A
J
Frost:—This
is
an
appeal
from
an
income
tax
reassessment
dated
April
13,
1970
in
respect
of
the
1965
taxation
year
wherein
the
taxable
income
of
the
appellant
was
increased
by
$21,579.97
representing
the
difference
between
an
earlier
valuation
of
the
North
West
Building
located
at
10228
-
98th
Street,
Edmonton,
Alberta
owned
by
the
appellant
and
a
subsequent
valuation
or,
as
the
Minister
of
National
Revenue
said,
“the
final
value
established”.
In
1965
the
appellant
carried
on
the
business
of
owning,
leasing
and
operating
rented
properties.
In
1965
the
said
property
known
as
the
98th
Street
property
in
the
city
of
Edmonton
(adjacent
to
the
Chancery
Hall)
which
had
been
acquired
by
the
appellant
in
1946
was
sold
for
$140,000.
The
building
on
the
property
had
been
built
in
1920
and
was
45
years
old
when
sold.
It
comprised
a
basement
and
three
floors
with
a
footage
of
26,400
square
feet.
The
evidence
showed
that
the
building
was
mainly
used
for
storage
purposes
and
was
no
longer
an
economically
viable
asset
as
it
could
not
be
remodelled
or
modernized
due
to
age
and
circumstances.
Consequently
when
an
unsolocited
offer
of
$140,000
was
received
in
1965
the
property
was
sold.
At
the
date
of
sale
the
property
had
an
undepreciated
cost
of
$30,670.03.
The
appellant
was
of
the
opinion
that
the
building
was
valueless
and
claimed
a
terminal
loss
in
computing
its
1965
income
which
the
respondent
disallowed
in
reassessing
it
on
July
6,
1967.
The
appellant
disagreed
but
accepted
the
respondent’s
valuation
in
a
spirit
of
cooperation.
In
this
connection
Mr
R
E
Smith,
general
manager
of
the
appellant
company,
testified:
.
in
forty
years
of
doing
business
with
the
Government
we
never
had
a
dispute
with
them,
so
we
paid
the
additional
tax
in
the
spirit
of
cooperation
.
.
.”.
On
April
13,
1970
the
respondent
(three
years
later)
issued
a
further
assessment
increasing
the
value
of
the
building
from
$30,670.03
to
$52,250
without
giving
the
taxpayer
any
opportunity
to
discuss
the
situation
prior
to
issuing
the
reassessment
notice.
The
transcript
of
evidence
reads
in
part
as
follows:
Mr
SMITH:
May
I
ask
the
Department
why
they
reversed
their
original
assessment
in
this
matter
in
the
way
they
did
it?
Mr
HYNES:
Mr
Chairman,
20(6)(g)
of
the
Act
requires
the
vendor
and
purchaser
each
to
be
treated
in
the
same
way,
the
allocation
as
to
land
and
buildings
be
the
same
in
each
case.
The
assessment
rating
we
are
now
dealing
with
attributes
$52,000
to
the
building,
the
same
to
the
syndicate
which
purchased
the
building.
The
wording
of
the
section
requires
that
they
both
be
treated
in
the
same
way.
THE
WITNESS:
We
were
not
advised
there
was
dissatisfaction
on
their
part,
nor
did
we
know
the
matter
was
reviewed
by
the
Department
when
they
reassessed
us
again
in
April,
1970.
Mr
HYNES:
Mr
Chairman,
the
problem
arises
when
vendors
and
purchasers
buy
and
sell
buildings
without
making
an
allocation
themselves,
and
that
is
the
case
here
there
was
no
allocation
agreed
upon,
in
this
day
and
age
it
is
somewhat
difficult
to
tell
why
parties
would
sell
property
depreciated
over
a
number
of
years
without
making
an
allocation
or
without
agreeing
on
an
allocation.
All
they
are
doing
is
inviting
a
court
case
on
the
tax
consequences.
THE
WITNESS:
In
any
case
the
valuation
was
changed
from
$30,000
to
$52,250.
That
was
done
three
years
later,
and
we
were
reassessed
without
notifying
us
in
any
way
of
the
proposed
change
in
the
building
valuation,
and
it
came
with
quite
a
shock.
Do
you
know
if
an
additional
appraisal
was
made
after
the
first
one
on
which
you
based
$30,000?
Mr
HYNES:
No
there
was
no
appraisal
on
which
the
$30,000
was
based.
THE
WITNESS:
According
to
your
letter
there
was.
May
I
see
that
letter?
Mr
HYNES
I
am
not
aware
of
the
letter
Mr
Smith
is
referring
to.
The
letter
appears
to
be
new
to
me.
A
copy
of
that
letter
is
not
on
my
file.
I
haven’t
the
slightest
idea
what
appraisal
is
referred
to
because
the
only
independent
appraisal
that
appears
on
the
Department
of
Revenue’s
file
is
the
one
prepared
by
Mr
Davis.
There
is
a
letter
on
my
file
addressed
to
Mr
Tanner
or
Mr
Shikaze
which
follows
up
on
this
of
May
12th.
