Keith Wilson v. Minister of National Revenue, [1978] CTC 2829, [1978] DTC 1589

The Chairman:—The appeal of Mr Keith Wilson is from an income tax assessment in respect of the 1974 taxation year by which the Minister of National Revenue added to the appellant’s income an amount of $45,837.50 as a taxable capital gain.

The issue in this appeal centers around the fair market value of approximately 50 acres of farmland as at December 31, 1971. This land which is the subject in this appeal was purchased by the appellant in 1940 and consists of the easterly one-quarter of lot #23 in the eleventh concession of Moore township, county of Lambton. The appellant, who in 1940 already owned and operated a 75 acre farm close by, also farmed the subject property for another 34 years or so.

In October 1974, the appellant sold the subject property for a consideration of $125,000. In reporting his income for 1974, the appellant estimated the adjusted cost base of the property to be $1,350 per acre on Valuation Day. He reported a net capital loss of $825 and claimed an allowable capital loss of $412.50. In reassessing the appellant, the Minister of National Revenue attributed a fair market value for the subject property of $32,500 or $650 per acre as at December 31, 1971. From the proceeds of the sale of $125,000, the Minister deducted allowable costs in the amount of $825 after deducting the fair market value of $32,000 from the net proceeds of sale ($124,175), the net capital gain on property was $91,675 and the taxable capital. gain was $45,827.50 which the Minister has added to the appellant’s 1974 income. Summary of Evidence:

Moore township in the county of Lambton is south of the city of Sarnia and separated from the latter by an Indian reserve. The southern part of the city of Sarnia was well industrialized and known as the chemical valley. The industrial development in Sarnia could not expand northward and notwithstanding the interposition of the Indian reserve, the chemical valley eventually extended south of the Indian reserve on the western side of Moore township where an oil refinery was built along the shore of the St Clair River and gradually moved southward and eastward.

In 1940 when the appellant purchased the subject property, the evidence is that there was no industrial development in Moore township and other than the town of Corruna it was composed principally of farmland.

The appellant, who considers that his properties are good farmlands, continues to carry out general farming and raises beef cattle. It was known that there were salt deposits on most of the farmland in the area including the subject property.

Dow Chemical of Canada Limited which, as I understand it, had its head office in Sarnia, carried out brining operations in that area but in the late fifties sought to purchase land in the northern part of Moore township, east of the oil refineries for its immediate needs and at the beginning paid relatively high prices for the required land. Dow Chemical of Canada Limited continued to purchase land which contained salt deposits so as to create salt reserves and as the reserves became greater and more adequate for current, long term and very long term use, the prices originally paid by Dow Chemical of Canada Limited for land was reduced. As will be seen, all the appraisers agreed that Dow Chemical’s purchases of land, perhaps more than any other industry in the area, set the land market trend in Moore township.

Since the brining operations were done underground by means of wells and pumps, the surface of the land was relatively intact and farming operations could be continued. Dow Chemical and indeed most of the industries engaged in brining or storing of gas in the brined out lands, usually leased back the land to the vendors who continued to farm the land. From the aerial photographs dated 1972, shown to the Board, it was very difficult indeed to distinguish land which was used exclusively for farm operations and those which were also used for industrial purposes.

By 1960, Dow Chemical of Canada Limited had acquired considerable acreage in the northern part of Moore township. The appellant, in the early 1960’s, listed the subject property for sale for a period of 1 year at $750 an acre. Dow Chemical had, shortly before, purchased land in the vicinity of the subject property at $650 an acre. The appellant's land, however, was not sold at that time.

