City Parking Properties and Development Limited v. Minister of National Revenue, [1969] CTC 508, 69 DTC 5332

KERR, J.:—This is an appeal from an assessment of income tax for the appellant’s 1965 taxation year. The question for determination is what part of the cost of certain property in Toronto, consisting of land and an office building, purchased by the appellant, can reasonably be regarded as being the ‘ consideration ’ ’ for ‘ disposition” of the building for the purposes of Section 20(6)

(g) of the Income Tax Act.

In April 1962 the appellant purchased the property from The Toronto Stock Exchange Building Company Limited at a price of $1,850,000. Incidental legal fees of $5,322.60 brought the total cost up to $1,855,322.60.

In its tax returns for 1962, 1963, 1964 and 1965 the appellant allocated $952,733.71 (out of the total cost of $1,855,322.60) to the building as the amount reasonably attributable thereto, and claimed capital cost allowances accordingly.

In the Reply to the Notice of Appeal the respondent said that in re-assessing for the appellant’s 1965 taxation year he acted upon the following assumptions, inter alia :

— that the part of the said amount of $1,850,000 that could reasonably be regarded as being the consideration for the disposition of the building was an amount not exceeding $419,647. Para. 5(c) ;

— that as an incident of the purchase of the property the appellant incurred legal fees of $5,322.60, of which the respondent attributed $731.77 to the cost of acquiring the building, with the result that the appellant was deemed to have acquired the building at a total capital cost to it of $420,387.77*.[1] Para. 6.

Section 20(6) (g) of the Act reads as follows:

20. (6) For the purpose of this section and regulations made under paragraph (a) of subsection (1) of section 11, the following rules apply:

(g) where an amount can reasonably be regarded as being in part the consideration for disposition of depreciable property of a taxpayer of a prescribed class and as being in part consideration for something else, the part of the amount that can reasonably be regarded as being the consideration for such disposition shall be deemed to be the proceeds of disposition of depreciable property of that class irrespective of the form or legal effect of the contract or agreement; and the person to whom the depreciable property was disposed of shall be deemed to have acquired the property at a capital cost to him equal to the same part of that amount;

At the date of its purchase the property consisted of a main block of land containing about 56,000 sq. feet, being the entire city block bounded by King, Court, Toronto and Church streets; and an adjacent smaller parcel of land, about 2773 sq. feet in area, at the northwest corner of Court and Church streets, used as a parking lot. The building concerned was on part of the main block of land. It was an 8-storey office building which for many years up until 1958 was the Head Office of Imperial Oil Limited. The remainder of the main block was used as a parking lot. The building was torn down early in 1968 and ever since then the entire land area has been used as a parking lot.

The property and its neighbourhood was described by Robert A. Davis and James E. Farr, who were called as expert witnesses. They are competent and experienced real estate appraisers. Their descriptions do not differ materially and I shall repeat, verbatim, portions of the description given in F'arr’s appraisal Report, for convenience and because it has more detail than there is in the affidavit of Davis.

DESCRIPTION OF LANDS

(1) SITE OF 92 KING STREET EAST

OR NO. 56 CHURCH STREET

This site formed part of a larger ownership unit which is more particularly described below under item (2).

The lot size which was assessed to the building for municipal taxation purposes was as follows:

(a) King Street East	55 ft. by 155 ft. 6 ins. or 8,553 sq. ft.
(b) Court Street	82 ft. by 75 ft. 7 ins. or 6,197 sq. ft.
Total Court Street
Frontage	137 ft.	Total Area	14,750 sq. ft.

These dimensions coincide more or less with the actual building frontage on King Street East and Church Street but include an L-shaped laneway running southerly from the Court Street for 57 ft. 8% ins. and then easterly to the subject building. The assessed lot has been adopted as the appropriate curtilage for the building.

(2) TOTAL AREA OWNED AT THE LOCATION

PARCEL 1—358 feet 8^ ins. frontage on the north side of King Street East, 155 feet seven inches on the west side of Church Street, 358 feet 7 inches on the south side of Court Street and 156 feet 6% ins. on the east side of Toronto Street. The computed area is 56,162 square feet.

