Delmer
E
Taylor:—This
is
an
appeal
against
an
income
tax
assessment
in
which
the
Minister
of
National
Revenue
decreased
the
Valuation
Day
(V-Day)
value
of
$240,000
reported
by
the
appellant
in
connection
with
the
sale
of
a
certain
parcel
of
real
estate,
to
an
amount
of
$158,000.
The
respondent
relied,
inter
alia,
upon
sections
3,
38,
39,
40,
54
and
53
of
the
Income
Tax
Act
and
section
26
of
the
Income
Tax
Application
Rules,
SC
1970-71-72,
c
63,
as
amended.
Facts
The
appellant,
a
physician
and
surgeon,
practices
in
the
Municipality
of
Burnaby,
Province
of
British
Columbia.
In
1966,
he
purchased
property
located
at
Royal
Oak
and
Kingsway
in
the
Municipality
of
Burnaby
at
a
price
of
approximately
$85,000.
The
property
contained
several
small
stores
plus
two
houses.
The
buildings
were
rented
by
him
to
various
tenants
until
1974
when
the
property
was
sold
for
$325,000.
In
filing
his
income
tax
return
for
the
1974
taxation
year
the
taxpayer
took
the
position
that
the
V-Day
value
of
the
property
was
$240,000.
He
claimed
expenses
of
$2,000
and
reported
and
paid
tax
on
a
taxable
capital
gain
of
$41,500.
By
notice
of
reassessment
issued
on
October
18,
1975,
the
Minister
of
National
Revenue
reassessed
him
for
his
1974
taxation
year.
The
Minister
determined
that
the
V-Day
value
of
the
property
was
$136,000.
In
January
1977,
the
appellant
filed
a
notice
of
objection
to
the
said
reassessment
and
by
a
further
notice
of
reassessment
issued
on
August
5,
1977,
the
Department
increased
the
V-Day
value
from
$136,000
to
$158,000.
Contentions
The
appellant
maintained
that
the
V-Day
value
of
the
property
was
$240,000
while
the
position
of
the
respondent
remained
at
$158,000.
Evidence
The
appellant
provided
background
evidence
in
the
matter
but
the
major
information
was
supplied
by
two
evaluators,
Mr
Heinz
Brett
for
the
appellant,
and
Mr
Koivane
Yuh
for
the
respondent.
The
result
of
the
Brett
appraisal
was
to
indicate
a
value
for
the
subject
property
on
V-Day
of
$220,000;
that
of
the
Yuh
appraisal
$158,000
for
the
land.
Considerable
effort
went
into
examining,
cross-examining
and
re-examining
each
of
these
witnesses
on
the
bases
of
data
included
and
conclusions
in
their
respective
reports.
In
summary,
it
could
be
said
that
there
were
major
areas
of
disagreement
between
the
experts
on
all
of
these
points,
and
that
the
mathematical
results
reached
($220,000
and
$158,000
respectively)
reflected
the
individual
emphasis
and
perspective
of
each
one.
Brett
placed
considerable
weight
upon
offers
to
purchase
the
subject
property
for
$250,000,
which
offers
were
dated
January
and
March
1972
respectively
and
were
filed
with
the
Board
as
Exhibits
A-1
and
A-2,
while
Yuh
disregarded
these
altogether.
Also,
Brett
relied
heavily
in
his
“comparables”
on
a
certain
piece
of
property
in
the
area,
the
data
for
which
it
was
evident
in
his
report
was
incomplete
or
at
least
inconsistent
with
the
real
estate
transfer
records
filed
with
the
Board
by
counsel
for
the
respondent
as
Exhibit
R-2.
Further,
a
parcel
of
property
directly
across
the
corner
from
the
subject
property
had
been
optioned
by
a
purchaser
in
May
1972
and
bought
later
that
year
for
$300,000.
Brett
claimed
it
was
similar
to
the
subject
property,
if
anything
it
was
less
desirable,
while
Yuh
disregarded
the
purchase
altogether
as
having
no
relevance.
Argument
Both
counsel
recognized
in
a
very
professional
way
the
difficulty
facing
the
evaluators
in
reaching
conclusions
regarding
the
subject
property
when
there
were
no
actual
comparable
sales.
Since
both
reports
were
made
some
three
years
after
the
sale
and
Six
years
after
V-Day,
for
the
evaluators
to
take
into
account
the
changes
which
had
taken
place
in
the
area
during
those
several
years
and
make
appropriate
adjustments
provided
a
real
challenge
to
them.