On August 12, 1971, the official plan of Moore township which existed since 1952 and has been revised several times since, was accepted by the interested Ministries of the Government of Ontario, (Exhibit A-3 - official plan of the Moore planning area).

a) The plan provided to make of the old highway 40 a proposed parkway along the St Clair River.

b) To relocate the new highway 40 east of the old highway running north to south in Moore township in approximately the center of the gradually developed area.

c) The new highway 40 was to link up with highway 402.

d) A new CNR spur line was to be built in the industrialized area.

e) The Trans Canada gas line was to pass through the developed area.

f) O.W.R.C. water distribution system was planned.

g) The Lambton generating station and distribution system was proposed.

h) Lambton College of Applied Arts and Technology was also projected.

Even though it appears that it was the intention of the municipal council to preserve the rural aspect of the area as much as possible, it did designate certain Moore township lands as industrial but divided them into two phases, the first of which would hopefully be developed before the second stage began. However, the municipality did not, from the evidence, adhere strictly to the distinction to be drawn between Industrial Stage I and Industrial Stage II.

The official plan having been approved in August of 1971, the subject property was, on December 31, 1971, some four months after its approval within an area designated Industrial Stage II.

The adjusted cost base as at December 31, 1971

The figure of $1,350 used by the appellant as the adjusted cost base of the subject property in making his 1974 income tax return after disposing of the property was estimated by Mr C J Kollman, a representative of John S McGrail Limited Real Estate. In arriving at his opinion of the value of the subject property on Valuation Day, Mr Kollman relied on five comparable sales’ that took place in Sarnia and seven such sales in Moore township between the years 1969 and 1972, (Ex A-2). . j,' ,

The Minister having refused to accept an adjusted cost base of $1,350 in 1976, the appellant requested that Egerton Associates Limited, real estate appraisers and counselors, appraise the property as at December 31, 1971.

Mr J W Egerton’s Appraisal

Without repeating here all the qualifications of Mr J.W Egerton as an appraiser which are listed at page 2 of his appraisal report (Exhibit A-27), I have no difficulty in accepting that Mr Egerton is a competent appraiser with long experience in the area with which we ‘are particularly concerned in this appeal.

Mr Egerton, in arriving at a market value of $75,000 or $1,500 an acre for the subject property as of December 31, 1971, had listed some 31 comparable sales dating from 1957 to 1969 with prices ranging from $300 per acre to $1,000 per acre and covering Sarnia and Moore townships. The majority of these sales were made to Dow Chemical of Canada Limited.

Mr Stuart Edward Farley's Appraisal

Mr Farley also a qualified appraiser and an associate in Egerton Associates Limited, was, in the summer of 1977, asked to prepare material in respect of the value of the subject property. In his report which, in my view, cannot be considered a proper appraisal, Mr Farley did not set a value for the subject property, however, he agreed generally with Mr Egerton’s report but voiced the opinion at the hearing that he felt that the value of the property as at December 31, 1971, was more than $1,500 per acre.

In his comparable sales, Mr Farley chose transactions immediately surrounding the subject property dating from 1957 to 1968. He pointed out that as early as 1960, the price of adjoining properties in Concession 11 which were zoned rural but designated industrial commanded a price of $650 an acre whereas some properties in concession 12 which were zoned industrial commanded a lesser price, (Exhibit A-6).

Mr J Wallace Beaton’s Review and Analysis of Submitted Appraisals (Exhibit A-26)

Mr Beaton’s qualifications, the offices he holds and the literature he has written in the field of appraisals and related subjects as can be seen from his curriculum vitae in appendix #1 page 1 of his review is truly impressive as indeed was his testimony during examination in chief and in cross-examination. In February of 1978, Mr Beaton was asked to review and comment on certain appraisals submitted to him which he did on February 24, 1978, (Exhibit A-26).

Mr Beaton was given three appraisal reports, that of Mr Egerton above mentioned, that of Mr R W Hughes to which reference will be made later and that of B D Shepperd. However, Mr Shepperd’s appraisal was not produced and Mr Beaton’s comments on the Sheppard report were therefore not considered by the Board in deciding the instant issue.