PARCEL 2—27 feet 8% inches frontage on the west side of Church Sreet, by a flankage on the north side of Court Street of 100 feet, and a computed area of 2,773 square feet.

Total Area of ownership—58,935 sq. ft.

IMPROVEMENTS

Erected on the site of No. 92 King Street East, was a steel framed, masonry clad, eight-storey plus basement office building with a tar felt and gravel roof. Heat was supplied by oil fired steam boilers located in the basement. There were three manual passenger elevators and two runs of steel stairs; one on either side of the elevator wells. There were two main entrances; one from Church Street and the other from King Street.

The main lobby had a terrazzo floor, commercial marble walls and decorated plaster ceilings. A section of the northerly part of the building was used for bank purposes. The Second to the Seventh Floors were laid out according to a typical floor plan, with partitions chiefly of masonry, but some others of frame and glass with some flex board. All floors were served by the three passenger elevators and stairs. Lobbies had terrazzo floors with marble wainscotting, corridor and office floors were covered with linoleum, and walls and ceilings were plastered and painted. Some offices had been treated with acoustic ceilings. Windows on street frontages had bronze covered wood sash, others were steel sash with wired glass. Washrooms for both sexes were located on various floors.

The eighth floor was originally equipped as executive offices with special plumbing. Various offices were wood panelled; a former board room was located on this floor.

Floor areas were computed as follows:

	Gross Floor	Full Floor	Net Rentable
	Area	Rentable Area	Floor Area
	sq. ft.	sq. ft.	sq. ft.
Ground	12,265	7,330	7,330
Second	12,023	6,975	5,500
Third	11,783	9,670	8,193
Fourth	11,783	9,670	8,193
Fifth	11,783	9,670	8,193
Sixth	11,783	9,670	8,193
Seventh	11,783	9,670	8,193
Eighth	11,783	9,670	8,193
Total above grade	94,986	72,325	61,988
Basement	12,265	7,140	7,140
Total	107,251	79,465	69,128
	NEIGHBOURHOOD

The subject property is located in the easterly part of downtown Toronto. The area is commercial in character and the permitted uses under the prevailing land use controls are for this use.

The ownership, with the exception of a small land parcel at the northeast corner of Church and Court Street, comprises the city block bounded on the south by King Street East, on the east by Church Street, on the north by Court Street and on the west by Toronto Street. King Street is an important east-west traffic artery and the heart of the financial district, at King and Bay Streets, lies three city blocks to the west. Church Street is a main north-south traffic artery. The King Street Station of the Yonge Street Subway lies two blocks to the west, at the junction of King and Yonge Streets, and there is a streetcar service on King Street. One block to the north of King Street and parallel to it lies Adelaide Street, an important one-way traffic artery leading to the Don Valley Parkway.

The lands to the east of the property, fronting the east side of Church Street, comprise the site of St. James’ Cathedral complex. The west side of Church Street, immediately to the north of that part of the ownership, which comprises a vacant land parcel at the northwest corner of Court and Church Streets, is occupied by No. 66 Church Street, which is a four-storey older brick commercial structure. To the west of the aforementioned vacant parcel, at the corner of Church and Court Streets, lies a parking lot fronting the north side of Court Street. To the west of this lot, at the northeast corner of Court and Toronto Street, is No. 15 Toronto Street (The Hiram Walker-Gooderham Worts Building), which is a modern eleven-storey office building completed in late 1961. North of No. 15 Toronto Street lies the premises of the Consumers’ Gas Co. which are of some age and flank the south side of Adelaide Street. The north frontage of Adelaide Street East, opposite the north end of Toronto Street, forms the site of the new Dominion Government office complex, known as the Mackenzie Building.

