipality simply because he has had to dig so many post holes which vary from 4 feet to 5 /2 feet in depth; that, when he is up on a telephone pole, he can scan the fields around and see what the crops are like, and that he, assisted only by his mother, set the fair market value of the deceased’s farm property about 10 days after his death, ie about August 16, 1969, at $24,500; that —

I arrived at this before the appraisal of the farm machinery and before I measured the grain for valuation and before we approached the Secretary of the Municipality for a valuation of the land.

Asked by Mr Eremko why he ceased to farm actively, Alexander Mody replied, in effect: that his brother, the deceased herein, took ill in 1967 and, thereafter, could do no manual labour, was under the doctor’s care and under medication; that, in one season, they had seeded and re-seeded 100 acres of land in rape seed and it had blown out on both occasions; that they had had two successive wet falls in which their wheat crops had to be dried which is quite an expensive item, and that in the fall of 1969, his last year of farming, his crop was covered by snow.

The aforementioned E P Johnson, Secretary-Treasurer of the Rural Municipality of Moose Range No 486, testified, in effect, as follows: that he lives at Carrot River and has held his present position since 1938, some 33 years; that Carrot River is about 5 /2 miles from the deceased’s farm property; that he has personal knowledge of that property and most of the land in the municipality through his many and varied official and less official duties on behalf of his employer including those involving assessments for real property taxes to say nothing of his own personal activities all of which keep him in touch with conditions and what is happening in the municipality; that he gets around the municipality quite a bit —

we have to drive out to look at special projects where the Provincial Government is concerned, where they give us grants, we have to inspect these projects, the grid roads, farm access roads, bridges and things like that, because I have to take an affidavit that I have seen the job and it appears to have been done satisfactorily, so we have to drive out. I quite often have to drive out to see a farmer about some point of business. I have to drive out to see a councillor or reeve about a point of business. I have to travel around hanging notices of various kinds, election notices, I don’t suppose there’s a road in the Municipality that I haven’t been down it one time or another;

that he is involved in assessment appeals —

we take a look at the land to just verify it and then we have some basis to talk on when this appeal comes up;

that —

I might get a report of an emergency on a culvert that’s collapsed or a bridge that has collapsed and l run out there usually and find someone to either repair it or put up warning signals. I even do that myself sometimes. I did that the other day;

that, through his 33 years of experience in and about the municipality, he has acquired a good knowledge of the various types of soil to be found in the municipality and also of the farmers, themselves, residing therein; that (in reply to Mr Eremko’s question as to the extent of his knowledge of land transactions within the municipality) —

Well, I think we have probably the best knowledge that anyone could possibly have, because we get, where there’s been a land transaction, we get copies of the Certificate of Title from the Land Titles Office for our information, which shows the valuation of it and the name of the owner and so forth and the date of the transaction and farmers, and not only farmers, but other people discuss with me my opinion on land values, they come in and what is my idea, they contemplate buying this land and I give it to them and I pride myself in being able to hit it very closely;

that his opinion on land values in the municipality is sought by trust companies, quite regularly by the Department of National Revenue (but not in this matter), by solicitors and other people in the land business, and that he deals with all those enquiries as a free service without charging any fee whatsoever.

Mr Johnson further testified, in effect, as follows: that, about the end of 1969 (the deceased died August 6, 1969), he received a request by telephone (probably it came from Mr Eremko, counsel for the appellant) for his opinion of the value of the W /2 12-49-12-W2, the subject property herein; that he prepared the following letter (which he, apparently, placed on file to be used, no doubt, as and when required) —

RURAL MUNICIPALITY OF MOOSE RANGE No 486 Incorporated 1916 Province of Saskatchewan

Office of The Secretary-Treasurer CARROT RIVER, SASK

E P Johnson, RMST

Sect’y-Treas

January 20, 1970

TO WHOM IT MAY CONCERN:

Re: W /2 12-49-12-W2

This is to certify that I have been Secretary-Treasurer of this municipality since 1938 and am well acquainted with the various parcels of land in the area and of assessed and saleable values.

About three years ago when the farm picture was bright and grain sales were no problem this half section would have had a saleable value of anywhere from $28,000 to $32,000. However, with a depressed economic outlook being experienced by the farming community, prices have become quite depressed. In fact it is difficult to sell land at the present time — at any price. However, to be realistic, we feel that a fair figure for this half section would be in the neighbourhood of $22,000 to $25,000.

Yours truly,

(Signed) E P Johnson Secretary-T reasurer.

It should be observed that the letter quoted above is addressed “To Whom It May Concern” indicating that it was intended by Mr Johnson to serve a general purpose and not merely the interests of the appellant Estate; that Mr Johnson was not paid for his opinion covering the valuation of the subject property; that his said letter contains clear and plausible reasons for his valuation, ie “in the neighbourhood of $22,000 to $25,000”, and that that valuation represents, in my view, more than sufficient confirmation of the valuation of $24,500 of the said property set by Alexander Mody.

The present appeal involves the valuation of what can only be described, on the basis of the evidence of Alexander Mody who knows more about the property, in my view, than anybody else, as a poor type of farm (it was apparently “mined out” by its former owners), the Board was deluged with particulars of a number of transactions involving sales of farm properties with and without buildings (referred to as “comparables”) which had occurred roughly in 1968 and 1969 to give it some idea of the value of land in the relevant area on August 6, 1969, the date of the deceased’s death. In comparing the value of a farm property declared in an estate tax return with the sale price of a so-called “comparable” property, there are — from my experience in this appeal — a great many factors which vary from property to property and which have to be taken into consideration, such as, to mention some which come to mind: the year in which the sale took place; market prices for farm products in that year; size of property, usually /4 or /2 section; with buildings or no buildings; general location of property; soil conditions; weed problems, especially quack grass; previous crop records; drainage problems; water supply; top soil deficiency; number of acres under cultivation; number of acres unbroken; financing charges and interest rates; acreage in summer fallow; acreage in crops; time of year of sale; suitability of soil only for special crops, and so on and on.

With all of the above factors to contend with the problem simply reduces itself, so far as I am concerned, to deciding which valuation being advanced appears to be based on the strongest and best evidence available. In that regard the Board should bear in mind, first, that the evidence adduced through Alexander Mody and E P Johnson on behalf of the appellant was “primary evidence” based as it was on personal knowledge of the property in question and experience acquired over a long period of time, and secondly, that the evidence adduced through the professional appraiser A H MacDonald was “secondary evidence” since it was not based on personal knowledge of the property and the surrounding area but on cold statistical figures, the relevance of many of which was certainly not established to my satisfaction. On the above basis, I have decided in the result to base my decision herein on the evidence of Alexander Mody and E P Johnson.

For the reasons and observations set out above, it should be concluded that the appellant has been successful herein in establishing that the Minister was not justified in increasing the declared value of the deceased’s farm property from $24,500 to $29,000 for estate tax purposes, and that the value of the said property should, accordingly, be restored to its declared value of $24,500. Therefore, the appeal should be allowed and the relevant assessment referred back to the Minister for amendment as stated above.

Appeal allowed.