George a Mills v. Minister of National Revenue, [1978] CTC 2609, [1978] DTC 1460

The Assistant Chairman:—There are many similarities between this appeal and the appeal of Russell Price v MNR, [1978] CTC 2498; 78 DTC 1375, judgment in which was given by this Board April 24, 1978. Not only is the issue in both cases the same, namely, what the value of a certain parcel of land was on Valuation Day (both of which parcels are located close to each other), but also the expert valuators for the appellant and the respondent are the same persons who were expert witnesses in the Price case. The appraisal report of the appellant’s expert is virtually the same document as was used in the Price case, with of course the obvious change that the value being given pertains to the land of. George A Mills (the appellant). Likewise the report of the respondent’s expert is the same document as that used in the Price case, except of course when reference is made to the land being valued. Counsel for the appellant was present and heard the respondent’s case in the Price appeal and advised the Board that he would accept the evidence of Mr Hayward, the respondent’s expert, given in the Price case as evidence in this case, with the right to ask further questions. The Minister’s counsel agreed on the same basis.

In 1971 the appellant owned a farm just outside the city limits of the City of Moncton, New Brunswick. It consisted of a few different parcels and had a total acreage of about 350 acres, about 125 acres of which were cleared and the balance wooded. The appellant owned a parcel of about 100 acres which was south of, but abutted the Trans-Canada Highway. The parcel, the value. of which on Valuation Day in the issue in this matter, was north of the Trans-Canada Highway but abutted it. It was rectangular in shape, having a frontage of about 750 feet on the Trans-Canada Highway, with a depth of about 2,/00 feet. This parcel was surrounded on its three remaining sides by land owned by Clarence Roy. The appellant stated that his grandfather and father had been on the land so I presume the appellant acquired the property by inheritance. In any event no reference was made to the purchase price of the land. Other than cutting some wood for his own use from the property, the: Subject land was not used at all by the appellant. Mr Mills stated that in late 1972 he was approached to sell his land and in January 1973 he gave an option to sell the 50.88-acre parcel at $900. per acre, the option to be open until July 4, 1973. In due course (September 1973) the parcel was sold in keeping with the option agreement. When thé appellant filed his 1973 income tax return, -he reported neither a capital gain nor a capital loss with respect to that sale. The Minister, after the appellant filed his income tax return, considered the sale and concluded that the Valuation Day value of the land was $12,750, or $250 per acre, with a resultant gain of $33,042. He then assessed the appellant after adding to his previously reported income a taxable capital gain of $16,521. The appellant objected to the assessment contending that the Valuation Day value was incorrect. An objection in the same terms as the 1973 objection was filed with respect to a 1974 assessment as the effect of the averaging provisions in the Income Tax Act with respect to that year changed with the change in the 1973 assessment. Following confirmation by the respondent of each assessment, the appellant appealed to this Board. The Notice of Appeal of the appellant, which apparently relates to the 1974 as well as the 1973 taxation year, contends that the respondent’s approach to valuation is incorrect and the proper value per acre on Valuation Day is $800.

Reproduced hereinafter as Appendix I is a sketch (not to scale) which gives a visual indication of the location of the appellant’s property (Lot #8) with respect to the Trans-Canada Highway, so marked; Caledonia Road, which runs in a southwesterly direction fronting on the western limits of Lots 5, 14, 7 and 19 at which point it curves and runs in a westerly direction; the Canadian National Railway tracks, which come close to the Caledonia Road at about Lot 15 and run west of, and about parallel to, it in front of Lots 7 and 19 where they cross Caledonia Road and continuing in a southerly direction soon crossing the Trans-Canada Highway between Lots 1 and 4. As stated, Lot 8 was not in the City of Moncton in 1971 and it was about one and one-half miles from Caledonia Road. East of the subject property was an old road which, in the words of the appellant, “is in terrible shape” known as Mills Road. It gave the appellant access to his other property but not this land. This property was in effect landlocked as there was no right of ingress to it or egress from it. The appellant could however, as long as it was farm property, get to it across the Trans-Canada Highway even though that highway was a controlled access highway. The property had no sewers, no services and no railway. as well as no access. Mr de Stecher, the appellant’s expert, filed as an exhibit an aerial photograph of the property and, relying on that photograph, he stated that there was a road running in an east-west direction across the property as well as the Roy properties which then curved south to intersect or cross the Trans-Canada Highway. It was pointed out by Mr de Stecher that the road was completely grown over and there was no suggestion that it was in current use. Even the appellant made no reference to this road when he gave his evidence.