On the west side of Toronto Street, at the southwest corner of Adelaide Street, is No. 36 Toronto Street, which is the older ten- storey office building of the Excelsior Life Insurance Company. South of this structure, on the west side of Toronto Street and opposite the Hiram Walker Building, lay the Shaw & Begg Building, which was an older five-storey office structure. This building was purchased in February 1962 by the Excelsior Life Insurance Company and was wrecked and is now the site of No. 20 Toronto Street, a modern fourteen-storey office building known as the New Excelsior Life Building; this was completed in 1965. South of No. 20 Toronto Street is the historic original two-storey post office structure (restored as the headquarters of the Argus Corporation), and south of that, at the northwest corner of King and Toronto Streets, is an older five-storey structure housing the Letros Tavern. West of this structure and fronting the north side of King Street East lies the new offices of International Business Machines, and west of this at the northeast corner of King and Victoria Streets is the modern Fidelity Insurance Company building.

The three to five storey buildings at the northwest corner of King and Victoria Streets housed the National Trust Company but this Corporation agreed to lease space in 1961 in a projected new building at No. 21 King Street East, on the opposite side of the street from their former premises. This modern twenty-one storey office structure has a rentable area of about 300,000 sq. ft. and stands at the southwest corner of King and Melinda Streets. The former National Trust property has been sold and is now the site of a new high rise office building. The southeast corner of this junction is occupied by the King Edward Sheraton Hotel which extends easterly along the south side of King Street East to its intersection with Leader Lane.

The southeast corner of Leader Lane is given over to a car park and east of this are three older three-storey masonry commercial structures with ground floor retail and service stores. To the east of this is a somewhat similar four-storey brick building. East of this, at No. 91 King Street East, is the four-storey masonry constructed Albany Club, and then a five-storey brick commercial structure being No. 95 King Street East. The next property to the east is located at the southwest corner of the junction of King and Church Streets and consists of a car parking lot.

The southeast corner of Church and King Streets is the site of an old four-storey brick building which is leased by Darrigo Brothers Fruit Company from the City of Toronto. East of this property are three older three-storey brick structures each given over to retail or showroom premises on the ground floor.

The ground floor area of the building was estimated at 12,130 and 12,265 sq. feet by Davis and Farr, respectively.

The appellant is a company incorporated under the laws of the Province of Ontario. Evidence in respect of the purchase and use of the subject property was given by W. Bernard Herman, president of the company. For the past 30 years he had also been chief executive officer of an affiliated company, City Parking Limited, which operates and manages some 150 parking facilities in various places in Canada, and he is and has been primarily responsible for acquiring properties for the several affiliated companies, having made numerous purchases each year. The purchase of this property was negotiated under his direction and approved by him. There were communications and negotiations between City Parking Limited and Wood, Fleming & Company Limited, who were real estate brokers and agents for the owner, The Toronto Stock Exchange Building Company Limited, commencing in September 1961, pertaining to the property, its use, revenues, expenses, taxes, etc., which culminated in an Agreement of Purchase and Sale, dated February 1, 1962, taken in the name of City Parking Limited, and a subsequent Deed, Exhibit B, to the appellant, dated April 2, 1962, for a consideration of $1,850,000, of which $500,000 was paid in cash and the remaining $1,350,000 was secured by a mortgage, Exhibit C, of the property to the vendor.

At the date of the sale there were leases and lease commitments of various parts of the property, as shown in Appendix “B” to the Agreement of Purchase and Sale, including a lease of portions of the building to the Municipality of Metropolitan Toronto, at approximately $7,000 per month, expiring on September 30, 1965, with an option to renew for an additional year if the lessor did not require the premises for its own use, and a lease to the Royal Bank of Canada, at $1,640 per month, expiring on September 30, 1965. The western part of the main block of land was leased to the Parking Authority of Toronto on a rental basis of 50% of the gross revenues, with a minimum guarantee of $80,000 for 12 months, the lessor paying the realty taxes. Figures were given showing that the gross revenues from the parking lot were $110,986.42 in 1960 and $85,153.79 for the period January to September, inclusive, in 1961, and, consequently, the guaranteed $80,000 was payable in each of those years.

When the property was purchased the building was not fully rented, 2 full floors and portions of other floors were vacant, and, except for the 2 years 1966 and 1967 during which the building was rented to Eaton Centre Limited, it was not found possible to rent it completely. The Eaton lease was for 1966 and was renewed for 1967, on what was described as a ‘‘net, net’’ basis, with the lessee paying all operating expenses and realty taxes and $120,000 per year rent.