It
says:
“Further
to
our
proposal
of
May
12,
1967,
we
have
now
received
submissions
from
both
yourself
and
the
representative
of
North
West
Building
Syndicate,
which
are
widely
divergent.
It
has
therefore
been
decided
to
use
the
undepreciated
capital
cost
as
the
value
of
the
building.
The
breakdown
between
land
and
building
is
as
follows:
Building
at
book
value
|
$
30,670.03
|
Land
|
109,329.97
|
Sale
price
of
land
and
building
|
140,000.00
|
Reassessments
on
this
basis
will
be
issued
in
due
course.
THE
WITNESS:
This
was
after
the
appraisal
was
made.
Mr
HYNES:
This
is
12
days
after
the
letter
you
referred
to
and
prior
to
the
appraisal
made
by
Mr
Davis.
THE
WITNESS:
That
is
why
I
asked
if
there
was
another
appraisal
made
before
the
final
reassessment.
Mr
HYNES:
I
have
now
found
the
letter
of
May
12th
on
the
Minister’s
file.
THE
REGISTRAR:
That
has
been
marked
now
as
exhibit
A-2.
EXHIBIT
NO.
A-3:
Copy
of
letter
of
May
17,
1967,
from
B.C.
Tanner
&
Company
to
Department
of
National
Revenue.
Mr
HYNES:
Mr
Shikaze’s
reply
is
now
in
the
record
as
exhibit
A-3.
It
would
appear
that
the
Minister
has
written
to
both
parties
saying
here
are
the
figures
we
have.
Where
he
got
them
from
I
don’t
know.
I
think
the
letter
of
May
24th
says
this
is
what
we
are
going
to
use,
and
the
assessments
were
issued
on
that
basis,
and
this
taxpayer
did
not
object
to
them.
Some
of
the
syndicate
members
did.
With
the
obvious
disparity
in
their
views,
the
Minister
retained
Mr
Davis
to
prepare
an
appraisal,
which
he
did,
and
which
we
have
before
you
as
the
basis
of
the
re-assessments
of
both
the
vendor
and
the
purchaser.
THE
WITNESS:
You
see,
we
had
no
opportunity
to
represent
ourselves
in
this
case.
Mr
HYNES:
I
can
see
that.
THE
WITNESS:
We
didn’t
know
this
was
all
going
on.
We
thought
it
was
all
finalized.
In
the
presiding
member’s
experience,
it
is
not
uncommon
to
find
a
wide
divergence
of
opinion
expressed
by
appraisers
of
the
same
property.
One
appraiser
will
find
no
value
in
an
old
building
while
another
will
find
considerable
value.
This
is
the
core
of
the
problem
in
this
appeal.
The
appellant,
in
his
argument,
contended
that
the
building
had
no
value.
Counsel
for
the
Minister,
in
his
argument,
said
in
effect:
“We
have
a
professional
appraisal
which
sets
a
substantial
value
on
the
building.”
To
appraisers,
real
estate
may
have
many
values.
Each
certifies,
“I
have
inspected
the
property,
am
a
member
of
such
and
such
an
appraisal
institute”,
and
then
proceeds
to
arrive
at
a
value
or
values
depending
on
the
approach
or
approaches
he
adopts.
All
values
may
be
wrong
for
all
could
be
true
professional
appraisals,
hence
the
dilemma
of
a
non-professional
in
reaching
a
decision.
Although
the
Board
does
not
have
the
role
of
an
appraiser,
it
is
necessary
to
decide
upon
the
most
sensible
method
of
valuation.
The
cases
cited
by
the
Minister
are
not
helpful
because
they
are
not
remotely
related
to
the
question
in
issue
with
the
possible
exception
of
City
Parking
Properties
and
Development
Limited
v
MNR,
[1969]
CTC
508;
69
DTC
5332,
which
appeal
was
allowed
in
part.
In
that
case,
methods
and
assumptions
were
reviewed
by
the
Court,
but
no
single
approach
was
adopted
to
determine
the
value,
which
really
is
not
too
helpful
in
this
case
as
the
Board
cannnot
avoid
the
responsibility
of
weighing
appproaches
in
reaching
its
decision.
The
first
appraisal
used
by
the
respondent
and
prepared
by
R
L
Davis,
AACI
in
September
1969
attempts
to
establish
the
fair
market
value
by
a
comparative
approach
and
supports
this
with
an
income
approach
using
a
20%
capitalization
rate
of
the
estimated
income.
Mr
Davis
stated
that
the
purpose
of
his
appraisal
was
to
determine
the
fair
market
value
of
the
property
with
a
separate
allocation
for
land
under
the
existing
program
of
utilization.
In
other
words,
Mr
Davis
arrived
at
an
allocation
of
value
subject
to
the
above
limitation.
He
says
nothing
about
the
highest
and
best
use
of
the
land
and
protects
himself
by
limiting
his
approach.
This
report
because
of
its
limitation
automatically
favours
the
position
of
the
Minister
and
could
only
be
of
assistance
to
the
Board
if
it
were
proved
that
the
appraisal
problem
in
this
particular
case
demanded
a
valuation
based
on
the
land
and
building
as
an
investment
unit.