Although
pointing
out
that
their
value
as
physical
evidence
was
limited
because
of
their
nature,
counsel
for
the
appellant
requested
some
consideration
be
given
to
the
offers
to
purchase
the
subject
property,
and
also
to
the
sale
of
the
adjacent
property,
information
on
both
offers
having
been
submitted
to
the
Board.
Findings
The
Board
does
not
fault
either
evaluator
but
simply
states,
as
a
basis
for
its
own
conclusions,
that
to
rely
on
one
report
to
the
exclusion
of
the
other
would
be
a
questionable
procedure.
Equally
in
my
view,
for
the
Board
to
simply
cut
the
difference
between
the
reports
approximately
in
half
to
resolve
the
issue
could
initiate
a
process
of
then
selecting
certain
features
of
each
report
in
an
effort
to
justify
and
support
such
a
conclusion,
thereby
running
the
risk
of
inverted
decision-making.
It
appears
to
me
that
matters
of
V-Day
valuation,
if
only
because
of
their
nature,
frequency
and
importance,
deserve
a
basis
for
determination
on
principle
rather
than
expediency.
The
instant
case
provides
some
scope
for
the
Board
to
make
a
critical
analysis
of
the
presentations.
It
would
be
an
unusual
situation
indeed
for
an
evaluator
to
be
engaged
by
a
taxpayer
in
connection
with
an
income
tax
assessment,
and
not
become
aware
of
the
mathematical
basis
of
the
dispute
with
the
Department.
It
is
equally
obvious
that
many
departmental
appraisals
(as
is
apparently
the
case
in
this
matter)
are
prepared
when
the
taxing
officials
are
unable
to
conclude
an
accord
with
the
taxpayer.
While
the
Board
appreciates
that
these
situations
which
the
respective
appraisers
face
would
not
affect
the
professional
nature
of
their
efforts,
they
do
tend,
when
added
to
the
retrospective
difficulties
and
intervening
physical
changes
particularly
associated
with
real
estate
properties,
to
moderate
the
ultimate
value
of
any
such
appraisal
reports.
In
short,
I
doubt
that
any
appraiser
working
under
these
conditions
can
be
expected
to
provide
more
than
a
calculated
approximation
of
a
theoretical
value,
and
this
will
always
leave
open
one
vital
question
which
cannot
be
answered.
What
would
a
ready
and
willing
buyer
have
paid
for
the
particular
property
in
question
at
December
31,
1971,
assuming
that
the
owners
were
disposed
to
part
with
it
on
that
date?
No
mathematical
formulae
or
presumed
comparability
will
ever
with
accuracy
determine
that.
It
is
for
this
reason,
in
my
view,
that
the
Board
is
not
only
entitled
but
bound
to
take
into
account
a
range
of
information
broader
than
merely
the
appraisal
reports
in
requiring
that
the
appellant
discharge
the
primary
onus
upon
him.
Looking
at
it
from
the
taxpayer’s
side,
what
are
the
rules
that
were
set
up
by
the
Department
for
him?
Why
and
how
is
he
now
here
with
a
problem
that
cannot
be
resolved
empirically?
It
has
its
genesis
in
the
responsibilities
assigned
to
the
taxpayer
under
the
Income
Tax
Act
to
determine
“Valuation
Day
value’’
(December
31,
1971
for
real
property).
These
are
contained
for
all
practical
purposes
in
Information
Circular
73-27
dated
November
8,
1973,
replaced
by
73-27R
dated
March
17,
1975.
There
were
minor
changes
from
73-27
to
73-27R
but
the
changes
did
not
affect
the
essence
of
the
message.
From
an
examination
of
the
Circular,
particularly
paragraphs
2,
3,
4,
5
and
6,
it
can
readily
be
seen
that
in
previewing
the
difficulties
which
would
inevitably
arise,
the
Department
left
not
only
the
initiative
but
also
the
procedure
largely
to
the
goodwill
and
judgement
of
the
taxpayer.
In
paragraphs
7
through
10,
the
Department
provides
for
some
alternative
route
for
valuation,
using
publicly
available
data
accumulated
by
officials.
However,
in
my
view,
the
significant
direction
is
contained
in
paragraphs
11
and
12.
I
must
interpret
these
to
mean
that
the
information
from
the
Data
Bank
should
not
be
substituted
for
that
gathered
by
the
taxpayer.
While
this
Information
Circular
does
not
have
the
force
of
law,
it
cannot
be
disregarded
in
the
Board’s
decision
since
it
gives
virtually
the
only
framework
with
which
taxpayers
have
been
provided
to
date.