An operating statement, Exhibit 17, shows revenues, expenses and net profit (without provision for mortgage and interest expense and depreciation) of the appellant for the years 1962 to 1967, inclusive, in respect of the office building and the parking lots. The following figures are extracted therefrom :

In re the building:

That same exhibit similarly shows revenues, expenses and net profit (or loss) for those years of Empire Parking Limited, an affiliated company which operated the large parking lot in 1962 and 1963, and of Empire Parking Limited and City Parking Canada Limited, another affiliate, which operated the lot in 1964 and 1965-1967, respectively. The following figures are extracted:

A steel and reinforced concrete parking deck having 100 car spaces was erected in 1963 at a cost of $200,000, and parking revenues increased thereafter. Herman said that to make the deck economical it would have to be kept for 12 to 15 years.

The building was demolished immediately after the Eaton tenancy ended. Herman said that up until the decision to demolish was taken the company was seeking a major tenant for a 10-year lease and was negotiating with several prospective tenants, one of which was Ryerson Institute, but the situation then was that the large new Toronto-Dominion and Richmond- Adelaide Centres were attracting tenants, other office space in the downtown business district was being thrown on the market, and a major tenant for the building could not be found. The choices open to the appellant were to rent the building piecemeal, remodel it or demolish it. The company chose to demolish it and make use of the entire land as a parking lot.

The possibility of demolishing the building has been considered at earlier times, for in a memorandum, Exhibit E, dated December 21, 1961, to Herman from John Walker, who at that time was comptroller of the appellant company, demolition of the building after 4 years to give 80 additional parking spaces was set forth as an option, but Herman said that it was rejected; and in the mortgage that was entered into at the time of the purchase of the property the appellant, as mortgagor, was given the right, on making an additional payment of $100,000 on account of the principal sum, to demolish the building without being deemed to have thereby committed waste. Herman said that the actual demolition early in 1968 was not pursuant to any plan or intention when the property was purchased in 1962.

Exhibit 18 is a schedule of municipal assessments and realty taxes, which shows, inter alia, that in each of the years 1962 to 1967, inclusive, the land at 92 King Street East was assessed at $177,900, the office building at $378,000, and the main parking lot (not including the deck erected in 1963) at $494,000, except for an increase to $519,250 in 1966 and 1967 ; and that in those years the realty taxes progressively increased to $54,404 from approximately $36,400*[2] on the building and its land, and to $56,371 from about $33,630[3] on the main parking lot. Davis said that the ratio of assessment to market value of commercial properties was 40 to 50 per cent.

Herman made a valuation of the building, for the purpose of allocating capital cost in the financial statements and tax returns of the company, by a method which, as I understand his evidence, may be generally described as follows, using approximate figures. Taking the guaranteed rent figure of $80,000 per year which the Parking Authority of Toronto was paying for the main parking lot when the appellant bought the property, and deducting therefrom realty taxes estimated at $30,000, he calculated that the parking lot would yield a net annual return of $50,000¢.[4] He then capitalized that net sum on a 7% basis and arrived at the amount of $700,000 as the value of the parking lot. Deducting that sum from the $1,850,000 purchase price of the property, there would be left $1,150,000 for the building and the land upon which it was situated or which was used therewith§.[5] To arrive at the value of the building itself, he allowed $200,000 for its land (based on 20,000 sq. feet at $10 per foot) and deducting that sum from $1,150,000 he attributed $950,000 to the building. He felt that the building could be fully rented at $2.50 to $2.75 per sq. foot and in time even edged up to $3.00 to $3.25, to give a gross revenue of $210,000 to $240,000 per year, against which there would be a total of operating expenses and realty taxes of $100,000, and a net yield, before payment of interest on borrowed money, of $120,000. This yield would be the equivalent of close to 10% on $1,150,000, and he thought it would tend to confirm that amount as the value of the building and its land. To recapitulate, he allocated the purchase price of $1,850,000 as follows: parking lot land $700,000; office building $950,000; land serving the office building $200,000.