It is important to note here that Mr Beaton’s report is not an appraisal but a review of the facts, comparative sales, comments and opinions contained in two appraisals. The weight that can be given to Mr Beaton’s conclusion as expressed in his report is conditioned on the pertinence, the accuracy and the completeness of the facts as stated in the reviewed appraisals as well as in the particular circumstances and conditions that may or may not have been stressed in the appraisal reports but which, nevertheless, existed as at December 31, 1971, and which were put in evidence at the hearing.

Mr Beaton confirmed Mr Egerton’s and Mr Farley’s opinion that the highest and best use of the property was for future industrial develop- ment and his preliminary opinion was that the property had a value of between $2,030 and $2,437 an acre which for 49.806 acres would result in the value of the land between $101,100 and $121,400. Mr Beaton valued the property as at December 31, 1971, (using the rounded middle figure in the above range) at $111,250.

Mr R W Hughes’ Appraisal (Exhibit R-12)

Mr Hughes was retained by Revenue Canada Taxation and filed his report in January of 1978. Mr Hughes’ curriculum vitae to be found at pages 47 and 48 of his report permits the Board to accept Mr Hughes as a qualified appraiser. Mr Hughes did not have the years of experience which Mr Egerton had working as an appraiser in the Sarnia- Moore townships area and it is probable that more research and more care was required by Mr Hughes in the preparation of his appraisal report. Mr Hughes’ report, and indeed his evidence, both in examination in chief and in cross-examination indicated that he obtained and analysed the circumstances surrounding the transaction which he used as comparative sales and in so doing revealed certain facts not contained in Mr Egerton’s report and which, in my view, are pertinent to the issue. In his appraisal report Mr Hughes listed some thirteen comparable sales including some of which were resold within a reasonable time period of December 31, 1971, and which were included to indicate the land market trend in Moore township in the pertinent period.

In his report Mr Hughes expresses the opinion that the “subject property’s most probable and highest and best use was as farmland with a very minimal future potential as industrial land in the foreseeable future” and he concludes that the narrow value range of the property is between $675 and $722 an acre and sets the value of the property at $690 an acre.

In attempting to decide the issue before it, the Board must, as indeed Mr Beaton did, review the basis on which Mr Egerton and Mr Hughes arrived at their respective opinions as to the best use and the market value of the property as at December 31, 1971.

Although Mr Beaton’s preliminary report and the evidence he gave at the hearing was very interesting, informative and indeed most helpful to the Board, I do not believe that Mr Beaton’s conclusions and his evaluation of the property which is based only on the documentations and the two appraisals made available to him can be considered by the Board as anything else than what it admittedly is, viz: a review and analysis of appraisals submitted to him.

Finding of Facts:

There appears to be general agreement on certain facts that existed on December 31, 1971:

1. The subject property was included in an area which was designated as industrial Stage II by the official plan of the Moore planning area, though still zoned as rural.

2. That the land in the Sarnia and Moore townships including the subject property contained salt deposits.

3. That Dow Chemical of Canada Limited Was. since 1957, active in the acquisition of farm land in Moore township in the immediate vicinity of the subject property.

4. That the official plan provided for amenities which would help _. the operation of existing industries and facilitate the further development of industralized areas in Moore township within the limits set out in the official plan.

There are also certain common assumptions which were made by both Mr Egerton and Mr Hughes in appraising the subject property as at December 31, 1971.

1. That on or before December 31,4971, Dow Chemical of Canada Limited was generally known to have been building up a land bank -in Moore township immediately to the east and to the north of the subject property; that in the northern portion of the areas designated as ‘industrial, the only remaining available farmlands were the subject property, two farms to the immediate east and roughly /3> of a farm to the southwest of the subject property.

2. That the gradual acquisition of considerable acreage of farmland by Dow Chemical of Canada Limited since 1957 in concessions 11 and 12 affected, over the years, the prices at which land could be sold particualrly in the immediate vicinity of the subject property.