Many years before 1973 a corporation, without share capital, had been created by the Province of New Brunswick known as the Moncton Industrial Park Limited (hereinafter referred to as “MID”). The officers of MID were appointed by either or both the province and the city. The whole function of MID was to gather land for industrial parks in the City of Moncton to have it readily available to assist persons looking for industrial sites to start an industry in Moncton. At this time (Valuation Day), MID did have land available in the City of Moncton for industrial users. In the early or mid-1960s, a small private industrial park called “Old Caledonia Park” had been established north and south of Caledonia Road where it turns westerly and crosses the CNR tracks (see sketch). The option which the appellant granted in January 1973 turned out to be to an agent acting for MID which was the ultimate purchaser, to establish another park called “New Caledonia Park”.

Mr de Stecher, on behalf of the appellant, considered this property and gave his valuation and written appraisal of it, as at Valuation Day, in July 1976. It should be noted that the appellant stated he did not know what plans the optionee had for his property nor did he discuss the acquisition with any of his neighbours. The first price he was offered was $200 or $300 per acre. The new park would consist of about 1,200 acres and the Roy property which, except for the TransCanada Highway, surrounded the appellant’s property and which became part of the park consisted of about one-half of those 1,200 acres. In Mr de Stecher’s opinion the highest and best use of the appellant’s land was industrial. In his view, MID’s plans for the New Caledonia Park were well afoot in 1971 with the purchase of the Kenwood property (Lot 16). If the subject property had no concept of development, then, in Mr de Stecher’s view, its only use would be as a wood lot. When making his appraisal and valuation in 1976, Mr de Stecher considered some 15 transactions (and Lot 16 was not one of them). all of which, except one, took place in 1973, and the purchaser in all transactions, except two, was MID. While all were considered, some were rejected as they were not comparable—smaller size or much larger. Mr de Stecher referred to the first three comparables (Lots 1, 2 and 3 on sketch) as follows:

Sale No. 1:—This property was slightly smaller and the access was similar except that the subject property also fronts onto the Trans-Canada Highway. The appraisal on which the award of $1,250 per acre was based, was the estimate of market value.

Sale No. 2:—This was a much smaller land area and the sale took place before the present Trans-Canada Highway was built; for these reasons the sale would not be comparable.

Sale No. 3:—This was a larger parcel and was located to the north, along the Caledonia Road and is to some extent comparable.

As to the remaining lots, they were not individually referred to in detail.

On giving his evidence at the trial, Mr de Stecher stated that long after he gave his appraisal he learned of further transactions which, in his opinion, “tended to reinforce the conclusion I came to a year before”. The further transactions to which Mr de Stecher referred were the sales by Kenwood Realty Limited (hereinafter referred to as “Kenwood”) to MID (Lot 16), the Lawrence Burden property (Lot 19), Les Filles de Jesus (Lot 18), and the Maritime Co-op (Lot 17). The Co-op property was mentioned but details as to price, size, etc were not given. It was stated that it was not comparable to the subject property as it had services, was south of the Trans-Canada Highway and had access to that highway. In his view, it was much better than Lot 18 as it had more services, but also there was another reason— when he (Mr de Stecher) was doing some work for Les Filles de Jesus