Herman said that in the period when acquisition of the property was being considered he had several opinions respecting it and in evaluating it for the appellant he had regard for the property as a whole and its variegated use, and in his opinion at the time of purchase the use to which it was being put as an office building and parking lot was its highest and best use at that time. He was called to testify as an officer of the appellant company who had pertinent knowledge and experience and who had been responsible for advising the company and evaluating the property at the time of purchase and allocating the cost in connection with its financial statements and tax returns. He was not called as an expert witness within the context of Rule 164B of the Exchequer Court Rules. His evidence pertaining to the value of the property and its several parts and to its potential and highest and best use was objected to by counsel for the respondent on the grounds that the witness was not competent to give evidence of that nature and that there was a lack of compliance with Rule 164B ; but, in my view, having regard to Herman’s position with the appellant and affiliated companies and to the part he played in the acquisition of the property and in the allocation of its cost for the company’s purposes, I regard his evidence as relevant, useful and receivable and I have considered it in determining the appeal.

Mr. Davis, the appraiser who was called as witness by the appellant, made a valuation of the land as of the purchase date on the assumption that it was then vacant and unimproved, and he concluded that the value of the building was the difference between the purchase price and his estimate of the value of the land. He also concluded that the legal uses that would yield the highest value, as of the purchase date, would be the continued use of the building as an office building and the use of most of the land for parking purposes, until such time as a higher and better use would become apparent.

In order to estimate the value of the land as if vacant he divided it into 7 parcels, giving as a reason that land sales in the neighbourhood were of areas more or less equivalent in size to such parcels and there had been no comparable sales of a whole block prior to this sale. A sketch of the divisions made by him, which also indicates his valuations per square foot, was attached as Schedule “B” to his affidavit and I reproduce it next.

Davis used 20 sales for comparative purposes, as set forth in his affidavit, and concluded that the purchase price of $1,850,000 should be allocated $1,160,000 to the land and $690,000 to the building.

Mr. Farr, the appraiser who was called as a witness by the respondent, placed a market valuation of $1,648,843, rounded to $1,650,000 ($28 per sq. foot), on all of the land, as if vacant at the time of purchase ; and $200,000 ($1,850,000 minus $1,650,000) on the building, as its market value, i. e., the amount by which its presence increases the value or selling price of the land portion of the whole property in the market place.

In making his valuation he divided the land into 6 parcels, which are shown, with their valuations, as Item 2 in Appendix “C” to his Report, which is reproduced next.

(4) 158'7" X 76'6% " = 12,150 sf

at $1,045. ff or $13.65 sf	$ 165,787.	($13.64 sf)
(5) 76'6%" X 100’ = 7,656 sf
at $2,410. ff or $24.00 sf $184,440.

Add: 25% corner influence $ 24,091. $ 208,531. ($27.33 sf)

on 40'
Total main block	56,162 sf	$1,461,135.		($26.00 sf)
Add: 10% allowance for
plottage owing to		$ 146,113.
large assembled site
		—
Total value for main block		$1,607,248.		($28.61 sf)
(6) 27'8%" x 100’ = 2,773 sf
at $1,500. ff or $15.00 sf		$	41,595.
Total land area	58,935 sf
and value		$1,648,843.		($28.00 sf)
	Rounded — - $1,650,000.

Farr also approached the problem by considering specifically the building site (1.e. the portion of the land occupied by the building or committed to it) and disregarding the remainder of the land, and by that method arrived at a valuation of $336,000 for the building site, averaging $22.75 per sq. foot, as shown in Item 1 in Appendix “ C ’ ’ to his Report, as follows:

Appendix “C”

BOSLEY ASSOCIATES

LAND VALUES

1. SITE VALUE — NO. 92 KING STREET EAST

AS AT APRIL 2nd, 1962

Breakdown for valuation purposes:

(a) 55’ X 80° — 4,400 sq. ft. at $2,182. fr. ft.

or $27.27 sq. ft.		$120,000.
Add: 25% corner influence on 40’		$ 21,820. $141,820.
(b) 75'7" X 100' = 7,556 sq. ft. at $1,820. fr. ft.
or $18.20 sq. ft.		$137,420.
Add: 25% corner influence on 40'		$ 18,200. $155,620.
(c) 37' X 75'7" = 2,794 sq. ft. at $1,045. fr. ft.
or $13.84 sq. ft.		$ 38,680.
Total	14,750 sq. ft.	$336,120.