3. That the best, if not the only method of arriving at-a market value of the subject property according to accepted appraisal procedures was, in the circumstances, the market or sales comparison method.

4. That the Dow Chemical land transactions were important in any analysis of comparable sales evaluation procedure because of the proximity and the similarity to the subject property of certain lands acquired by Dow Chemical of Canada Limited.

Since Dow Chemical is admitted to have had, prior to December 31, 1971, a very strong influence on the land market in Moore township, the importance of Dow Chemical’s policy in respect of land purchases in the area is evident in attempting to determine the market value of the subject property as of Valuation Day.

Dow Chemical of Canada Limited’s Land Transactions in Moore Town

Mr Charles Bruce Crawford who was introduced by counsel for the respondent as a witness has been property manager of Dow Chemical of Canada Limited since July of 1968 and is responsible for all Dow Chemical’s interests relating to real estate throughout Canada. Mr Crawford explained that Dow was already engaged in brining operations in Sarnia but in 1956 the company: was badly in need of land and was actively looking for land in Moore township: During the years 1956 to 1959 Dow Chemical acquired sufficient land in Moore township for purposes of immediate use in the brining process. From 1959 to 1964 Dow Chemical of Canada Limited continued to acquire land to create a 10 to 20 year salt reserve. After 1964 the company was no longer active in seeking land but continued to purchase land for the purpose of creating a long-term salt reserve when land was offered and when the asking price was what the company was willing to pay. In 1973 and 1974, although it was not aggressive in doing so, Dow Chemical of Canada Limited adopted a policy of purchasing salt land so as to fill out blocks of land already owned. Mr Crawford testified that in 1973 and 1974 there was. a definite trend toward increased asking prices.

Mr Crawford also explained that the brining process being an underground operation eventually creating underground storage facilities; it was Dow Chemical's policy to encourage vendors to lease back the land and to continue their farming operations. The official plans designating certain. areas in which Dow Chemical owned land did not affect Dow since resource extraction was permitted in agricultural zoning. However, he added that no price could be placed on Dow Chemical of Canada-owned-lands since they were essential for its brining operations.

Counsel for the respondent produced as Exhibit R-11 a graph made up by Mr Crawford showing all purchases made by Dow Chemical for the purpose of brining or salt reserves and giving the value of raw land at the time of purchase within the period of late 1956 to 1977. Many of the sales recorded on the graph were included in both Mr Egerton’s and Mr Hughes’ list of comparable sales. The graph shows a general downward trend in value of raw land from a high of over $1,000 in the latter part of 1956, to a low of approximately $250 an acre in the first half of 1969, with a small rise to approximately $350 just prior to Valuation Day. In the first half of 1973, the price paid by Dow Chemical of Canada Limited for three parcels of land was approximately $400 an acre but at approximately the same time Dow Chemical paid some $750 an acre for another parcel of land. Thereafter, prices rose from a low of some $850 an acre in 1974 to a high of just under $3,500 in 1977. .

Although the graph figures are necessarily approximative, the group does show a marked decline in prices paid by Dow Chemical of Canada Limited for raw land from 1956 to December, 1971, and which corresponds, in my view, with Dow Chemical’s decreasing requirement of salt reserves as expressed by Mr Crawford in his testimony.

Although, at this stage of my analysis, I am reviewing some of the factors and circumstances that existed prior to Valuation Day and which affected land prices particularly in the area immediately surrounding the subject property, I nevertheless note here that the prices paid by Dow Chemical for salt lands even after December 31, 1971, shown on the graph and confirmed by the comparable sales included in both Mr Egerton’s and Mr Hughes’ appraisal report, remained relatively low until the middle of 1974.

The Tecumseh Gas Storage Area

Mr Egerton, in his appraisal, made no mention of the Tecumseh Gas Storage area situated southeast of that area designated industrial and including the subject property. On cross-examination, Mr Egerton did not appear to know of its existence.

