‘Robert Adolphe Stanley v. Minister of National Revenue, [1969] CTC 430, 69 DTC 5286

SHEPPARD, D.J.:—This appeal is from the Tax Appeal Board on the ground that the assessment of the appellant was in error in assessing him for the year 1963 in respect of $31,066.32 as the recovery of a capital cost allowance.

The dispute arises over Lots 2 and 3, except 7 feet thereof in Blocks 4 and 5, D.L. 642, Group 1, N.W.D., Plan 1622, at 5809 Fraser Street, Vancouver, B.C. In 1950 the appellant bought Lot 2 and in 1951 built thereon the Fraser Medical-Dental Building. In 1953 he bought Lot 3, which remained vacant. Lot 3 and the back of Lot 2 were used as parking places for tenants of the Fraser Medical-Dental Building. In 1963 the lots and building were sold to the Board of School Trustees (Vancouver) and both lots are now part of the grounds of the John Oliver High School.

In 1955 or 1956 the Board of School Trustees began to acquire properties adjoining the school site. By letter of August 3, 1957 (Ex. A3) the appellant wrote to the Board stating that the building owned by him was occupied by tenants and he wished to maintain their goodwill and therefore wished to know whether the Board intended acquiring his property. By letter April 3, 1962 (Ex. A7) the Board wrote to the appellant that in December last the Board had approved the purchase of his property subject to the approval of the Department of Education. By letter May 8, 1962 (Ex. A8) the Board wrote to the appellant that the Department had approved the purchase and that the Board would pay “a fair market value’’, that they had appointed the Bell-Irving Realty Ltd. as appraisers, but would allow him a reasonable time to relocate. The appraisal made by Bell-Irving through Palmer, was dated June 12/1962 (Ex. R29) and fixed the value of the appellant’s property at $82,000. By letter July 2, 1962 (Ex. R13) the appellant wrote to the Board that the tenants and he had become impatient, that he could fill a- building half as big again with tenants, but they would insist upon security of tenure and at the present time he had one suite empty. The negotiations for the purchase of the appellant’s lots were taken over by the Legal Department of the City of Vancouver and in conversation with Elliott of the Legal Department, he stated the best he could do was to give another 10% or $8,200. Thereupon the appellant agreed to sell with payment of this additional sum. It was agreed that the sale was to be completed as of January 8, 1963 and the keys were to be delivered as of the end of February 1963 (Ex. A10 and Ex. R14). By letter of October 5, 1962 (Ex. R14) the Legal Department of the City of Vancouver wrote the appellant to say that the City would pay $90,200 for his property and that the purchase price would be adjusted as of January 8, 1963. Under date of October 9, 1962 (Ex. A9) deeds were executed by the appellant to the Board of School Trustees for each of the two properties. By letter of March 6, 1964 (Ex. A10) the Board wrote the appellant that the Board had received the keys of the building as of February 28, 1963. Form A, the Application for Registration of Fee Simple is dated October 10, 1962 and the City put the value on Lot 3 of $10,250, and Lot 2, which contained the building, a t$71,750, or a total of $82,000. The building was sold by the Board for $200' and the land is now incorporated into the school site of the John Oliver High School (Exs. 1 and 2).

The Minister added to the appellant’s taxable income for the year 1963 the sum of $31,066.32 under Section 20(1) of the Income Tax Act as capital cost allowance then recovered. The appellant appealed from that assessment to the Tax Appeal Board and upon that appeal being dismissed, the appellant now appeals to this Court.

The issue is whether or not the amount realized in respect of the building exceeded ‘‘the undepreciated capital cost’’ of the building (or $16,247.10) under Section 20(1) of the Income Tax Act so as to permit the excess being included in computing the appellant’s income for the year 1963. The original cost to the appellant of the land (the two lots) was $9,350, of the building $47,313.32, a total of $56,663.32. The building was a depreciable capital asset under Class 6 of Schedule B to the Income Tax Regulations and during the appellant’s ownership he had received a depreciable capital cost of $31,066.32, leaving his capital cost undepreciated of $16,247.10, of the total cost of $47,313.32. The property was sold by the appellant for $90,200, as follows: 10% allowed the appellant for other items, $8,200; value of lands according to Palmer’s report, $20,500; of the buildings, $61,500 ; total $90,200.

It is contended for the Minister that on the resale the buildings realized $61,500, a price in excess of their original cost, therefore the sum of $31,066.31, the depreciated capital cost, had been recovered, and under Section 20(1) of the Income Tax Act should be added to the appellant’s income for the year 1963 as permitted by Section 20(6) (g). On the other hand, the appellant contends that the two lots were of the value of $1,000 per frontage foot or a total value of $68,000, therefore only $14,000 was recovered for the buildings and consequently no part of the depreciated capital cost of the building was realized. Hence the ultimate issue is the amount realized for the buildings.