after they had sold Lot 18: “I was flabbergasted to see the price that they had sold it for because I had thought it was extremely low for that time and for what they got. This was also confirmed by another sale that they had made of an adjoining property which also appeared market-wise at that time to be very low, so I concluded that the sales that they were making of their property were not by a prudent and informed vendor or there may have been other complications which did not represent the level of the market at that time’’. He continued and stated that he understood they discontinued using the services of the agent who acted for them on the sale of Lot 18. The sale of Lot 16 by Kenwood to MID in late 1971 came to Mr de Stecher’s attention after he had prepared and made his valuation. It also became known to him that, a short period before that sale, there was a sale by one LeBlanc to Kenwood for a much lesser sum. He then decided to and did speak to Mr Russell O’Blenis who was president of Kenwood. Mr O’Blenis advised him that in the early 1960s Kenwood bought a small parcel from LeBlanc which was situate in the Old Caledonia Park. LeBlanc still retained a parcel which in this appeal has been described as Lot 16. At that time, according to what Mr O’Blenis told Mr de Stecher, Mr O’Blenis and LeBlanc entered into an oral agreement or option to sell that Lot 16 to Kenwood at a later date for $27,000 but when Kenwood came to buy in early 1971 a problem arose and to ‘‘obtain the signatures of other members or other beneficiaries of the estate they had to pay another $5,000 which brought the total price up to $32,000”. The evidence is clear that no one knew the status or capacity of LeBlanc in that transaction.

Another sale which Mr de Stecher learned of after his appraisal was that of the Sumner property, but it was a different kind of property. It was about one and one-half miles north of the City of Moncton fronting on a highway, I believe, Elmwood Drive. It contained about 50 acres and was sold for $12,000 in July of 1970. The property had commercial potential. Mr de Stecher would not put it in the same category as the subject property as in many ways it was superior. He (Mr de Stecher) spoke to one of the purchasers who said the lot was purchased from an old man. Originally he wanted $30,000 and then he said he would take $10,000 and the purchaser then offered him $12,000. With respect to the selling price, in examination-in-chief Mr de Stecher gave the following answers to certain questions:

Q. Do you think it was a distress sale?

A. I would think there was no question about it. The Sumner Company didn’t really need the property so when they thought they could get it for so little—

Q. Have they done anything with the property?

A. No, in fact it is on the market now.

With respect to access to the subject property, Mr de Stecher stated in cross-examination as follows:

The understanding I had was that there was no known legal access. In other words the road existed in fact, but anybody who used it was just using it either as a matter of trespass.

The subject property was about as far out of the City of Moncton as the Sumner property and, in the opinion of Mr de Stecher, could only be developed with other property—with properties closer to Caledonia Road being developed first. His appraisal was made as of December 1971 on the assumption that what did happen, would happen, namely an industrial park would be developed in that area. He made no inquiries of MID as to what their plans were in December 1971.

Mr Hayward gave expert evidence on behalf of the respondent. As to services, like Mr de Stecher, Mr Hayward put them at minimal, and access was only for farm use. His information as to the land assembly came from provincial government sources and that information was a feasibility study which was authorized in the late fall of 1972 and was completed in the early spring of 1973. Also, in his opinion, MID was only interested in land in the City of Moncton and this property did not come into the city until several months after Valuation Day. His comparables to arrive at a value of the subject property were: Les Filles de Jesus (Lot 18), Doucette (not on sketch and referred to by Mr de Stecher as the Sumner property), and the sale LeBlanc to Kenwood (Lot 16). His comments on each site were as follows:

Les Filles de Jesus

This site is located on the south side of the TCH within the city of Moncton. Access has been arranged Via Price St and a. private Right of Way. Services available include rail and trunk sewer. The «site is zoned ‘M’ Industrial. It was purchased for development of a private industrial park. The site is considered better located than the subject property. Sale price was $31,000 for 62 acres -+-

Lorenzo Doucette

This site is situated on the westerly side of Elmwood Drive outside the City of Moncton. Services include highway, electricity and highway. The site is considered to be better located than the subject property. Zoning is ‘A’ Agricultural comparable to the subject property.

Edward LeBlanc Estate

This site is located on the easterly side of the Caledonia Road within the City of Moncton. The property formed part of the original parcel from which Caledonia Park was developed. The purchaser was the developer of the ■park. Services include highway, telephone, electricity with rail. Water and sewer available. The site is considered much superior to the subject with approximately 1320 ft in depth being designated for .'M’ Industrial use and the remainder zoned ‘A’ Agricultural. The site was resold to Moncton Industrial Development Ltd as indicated by deed registered in early January 1972. Kenwood Realties purchased the site containing 65 acres for $32,000 and sold it to MID for $56,000 or $492 and $1,000 per acre respectively.