Rounded (say) — $366,000. (Av. $22.75 sq. ft.)

Farr also made a calculation of projected estimated gross revenues and expenses and net revenue of the building, Appendix “D” to his Report*,[6] which shows potential gross rental revenue of $183,837 per year, and a net revenue of $65,563, before depreciation and debt service ; he deducted $23,520 as income imputable to the site, calculated at 7% of the site valuation of $336,000; he thereby obtained a figure of $42,048 as income attributable to the building; and by giving a life of 20 years to the building and capitalizing that income at 9.82% he arrived at a value of $391,840 for the building, and, adding $336,000 for the site, a rounded figure of $728,000 for the building and its site.

Farr also made another estimate of the site value of the whole property, assuming that the building existed and prevented the whole of the land from being available for development, as shown in Item 3 of his Appendix ‘‘C’’, as follows :

3. SITE VALUE OF WHOLE OWNERSHIP ASSUMING PRESENCE OF NO. 92 KING STREET EAST

BUILDING AND THAT THE WHOLE AREA WAS NOT

AVAILABLE FOR DEVELOPMENT
Value of land in ownership as in Item
No. 2 of this Appendix	$1,648,843. ($28 s.f.)
Deduct an allowance to reflect the non
availability of the whole block for de
velopment as a unit with a consequent
diminution in land value — 10%	$ 164,884.
Site value of whole ownership (58,935 s.f.)
with part committed to the structure	$1,483,959. ($25 s.f.)
Deduct value of building site as in Item
No. 1 of this Appendix	$ 336,000. ($22.75 s.f.)
Value of actual vacant land (44,185 s.f.)
reflecting the presence of the No. 92
King Street structure	$1,147,959. ($26 s.f.)
*For details, see said Appendix “D”.

Farr’s estimates of the value of the building therefore varied, depending on the methods and assumptions, being a minimum of $200,000 on the basis of the whole of the property; and a maximum of $392,000 on the basis of the building site only and the building, as a developed unit.

In reaching the estimate of $1,648,843 for the land, Farr used a figure of $1,461,135 ($26 per sq. ft.) for the main block of land and added 10% to it for plotting or assemblage of the whole block; and a figure of $41,595 for the small parking lot, at $15 per sq. ft. He said that by 1962 there was a trend towards construction of large buildings which required assemblage of correspondingly large sites.

His opinion was that the highest and best use of the property, pending a comprehensive re-development, was the use to which it was being put in 1962.

He provided a list of 29 land sales and 2 office building sales that assisted him in making his valuations.

Reproduced next is a map of the area, which is part of Appendix ‘‘A’’ to Farr’s Report. It gives a good indication of the subject property and its neighbourhood, and it shows, in circled numerals, the land sales listed by Farr.

I have endeavoured to match Farr’s sales with the sales listed by Davis and it appears to me that the following sales*[7] are included in both lists.

Davis also regarded as particularly comparable his Sale No. 2, not on Farr’s list, which was a lease given in October 1960 for 9,417 sq. ft. of land at the N.E. corner of Church and Lombard streets, for a parking lot, to which he gave a. value of $7.58 per sq. ft.; and on his Sale No. 15, not on Farr’s list, in July 1963, of 4,632 sq. ft. of land on the S. side of King Street, on which there is a 4-storey building, at a price of $130,000, about $28 per sq. ft, without deducting anything for the value of the building. He thought the land value would be considerably less than $28 per sq. ft.

Farr’s sales, not listed by Davis, included Sale No. 25, in December 1967, of 5,136 sq. ft. of land on Colborne Street, at a price of $80,000, about $15.5 per sq. ft; and Sale No. 24, in December 1958, of 1,707 sq. ft. of land on Colborne Street, at a price of $20,000, about $11.7 per sq. ft.