In
my
opinion
the
taxpayer
is
requested
to
follow
the
general
course
outlined
in
paragraph
3,
the
more
specific
course
outlined
in
paragraph
4,
or
the
specific
route
in
paragraphs
5
and
6.
He
is
also
informed
that
he
may
utilize
(separately
or
in
conjunction
with
any
of
the
above)
the
services
indicated
in
paragraphs
7
to
10.
There
appears
to
be
no
compunction
to
choose
one
method
over
the
other,
and
there
is
clearly
no
indication
that
a
particular
method
is
not
acceptable.
If
anything,
the
Circular
leans
away
from
reliance
on
the
documented
Data
Bank
approach.
In
the
instant
case,
the
appellant
has
available
information
in
compliance
with
the
provisions
of
paragraph
3,
which
included
reference
to
the
sale
across
the
street.
Presumably
it
has
not
been
considered
adequate
by
the
Department.
A
letter
of
opinion
(in
accordance
with
paragraph
4
of
the
Circular)
was
not
obtained
by
the
taxpayer,
but
two
offers
to
purchase
were
filed
with
the
Board.
These
were
not
considered
acceptable
by
the
Department
since
they
contained
conditions
required
by
the
interested
purchaser.
The
taxpayer
has
further
provided
an
appraisal
by
a
qualified
appraiser
(paragraph
5
of
the
Circular)
and
it
has
been
found
insufficient
by
the
Department.
Counsel
for
the
respondent,
in
cross-examination,
did
successfully
show
at
least
one
material
weakness
in
the
Brett
report.
Counsel
has
also
presented
the
respondent’s
own
evidence
in
the
form
of
a
departmental
appraisal.
In
effect,
the
respondent
now
goes
to
the
Data
Bank,
or
something
very
similar,
for
supportive
statistics—a
method
cautioned
against
in
the
referenced
Circular.
It
was
clear
to
the
Board
from
the
examination
and
cross-examination
of
the
appraisers
that
there
was
a
high
potential
for
some
selective
perception
in
the
utilization
and
interpretation
of
such
data,
and
that
therefore
the
Department’s
warning
in
the
Circular
was
well
founded.
Reviewing
this
situation,
to
determine
if
the
appellant
has
cast
reasonable
doubt
upon
the
valuation
of
the
respondent,
the
Board
finds
that
the
general
information
provided
(paragraph
3
of
the
Circular)
allows
substantial
comfort
to
the
taxpayer
and
that
the
more
specific
information
(paragraph
4
of
the
Circular)
should
not
be
completely
ignored
in
any
determination.
As
indicated
earlier,
the
Board
does
not
rely
greatly
upon
either
appraisal
report,
the
data
in
one
virtually
offsetting
the
data
in
the
other.
It
is
clear
Brett
believes
the
period
from
1966
through
1971
showed
at
least
as
great
or
greater
annual
increments
in
the
value
of
real
property
generally
than
the
period
1972
to
1974,
whereas
Yuh
views
the
matter
in
quite
the
reverse
fashion.
I
doubt
that
the
Board
can
support
either
opinion
based
merely
on
the
evidence
submitted
at
this
hearing.
The
two
major
factors
(the
sale
of
the
adjacent
corner,
and
the
offers
to
purchase)
cannot
be
eliminated
for
consideration
by
the
Department
when
the
only
alternative
proposed
in
support
of
the
assessment
is
an
appraisal
report
based
on
Data
Bank
information,
which
report
is
itself
disputed
by
a
Similar
report
prepared
on
behalf
of
the
appellant.
It
should
be
noted
that
there
is
no
indication
in
the
Circular
that
an
appraisal
prepared
by
a
taxpayer
on
December
31,
1971,
would
be
regarded
more
favourably
in
later
years
by
the
Department,
when
disposal
occurred,
than
one
prepared
as
at
December
31,
1971.
The
appellant
has
met
the
onus
of
showing
that
the
method
(an
evaluation
report)
adopted
by
the
respondent
in
determining
the
adjusted
cost
base
ignores
factors
(the
adjacent
sale
and
the
offers
to
purchase)
which
have
at
least
equal
validity,
and
on
their
own
merits
are
indications
of
the
value
of
the
property.
It
should
therefore
not
be
used
as
a
substitute
for
the
basis
upon
which
the
taxpayer
has
relied
to
produce
his
own
valuation
of
$240,000.
Decision
The
appeal
is
allowed
and
the
matter
referred
back
to
the
respondent
for
reassessment
accordingly.
Appeal
allowed.
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