The appellant contended that the Board wished the property vacant, namely: to add to the site of John Oliver High School. That was indicated by the fact that the buildings were sold for $200 and therefore the appellant contended that the Board considered the buildings had no value. That does not follow for the following reasons:

(a) The Board offered to pay the fair market value (letter of May 8, 1962 (Ex. A8) );

(b) The valuation by Bell-Irving Realty Ltd. through Palmer (Ex. R29) for the Board, fixed the value of the lots and building as their value to the appellant as owner (Ex. R29), and

(c) The appellant and Elliott of the Legal Department, acting for the Board agreed on that valuation with the addition of 10% or $8,200 for the appellant’s costs of removal. Elliott stated in effect that he could not allow more than 10% over the valuation of Palmer. Therefore, in this instance the proper test of the value of the lots and building is that value to the owner as stated in Diggon-Hïbhen Lid. v. The King, [1949] S.C.R. 712, where Rand, J. at p. 714 stated:

There is no serious dispute that they should be allowed; that they must be such as can be brought within the scope of the “value of the land to the owner” has not been questioned; and what is at issue in the particular items is in reality a conceptual refinement which is devoid of practical significance.

and at p. 715:

The statement means, as Mr. Varcoe on the argument frankly conceded, that the owner at the moment of expropriation is to be deemed as without title, but all else remaining the same, and the question is what would he, as a prudent man, at that moment, pay for the property rather than be ejected from it.

and when Estey, J. at p. 717, stated:

It is the value to the owner and not the market price or value to the purchaser that must be determined. In the determination of that value to the owner various items may be considered and these will vary according to the circumstances of particular cases.

In determining the amount: of these other items to be taken into account and not easily calculated those items may be allowed as a percentage of the market value (Drew v. The Queen, [1961] S.C.R. 614). Here that was done. The appellant accepted 10% or $8,200 as his cost of removing to other premises and subject thereto the parties agreed upon the values of the lots and building as determined by the Palmer report (Ex. R29). The appellant has called evidence for the purpose of proving that the lands of Lots 2 and 3 were of the value of $1,000 per frontage foot or a total value of $68,000 and therefore the buildings had a value of $14,000 only. For that purpose the appellant called evidence as to the value of properties sold through the years 1959 to 1964 on Fraser Street south of 43rd Avenue. Lots 2 and 3 are north of 48rd Avenue and the evidence is that the value of properties rises appreciably as one proceeds south of 43rd Avenue to 49th Avenue for several reasons :

(a) There is a parking area for those properties south of 48rd commencing at 43rd and going south to 49th (Ex. Al).

(b) North of 41st there is a large cemetery which does not add to the value of the lots in question. Also 48rd Avenue runs into Memorial Park to the east of Fraser, therefore 48rd is not an artery for traffic (Ex. Al).

(c) The traffic pattern of the public does not include Lots 2 and 3, the appellant’s property. Accordingly there is much less demand of property north of 43rd where the appellant’s lots are situate, so that values of property south of 48rd do not indicate an equivalent value of properties to the north. Hence the values of properties south of 43rd ‘‘cannot reasonably be regarded’’ (within Section 20 (6) (g)) as the value of properties to the north of 43rd.

Finally, Section 20(6) (g) of the Income Tax Act states, “Where an amount can reasonbly be regarded as being in part the consideration for disposition of depreciable property’’; these words of the section contemplate two things:

1. What can reasonably be regarded.

2. As part of the consideration for disposition of depreciable property.

In this instance the parties have agreed upon the value of the property at $90,200 on the basis of the Palmer evaluation (Ex. R27), therefore the consideration contemplated by Section 20(6) (g) is the Palmer report, plus $8,200. The part of that consideration which can reasonably be regarded as the price of the buildings is apparent from the report itself, namely $61,250 (Ex. R27, p. 14) and therefore, under the circumstances of this case, the value of other properties cannot in any sense be relevant to prove the part of the consideration for the buildings here in question.

The appellant cited the following cases: M.N.R. v. Steen Realty Lid., [1964] Ex. C.R. 548; [1964] C.T.C. 133; Emco Ltd. v. M.N.R., [1968] CT.C. 457; Baine Johnston Ltd. v. M.N.R., [1968] Tax A.B.C. 1100. In those cases the buildings had no value whatsoever and therefore the Court found they could not have been valued by the owner.

In conclusion this appeal is dismissed with costs.