As to Lot 16, Mr Hayward commented that its acquisition in 1971 was really just an extension of the old park, not the beginning of the new, as it was his understanding the new park feasibility study did not commence until late 1972. He knew of and ignored the Kenwood sale to MID (Lot 16) as he believed they paid too much. As to the poor advice Les Filles de Jesus received, he commented that the adviser on that sale was still in business at the time of the hearing. In his opinion, the increase in value came as a result of the property becoming part of the City of Moncton, which he believes was 1973.

When making his submission as to why his client’s position was correct, counsel for the appellant made these few remarks:

Essentially Mr Chairman, I would ask that this court consider the two appraisers’ evidence, that they both are conflicting and in fact are diametrically opposed.

THE CHAIRMAN: I think that is a fair way to put it.

MR ELLSWORTH: It is a very difficult thing to do to favour one over the other but it is something that you are just going to have to attempt to sort out and I submit to you that we should follow whatever is the most reasonable and sensible and the most equitable approach.

I concur with his comments as to how I should approach this matter. The experts are diametrically opposed—a difference of $550—as one values an acre on Valuation Day at $800 and the other values it at $250 an acre. Mr de Stecher admitted that when he valued the property in 1976, it was on the assumption that what did happen would happen. He also said that if there were no concept of a development for this lot, and in his view this would only be with other lots, then the only use for this property was as a wood lot. The evidence was clear that Mr Mills only took some wood off the property for himself. Mr de Stecher also stated that he understood, in late 1971, the New Caledonia Park project was well afoot. Of course by this time MID had purchased Lot 16 from Kenwood, and yet in Mr de Stecher’s appraisal, given in 1976, he makes no reference to the sale by Kenwood to MID. Controversy arises over whether or not the sale by LeBlanc to Kenwood of Lot 16, the sale of Lot 18 by Les Filles de Jesus, and the Doucette (Sumner) sale should be accepted or rejected. Except for the Doucette sale, Mr Hayward interviewed no one, and then he only interviewed to confirm the selling consideration, not to confirm it because he thought it was too high or too low. He accepted the other two, presumably because he took them to be arm’s-length transactions. Mr de Stecher rejected the transaction with respect to Lot 18 as he concluded that to have sold what they did for what they received, Les Filles de Jesus could not have been a prudent vendor. As he understood it, Les Filles de Jesus discontinued using the services of that agent after that sale. As to Lot 16, in effect, from what he was told by Mr O’Blenis, the sale by LeBlanc to Kenwood was not really a sale in 1971 but say around 1965 because that was when the agreement (oral) was made. Also, with respect to the Doucette (Sumner) sale, while the property was much better than the subject property insofar as services, roads and access are concerned, it is to be rejected as it was a “forced sale’’. Why did Mr Hayward check the consideration on the Doucette (Sumner) sale? He said to satisfy himself that the amount which he had been advised was the consideration, was the correct consideration. Why did Mr de Stecher check the sale re Lot 18? I presume it came to his attention when he was working for Les Filles de Jesus, after he gave his appraisal. Why, with respect to the LeBlanc sale to Kenwood, and the Doucette (Sumner) sale, did Mr de Stecher check the background of both sales? No question was asked, nor was any explanation given. However, it could be, and it appears they would have contradicted his opinion as to value if some explanation were not given. A conflict also arises as to when MID started developing the New Caledonia Park. Mr Mills knew nothing of the plans for the subject property when he gave the option in January 1973—which is quite consistent with what Mr Hayward said concerning the feasibility study. However, according to Mr de Stecher, the project was well afoot in late 1971.

I am asked to set aside an assessment of the Minister virtually solely on the basis of a third-party story which, if accepted, would say some vendors who were not before me were imprudent, a qualified appraiser was at least not re-engaged because of poor work, a sale was a forced sale, and an oral agreement made around 1965 was being completed by the sale LeBlanc to Kenwood in 1971 when no one knew who LeBlanc was—was he representing himself, was he an executor, et cetera? I am of the view that when considering these matters I must follow the most reasonable and sensible approach to this appeal. I say that the appellant has not satisfied the onus of showing that the assessments by the Minister are wrong.

The result is judgment will issue dismissing the appeal of the appellant for each of the 1973 and 1974 taxation years.

Appeal dismissed.