Since
this
is
not
so
in
my
opinion,
I
reject
Mr
Davis’
valuation
as
inappropriate
in
the
circumstances.
The
second
appraisal
relied
on
by
the
Minister
was
prepared
three
years
prior
to
the
taxation
year
and
in
my
opinion
is
most
unsatisfactory.
It
was
apparently
prepared
for
the
City
of
Edmonton
in
connection
with
a
proposed
land
assembly.
This
appraisal
while
purporting
to
consider
cost,
income,
and
market
apporaches
is
completely
unsupported
by
the
appraiser.
Mr
George
LeDrew,
AACI
in
October
1970
prepared
an
appraisal
for
Marco
Products
Ltd,
the
appellant.
In
the
early
pages
of
his
report
the
appraiser
expresses
his
opinion
based
on
a
10-year
lease.
In
his
income
approach
he
rambles
and
appears
to
use
various
capitalizations
without
indicating
why.
On
the
final
pages,
however,
he
expresses
a
very
Clear
opinion
that
the
market
value
of
the
building
at
the
time
of
sale
should
have
been
approximately
$18,500,
then
qualifies
his
opinion
by
stating:
Our
conclusion
is
that
the
old
brick
structure
located
on
this
site
actually
had
no
value
at
the
time
of
sale
and
that
potentially,
a
maximum
value
of
$18,500.00
if
continued
to
be
rented
at
the
same
rate
to
a
suitable
tenant.
Well?
What
does
one
conclude
from
this
choice
bit
of
expert
evidence?
The
appraisal
reports
were
admitted
in
evidence
but
no
expert
was
called
to
give
evidence.
The
Board
is
not
inclined
to
give
much
weight
to
the
written
opinions
expressed
by
the
appraisers
in
this
appeal.
Their
reports
are
of
little
value
and
of
no
real
assistance
in
reaching
a
decision.
I
do
however
rely
on
the
evidence
of
Mr
R
E
Smith,
the
general
manger
of
the
appellant
company,
who
stated
clearly
and
unequivocally
that
the
building
had
a
negative
value.
There
is
no
doubt
in
my
mind
that
Mr
Smith
is
an
astute
businessman
who
acquiesced
in
a
decision
with
which
he
disagreed,
but
who
finally
took
the
position
that
“enough
is
enough”
and
fought
for
his
right
and
business
principles.
The
evidence
further
indicated
that:
the
building
was
old
and
could
not
be
considered
a
viable
structure;
the
boiler
and
elevator
were
operating
but
in
a
shaky
condition;
a
new
roof
was
needed
and
the
floors
required
extensive
repairs;
the
property
was
in
the
area
included
in
the
Civic
Centre
Redevelopment
Plan;
the
trend
in
that
area
was
towards
the
construction
of
large
office
buildings;
the
old
building
had
no
place
in
the
Civic
Centre
Plan;
the
price
of
land
was
moving
up
very
quickly
in
the
area;
the
appellant
had
a
lease
with
North-West
Tent
&
Awning
Co
Ltd
which
prevented
demolition
until
December
31,
1967;
the
net
return
from
the
building
amounted
to
about
$8,000;
the
site
is
one
of
the
choice
locations
in
Edmonton;
and,
finally,
the
building
was
bought
by
a
syndicate
of
lawyers
at
a
time
when
there
was
a
trend
towards
the
construction
of
large
buildings
in
Edmonton,
requiring
the
assemblage
of
land
to
complete
projects.
On
the
evidence
as
a
whole
it
is
highly
improbable
that
the
new
owners
acquired
the
property
for
the
purpose
of
earning
income.
Its
physical
condition
was
a
liability
and
only
a
comprehensive
plan
of
redevelopment
of
some
sort
could
possibly
justify
a
cash
outlay
of
$140,000.
The
minimal
returns
of
about
$8,000
net
from
the
building
combined
with
the
dilapidated
state
of
disrepair
precludes
the
Board
from
drawing
an
inference
that
a
realistic
appraisal
at
the
time
of
sale
would
have
to
be
based
on
the
land
and
building
as
a
developed
unit.
In
my
opinion,
the
old
building
and
land
no
longer
constituted
a
unit
for
investment
purposes.
Under
the
circumstances,
I
find
no
justification
for
any
appraisal
based
on
the
building
as
a
developed
unit.
Only
the
land
had
value
and
the
building
was
not
acquired
in
my
view
for
producing
income
notwithstanding
the
fact
that
demolition
had
to
be
postponed
and
some
rents
were
collected.
The
only
valid
appraisal
approach
is
the
highest
and
best
use
of
the
land.
I
have
no
alternative
but
to
allow
the
appeal
by
vacating
the
assessment
and
referring
the
matter
back
to
the
respondent
for
reconsideration
and
reassessment
on
the
ground
that
the
building
was
valueless
and
the
appellant
is
entitled
to
a
terminal
loss
equal
to
the
undepreciated
capital
cost
of
the
building
as
provided
by
subsection
1100(2)
of
the
Income
Tax
Regulations.
Appeal
allowed
in
full.
Appeal
allowed.