I am satisfied that the purchase price of $1,850,000, which was negotiated at arm’s length, was a fair and reasonable price and equivalent to the market value of the whole property, the land and the building, at the date of its purchase. The reasonableness of the purchase price is not in issue. What the Court is here primarily concerned with is the reasonableness, or otherwise, of the amount regarded by the respondent as the consideration for disposition of the building, within the context of Section 20(6)

(g) of the Act.

I accept Herman’s evidence that the building was acquired for the purpose of producing income, notwithstanding that it was demolished about 6 years later and that its demolition was one of the options considered (and rejected) when its purchase was under consideration. I am satisfied that in the negotiations and sale the purchase price was attributable in the minds of the parties partly to the land and partly, and substantially, to the building.

For convenience, I will re-capitulate here the several amounts put forward as attributable to the building, and I will comment on them.

Davis placed a market valuation of $690,000 on the building.

Farr gave valuations of $200,000 on an overall market value approach and $392,000 on an investment value approach.

The appellant allocated $952,733 of the cost of acquisition as the amount reasonably attributable to the building for income tax purposes.

The respondent regarded $419,647 as the portion of the purchase price of $1,850,000 that can reasonably be regarded as being the consideration for the disposition of the building. Legal fees of $731.77 were added, to bring the aggregate attributable to the acquisition of the building by the appellant to $420,387.

In respect of the amount put forward by the appellant, I have regard for Herman’s extensive and practical experience in the market as a buyer of real estate and the fact that the appellant invested and committed a large sum to the purchase of the property. The appellant also has a more real financial interest, as compared with the interest of the appraisers. However, Herman has an interest also in endeavouring to allocate a maximum amount to the building for income tax purposes. In making his apportionment he took the actual current net revenue from the parking lot, and assumed no increase in that revenue, to arrive at the parking lot valuation; and, after attributing a certain amount to all the land and the remainder of the purchase price to the building, he used an estimate of prospective revenues from the building, and assumed an increase in those revenues, in support of his valuation of the building. It seems to me that he over-estimated the prospective revenues from the building, for the net revenue from the building in the year of purchase was $27,096 for the 9 months April-December; $41,590 in 1963; $42,618 in 1964; $41,282 in 1965 ; and only in the years 1966 and 1967, when Eatons had a lease in circumstances peculiar to Eatons, did the net revenue from the building reach the $120,000 mark which Herman used in making his apportionment. The opening of the Toronto-Dominion Centre no doubt militated against full occupancy of the building at the increased rents contemplated by Herman, but even before that Centre came into being the building was not fully rented and the rents were about $2.50 per sq. ft. He also applied a value of $10 per sq. ft. to the building site*,[8] which, in my view is on the low side and not supported by the evidence as a whole.

The valuation made by Davis was based largely on what he considered to be comparable sales, coupled with the municipal assessments on the land and building. He did not apply a revenue approach. He said that his Sales Nos. 2, 3, 8, 9 and 15 offered the most direct evidence of value. It seems to me that his Sale No. 2 is hardly comparable with any part of the subject land. His Sales Nos. 3 and 9 on Toronto Street, near the N.W. corner of the building, are listed by Farr also. The land in No. 9 on the

W. side of Toronto Street has a higher value per sq. ft. than the land in No. 3 on the E. side. His sale No. 15, on the N. side of King Street, opposite the subject land, has a building on it and no apportionment is made for the building, which may have a little or a considerable value. His Sale No. 8, on the N. side of King Street, at Church Street, is opposite the eastern portion of the subject property, and his Sale No. 18 is on the same side of King Street opposite the western portion of the property. The more westerly parcel shows a higher sq. ft. value than the easterly parcel. Farr’s Sale No. 15 is between those parcels, as is also a parcel of land which Herman said was repeatedly offered to and refused by him at about $12 per sq. ft.