On July 28, 1971, the Petroleum Resources Act, 1971, designated as “restricted”, an area within a 1 mile perimeter of the Tecumseh Gas Storage Area in the limits of which no drilling was permitted. The restricted area encompassed land which, in total or in part, were owned by Dow Chemical and also included the totality of subject property, (Exhibit R-13-b).

In resume notwithstanding the considerable industrial development that took place particularly in the northwestern portion of Moore township, prior to Valuation Day, the land prices in the immediate area of the subject property had been steadily decreasing since 1957. In my opinion, the one mile restricted area from the Tecumseh gas storage area which came into effect in July of 1971 was also a negative factor in respect of the value of the subject property.

The positive factors which would tend to increase the value of the appellant’s property were the projects which should facilitate industrial expansion in Moore township, viz: the designation of certain areas as Industrial Stage I and Stage II; the relocation of highway 40 and its eventual connection with highway 402; the paving of the county road #4 passing south of the subject property and which was to connect with highway 40 and the other projects envisaged in the approved official plan were generally aimed at.promoting the industrial expansion of the township.

The several important proposals contained in the official plan as of August 1971, would, in my view, justify a reasonable expectation of some increase in the value of the land in the area and would stimulate the land market.

In attempting to determine the value of the subject property as at December 31, 1971, the question that arises is how much increase in the value of land based on the factors and expectations existing at that time could be foreseen on Valuation Day. In this respect, the two appraisal reports submitted to the Board vary considerably as to the highest and best use to which the subject land could be put and to the corresponding market value each appraiser attributes to the land.

Highest and Best Use

On page 10 of his report, Mr Hughes defines highest and best use as follows:

The term highest and best use applies to the land and is defined as the most probable use to which the land can be put to produce the greatest net return in either money or amenities.

Mr Egerton did not define the term highest and best use.

Mr Beaton’s definition of highest and best use to be found at page 11 of his analysis is:

The highest and best use of a property is that use to which the land can be put which will create the greatest utility, be it in profit or amenities that is permitted or would be permitted by the laws and by-laws and is not unduly objectionable to the character of the surrounding property.

The difference between these two definitions appears to be that Mr Beaton is, in my view, correctly more flexible than Mr Hughes in including in the highest and best use of land, a use which one can reasonably expect would be permitted by law, whereas Mr Hughes’ definition, if I interpret it correctly, would imply a probable use, within a specific designation at a specific time.

However, for purposes of this appeal, Mr Beaton’s subtle nuance is somewhat lost in its application to the facts being considered here.

The subject land, as well as all the surrounding lands, are somewhat unusual in that they contain salt deposits. Most of the acreage acquired by Dow Chemical for brining purposes have remained agricultural land and can continue to be agricultural even though extraction processes are going on underground. Whether or not brining operations can rightly be classified as industrial does not alter the fact that the highest and the best use to which most of the lands in the vicinity of the subject property were put was the extraction of salt, the formation of cavities for the storage of gas and the continuation of their farming operations on a lease basis.

In his appraisal, Mr Egerton considers as the highest and best use of the property on page 5 of his appraisal as:

future industrial development either on its own or in conjunction with neighbouring properties.

Mr Hughes’ definition of highest and best use of the land on page 10 of his appraisal ts:

farmland with a very minor plus factor for possible long range future industrial use.

The facts as I interpret them force me to modify both conclusions. In respect of Mr Egerton’s conclusion, although the subject property could have been seen in December 1971, as having a future industrial development, it would be unwarranted to believe that the future industrial expansion could vary greatly from the type of industry which already existed in the area.

In stating that the highest and best use of the subject property was farmland, Mr Hughes seems to have ignored the existence of salt deposits on the subject property and the use to which most of the surrounding land had been put prior to December 1971. In light of the development which had already taken place and the proposals of the official plan in August of 1971, I cannot quite see how the industrial potential use of the property could be considered as very minor in the far distant future and that its highest and best use was principally farmland.