As already stated, Farr used different approaches to arrive at his valuations of the building, $200,000 on an overall market value approach, $392,000 on an investment value approach. In 1963, the first full year of ownership by the appellant, the net profit from the building was $41,590 (Exhibit 17). In the light of that profit it seems to me that Farr’s valuation of $200,000 is unduly low. His valuation of the land itself at $1,650,000 is hardly supported by the income actually derived from it when used as a parking lot. Factors in his investment approach include the value he gave to the building site and his projected estimate of net revenue from the building. If either of those amounts was different, the estimate of the value of the building would be correspondingly different.

All of the sales listed by Davis and Farr are in respect of parcels considerably smaller than the subject property. They do not show a supply of or a demand for blocks of land or property comparable to the subject property, in its vicinity. It does not appear to me that any of those sales is so directly comparable to the subject property as to provide a reliable yardstick for measuring the value of the land or building in question. They do, however, warrant a generalization that land values are higher west of Toronto Street than east thereof, that the most valuable street frontage of the subject land is on Toronto Street, and that the land value of the most easterly portion of the property, i.e., the building site fronting on Church Street, opposite the Cathedral. is less than the land value of the portion west thereof, on a sq. foot basis.

I am reluctant to adopt any single approach to the determination of the apportionment of the purchase price, as between the land and the building, or, to be more exact, to the determination of the amount that can reasonably be regarded as being the consideration for the disposition of the building. There is no mathematical formula or yardstick or method known to me, the use of which will inevitably lead to an accurate valuation or apportionment in the present case. The appraisers, Davis and Farr, differed substantially in their valuations as between themselves. Their valuations necessarily involved a large measure of personal judgment, and their opinions — and the opinion of Herman — as to the value of the land and the building, are to be weighed in the context of the information and suppositions on which they were based and the reasoning applied by them.

Having regard to the evidence as to sales, the location, size and nature of the property, the uses to which it was being put at the time of purchase and its potential at that time for use in the future, the actual and reasonably prospective earnings from the several parts, and the municipal assessments, and applying my own judgment thereto, I think the balance of probability is that the portion of the purchase price that should be attributed to the building for the purposes of Section 20(6) (g) of the Act is $510,000 or approximately that amount, but not less.

My apportionment of $510,000 for the building may be tested in at least two ways, (a) on an income basis, (b) on a municipal assessment ratio basis. These approaches are not infallible and they do not provide governing tests, but I think that they can be considered to be useful in looking to see whether $510,000 for the building is reasonable or manifestly or probably out of line.

First, the income approach*.[9] Taking Farr’s figure of the net rentable area of the building, 69,128 square feet, and assuming rent at $2.75 per sq. ft. (which was, I think reasonably foreseeable when the property was purchased), and deducting Farr’s 5% for vacancy and bad debts, we get gross rental of $180,597. Deducting from that amount Farr’s 5% of the gross rental for management, $9,029, and his estimate of $100,350 for operating expenses, we get a net revenue of $71,218 (as compared with Farr’s $65,563) for the building and its land. I took 14,750 sq. ft. as the area of the building sitet.[10] In my opinion a fair valuation of the building site would be about $16 per sq. ft. or $236,000 in all. Applying 7%, which was used by both Farr and Herman in capitalizing land revenues, to that $256,000, there would be income attributable to the site of $16,520, leaving $54,698 as the building income. Applying to that amount the percentage of 9.32 used by Farr gives a value of $509,785 to the building.

The assessment ratio approach. Municipal assessment is not a determining or decisive factor and, in many situations, is not a reliable guide in appraising the value of property, but it is relevant and may provide some assistance in the present case. In 1962 the municipal assessments, as shown in Exhibit 18, were $177,900 for the building site, $378,000 for the building, $494,000 for the main parking lot, and $9,800 for the small parking lot, a total of $1,059,700. The building amount is about 35.6% of the total. Applying that ratio to $1,850,000 gives $519,663 for the building.

The appeal is, therefore, allowed with costs, and the assessment is referred back to the respondent for re-assessment on the basis that, for the purpose of Section 20(6) (g) of the Act, the portion of the $1,850,000 purchase price of the property that can reasonably be regarded as being the consideration for disposition of the building is $510,000.