It is, true that the subject land was within the restricted one mile perimeter of Tecumseh gas storage area in December 1971, and that no drilling could be done on the property. However, in my view, that does not warrant the conclusion that the salt deposits and the potential gas storage capacity of the land were virtually worthless. It would have been unrealistic and would be to underestimate industry greatly to assume in December, 1971, that the subject property and two of the neighbouring salt containing farms included in the area designated as industrial, but in the restricted area, under the circumstances, had no industrial potential whatever and would not be purchased for industrial use in one related form or another.

As at December 31, 1971, the highest and the best use of the subject land and indeed comparable lands, in my opinion, was not farming alone nor brining alone but was a possible combination of both. In the instant appeal the use of the land and its value is to be determined not so much by zoning but by the very nature of. the sub-soil and to paraphrase Mr Beaton by the character and the use to which the surrounding properties have already been put.

Market Value:

Mr Egerton defines ‘‘market value’’ on page 3 of his report:

The highest price estimated in terms of money which a buyer would be warranted in paying and a seller justified in accepting providing that both parties are fully informed, acted intelligently and voluntarily and further that all rights or benefits inherent in and attributable to the property were included in the transfer.

Mr Hughes’ definition of “market value” on page 3 of his appraisal report reads:

the highest amount in terms of money that a willing and well-informed purchaser would be warranted in paying, and an equally well-informed vendor would be warranted in accepting, provided that neither party was under abnormal pressure, and that the property was exposed on the market for a reasonable length of time.

Fair Market Value:

Mr Beaton noted that a distinction should be made between both of the above definitions of “market value” based on legal and appraisal descriptions and the term ‘fair market value” used in paragraph 70(8)(a) of the Income Tax Act, SC 1970-71-72, c 63 as amended.

Mr Beaton defined “fair market value” on page 8 of his review:

Fair market value is the highest price obtainable in an open and unrestricted market by parties acting at arm’s length.

Mr Beaton referred to a British Columbia case, Executors of Estate of Isaac Untermyer, Deceased v Attorney-General for the Province of British Columbia, [1929] SCR 84, in which the court found that the in- clusion of the word “fair” to the term market value had the effect of eliminating panic or boom prices.

There can be no question that the term used in the Income Tax Act is ‘fair market value” and the finding of the Supreme Court of British Columbia appears to me to be a valid and useful interpretation of what is meant by ‘fair market value” which I propose to follow in deciding the instant issue.

In order to arrive at their respective conclusions, Mr Egerton and Mr Hughes both proceeded exclusively on the direct market comparison method of arriving at a fair market value for the subject property as at December 31, 1971.

Mr Egerton’s list of comparisons contained some 31 comparable sales, many of which were in Sarnia, and the time period of the various transactions ranged from 1957 to 1969, and from which Mr Egerton arrived at a value of the subject property of $1,500.

In his analysis report at page 24 Mr Beaton states:

These factors have not been quantified either for each property or by group. The sales have not been weighed for pertinence.

In effect this report gives a ‘leap to value’, ‘based on an analysis of those sales and further based on your appraiser’s knowledge of market generally.’

This is quite adequate as a comprehensive letter of opinion, but it falls short of being the kind of appraisal which may be required in any arbitration process.

I cannot but agree with Mr Beaton’s comments that it is difficult from Mr Egerton’s list of comparable sales to understand on what basis he arrived at a fair market value of $1,500 per acre as at December 31, 1971.

Mr Hughes’ appraisal report (Exhibit A-12), contains a list of 13 comparable sales of vacant land indicating the resale of some of the already listed properties. All the properties listed are within Moore township and the time period of the transactions is between 1967 and 1974. In arriving at a value per acre for each of the listed property, Mr Hughes adjusted for lack of comparability. In his testimony Mr Hughes explained that among the adjustments made, some were based on the possible existence of buildings on the properties for which higher prices were paid; others based on the circumstances under which the sale was made, eg, illness of the owner, as well as on the time of sale, location, size, topography, zoning, lease, interests, etc. The report also indicates the rating of the comparability of the sales listed. On the basis of the best comparable sale properties Mr Hughes estimated the value of the subject property between $675 and $722 and chose $690 per acre as the fair market value of the property as at December 31, 1971.

Mr Beaton’s comment on Mr Hughes’ appraisal report is that the subject property was looked at as essentially farmland with very little industrial potential, which caused Mr Hughes to attach “some importance’’ to the buildings existing on certain lands. Mr Beaton pointed out on page 24 of his report that unlike the stock market,

when the real estate activity slows down the market disappears, becoming quiescent at its last observed level. It doesn’t depart from this level until activity resumes and prices usually escalate to make up for the inflation loss or investment loss or both which would otherwise have occurred.

I do not believe that any one would quarrel with that general principle. However, because it has been established that most of the land in the immediate area of the subject property which has been sold for brining or gas reserves still operate as farms and indeed such operations are encouraged by the purchasers, the farm buildings, in my view, do have a value which they may not otherwise have in another industrial land market. It seems to me that consideration must be given to the fact that most properties listed as comparable sales continue farming operations. A distinction perhaps, should be made not only between the stock market and the general real estate market, but also between the salt lands in Moore township and other industrial land markets.

Mr Beaton’s Comparable Sales

Mr Beaton stated in his evidence and rightly so, that the market itself establishes the value of property and the closer the comparable sales are to the subject property in time and in space the less adjustments are required to be made and the more accurate will be the fair market value of the property on Valuation Day.

In his analysis, Mr Beaton, for the purpose of comparing the value of land in the area, chose lands immediately surrounding the subject property all of which are situated in the area designated Industrial Stage I! after August 1971. However he listed some 17 comparable sales including the subject property in a long time period ranging from 1957 to 1974. Appendix #6 in Mr Beaton’s analysis of the comparable sales examined, showed 8 transactions involving Dow Chemical of Canada Limited.

Mr Beaton contends that the industrial development impact in the vicinity of the subject land began when Dow Chemical of Canada Limited acquired 650 acres from 1957 to 1960 at an average price of $658 per acre. From appendix #6 it would appear that in 1957 up to December 31, 1971, the highest price paid for land was $1,000 an acre paid by Hydro. It is my understanding that the prices paid by any purchaser having the power of expropriation should not be included in the comparable sale procedure for purposes of determining the fair market value of a property. Prior to 1972, therefore, the highest price paid for land in the immediate vicinity of the subject property referred to in Mr Beaton’s report was $750 an acre in 1957, and the lowest price paid in that area was $355 in 1970.

In my view, Mr Beaton’s appendix #6, although it does not include other purchases made by Dow Chemical of Canada Limited for the same purpose, it tends to corroborate the results of Mr Crawford’s graph that indicates a general downward trend of land value in the area from 1957 to December 1971.

Mr Beaton, on page 5 of his analysis, refers to a hiatus in the land market in Moore township that existed from 1969 to 1972, and appears to imply that at least in part credit restrictions imposed by the Bank of Canada may have curtailed industrial expansion in Moore township as it had done in Woodstock, St Catharines and Pickering. I do not for a moment doubt the accuracy of Mr Beaton’s analysis of the economic restriction that prevailed for 1969 to 1972, and adversely affected industrial development and expansion in many centres in the country. However, it appears clear to me that the value of land in Moore township was generally set by Dow Chemical of Canada Limited and was directly proportional to the urgency of Dow’s requirement for land from 1957 to 1971. The evidence is that Dow Chemical of Canada Limited in the acquisition of salt reserves was not affected by the credit restrictions and that there really was no hiatus in the land sales in Moore township from 1969 to 1972. The comparable sales listed in the appraisal reports do not establish that a marked decrease in the volume of land sales took place in Moore township in the period between 1969 and 1972.

Based exclusively on the history of land prices in Moore township as they have been presented in both appraisal reports and in the evidence and without taking into account the potential industrial expansion which could reasonably be expected in that area, I believe that a basic figure for the value of the subject land would be in the vicinity of $500 an acre in the autumn of 1971. To this figure must be added, of course, an estimated value of the industrial expansion that could realistically and reasonably be expected and could be foreseen on Valuation Day as affecting the subject property. There can be no doubt that all the projects in the revised official plan would stimulate industrial growth and it was reasonable to expect a general increase in land prices. However, to determine the fair market value of the subject property as of December 31, 1971, all the pertinent facts and circumstances affecting that particular property must be taken into account. In my opinion, the subject land is farmland but the nature of its sub-soil is and has always been a plus factor to its value. The fact that most of the land surrounding it was purchased because of the salt deposits but leased back to the vendor for farming purposes has also always been a plus factor and leads to a reasonable expectation as to what would eventually happen to the land. The transportation improvements in the road system and the industrial designation attributed to the property may have increased the value of the land somewhat but its value for industrial use is basically limited by the kind of industry which would be acceptable and not dangerous to the surrounding properties. The Petroleum Resources Act effective prior to December 31, 1971, prohibited drilling operations on the subject property further limiting the industrial use of the property on Valuation Day.

I am not of the view that the property should have been virtually excluded from any possible industrial use or that industrial use would take place only in the far distant future, however, a realistic appraisal of the value of the property as of Valuation Day cannot ignore limitations as to the use to which it could be put and which existed at that time. In my opinion, the industrial potential of the property as of December 31, 1971, was not as brilliant as seen by either Mr Beaton or Mr Egerton but, on the other hand, it was not as dismal as Mr Hughes believed it to be.

Before stating my opinion, and it can only be that, as to what the fair market value of the subject property was on Valuation Day, I believe it is necessary to report here that I have not considered Mr Beaton’s analysis report as a proper appraisal of the subject property because, in my view, Mr Beaton did not have all the facts pertaining specifically to the subject property. Nor do I believe that a prudent purchaser would have paid a price in the range of $2,030 and $2,437 an acre for the subject property in December of 1971. The figure of $111,250 for the subject property as of Valuation Day can only be arrived at, in my opinion, by the use of considerable and unwarranted hindsight in the present evaluation. The figures presented by Mr Beaton as to Dow Chemical of Canada Limited’s investment in lands which it accumulated over the years including a reasonable interest rate is basically correct and certainly higher than the price paid for the lands. However, I have very serious doubts that Dow Chemical’s investment in the creation of a land bank for its own specific purposes can, even for purposes of corroboration, be realistically related to the fair market value of the subject property.

Since general land prices remained quite stable even after December 31, 1971, I believe it can be reasonably assumed that although some industrial expansion was expected in Moore township, no one knew the nature nor the extent of the future development. The huge Petrosar project which was constituted subsequently could not reasonably have been predicted and no one could foresee on Valuation Day the impact that it did have on land prices after 1974, resulting in unexpected boom prices in the land market in the area.

From the various comparable sales submitted in the appraisal reports, I have arrived, as already mentioned, at a basic value of $500 an acre for the subject property. I have considered the general industrial development that. could be reasonably expected in Moore township in December 1971, as a result of the projects contained in the official plan. I have also considered the limitations of the industrial use to which the subject property could be put and which was known on Valuation Day. In my opinion, an objective appraisal of the increase in value to be given the subject property in respect of its potential future industrial use is $350. I conclude, therefore, that the fair market value of the subject property as at December 31, 1971, was $850.

The appeal is therefore allowed and the matter referred ack to the Minister for reassessment on the basis that the fair market value of the subject properties on December 31, 1971, was $850 an acre and the capital gains realized by the appellant should be taxed accordingly.

Appeal allowed.