Tremblay,
TCJ:—This
case
was
heard
on
September
28,
1984,
in
the
City
of
London,
Ontario.
1.
The
Point
at
Issue
The
point
is
whether
the
appellant
is
correct
in
the
computation
of
his
income
for
the
taxation
year
1979
in
not
including
any
amount
as
taxable
capital
gain
upon
the
sale
of
a
residence
and
9.18
acres
of
land
located
in
the
County
of
Puslinch,
Ontario.
This
piece
of
land
had
been
acquired
prior
to
1971.
The
appellant
contends
that
the
9.18
acres
were
necessary
to
the
use
and
enjoyment
of
the
housing
unit
thereon
as
a
residence
and
therefore
there
is
no
capital
gain.
The
respondent
reassessed
the
appellant
including
$11,028.67
as
taxable
capital
gain
on
the
basis
that
only
two
acres
were
necessary
for
the
use
and
enjoyment
of
the
housing
unit.
The
V-day
value
of
the
balance
of
7.18
acres
was
$9,500
plus
expense
of
$442.67,
totalling
$9,942.67.
The
proceed
allowable
for
7.8
acres
was
$32,000
which
gave
a
capital
gain
of
$22,057.33.
2.
The
Burden
of
Proof
2.01
The
burden
of
proof
is
on
the
appellant
to
show
that
the
respondent's
assessment
is
incorrect.
This
burden
of
proof
results
particularly
from
several
judicial
decisions,
including
the
judgment
delivered
by
the
Supreme
Court
of
Canada
in
johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
2.02
In
the
same
judgment,
the
Court
decided
that
the
assumed
facts
on
which
the
respondent
based
his
assessment
or
reassessment
are
also
deemed
to
be
correct.
In
the
present
case,
the
assumed
facts
are
described
in
the
reply
to
notice
of
appeal
as
follows:
3.
In
so
reassessing
the
appellant
for
the
1979
taxation
year,
the
respondent
made
the
following
assumption:
(a)
the
appellant
purchased
land
as
described
as
Part
Lot
24
of
Concession
9,
Township
of
Puslinch,
prior
to
December
31,
1971,
and,
with
respect
to
9.18
acres
thereof,
resided
thereon
continuously
until
the
disposition
of
the
said
9.18
acres
("the
property”)
in
1979;
(b)
no
more
than
2
acres
of
the
said
9.18
acres
was
necessary
to
the
use
and
enjoyment
of
the
housing
unit
as
a
residence
situate
thereon;
(c)
the
proceeds
of
disposition
from
the
sale
of
the
9.18
acres
in
1979
were
$120,000.00;
(d)
the
value
properly
ascribable
to
the
residence
and
two
acres
at
the
date
of
disposition
was
$88,000.00,
being
$72,000.00
to
the
residence,
$9,000.00
to
the
land,
and
$7,000.00
to
the
improvements
(including
a
pond)
thereon;
(e)
the
fair
market
value
of
the
remaining
7.18
acres
at
December
31,
1971,
was
$9,500.00;
(f)
the
outlays
and
expenses
incurred
consequent
upon
the
disposition
of
the
said
property
in
1979
were
$442.57;
(g)
the
appellant
realized
a
capital
gain
of
$22,057.33
upon
the
sale
of
the
property,
calculated
as
follows:
|
Proceeds
from
9.18
acres
|
|
$120,000.00
|
|
Less:
Amount
applicable
to
|
|
|
residence
and
2
acres:
|
|
|
Land
|
$
9,000.00
|
|
|
House
|
72,000.00
|
|
|
Pond
&
Improvements
|
7,000,00
|
88,000.00
|
|
Proceeds
allocable
to
7.18
acres
|
|
$32,000.00
|
|
Less:
|
|
|
V-day
value
of
7.18
acres
|
$
9,500.00
|
|
|
Outlays
&
Expenses
|
442.67
|
9,942.67
|
|
Capital
Gain
|
|
$22,057.33
|
3.
The
Facts
3.01
The
appellant
admitted
subparagraphs
(a)
and
(c)
of
the
respondent's
assumptions
of
facts
quoted
above
and
denied
the
others.
3.02
Mr
J
Wallace
Beaton,
appellant’s
appraiser,
filed
his
report
as
Exhibit
A-1.
This
exhibit
does
not
show
the
value
of
the
property
on
December
31,
1971
but
gives
facts
to
show
that
all
the
land
is
necessary
for
the
use
and
enjoyment
of
the
housing
unit
and
therefore
concludes
that
the
requirement
of
paragraph
54(g)
of
the
Income
Tax
Act
is
met.
Mr
Beaton
first
gives
a
brief
description
of
the
property:
BRIEF
DESCRIPTION
The
subject
property
comprises
a
two-storey
single-family
residence
on
a
site
of
approximately
9.2
acres.
It
is
located
on
the
north
side
(northeast
side)
of
Victoria
Road
3
/2
miles
east
of
the
City
of
Guelph
and
a
mile
and
a
half
west
and
north
of
the
Macdonald-Cartier
Freeway
(Highway
401).
The
nearest
community
is
Aber-
foyle,
a
mile
and
a
half
to
the
west.
Along
the
east
side
of
the
property
there
is
a
lane,
which
is
separated
from
the
balance
of
the
property
by
a
heavy
line
of
mature
trees,
mostly
cedars.
The
land
and
trees
are
45
feet
from
the
east
limit
at
the
front,
narrowing
to
about
30
feet
in
most
of
the
property.
At
the
front
of
the
property
there
is
a
wooded
area
about
100
feet
deep.
Next
back
from
this
is
a
level
area
in
grass,
something
like
140
feet
deep
by
360
feet
wide
(about
1.2
acres).
Next
to
the
rear
is
a
low-lying
area
of
scrub-land
which,
according
to
the
new
owner,
is
wet
and
muddy
in
spring.
(It
extends
into
the
next
property
to
the
east
where
it
widens
into
a
peat
bog
with
two
substantial
ponds.
In
the
low-lying
lands
in
this
vicinity,
therefore,
both
internal
and
surface
drainage
appear
to
be
poor.)
Behind
the
scrub-land,
there
is
a
small
enclosed
field
which
is
level
and
suitable
for
recreation.
From
this
a
treed
slope
leads
to
the
house
location
at
its
apex.
Together
this
area
of
wet
scrub-land,
small
field
and
hill-slope
comprise
about
3
/2
acres.
The
house
is
situated
about
600
feet
back
from
the
road,
in
the
rear
portion
of
the
property.
It
enjoys
both
scenic
amenity
and
considerable
privacy
by
reason
of
two
treed
areas
in
front
and
the
cedar
trees
on
its
east
side.
To
the
west
the
land
slopes
up
from
the
property
and
is
in
agricultural
use.
Between
the
house
and
the
north
limit
of
the
property
there
is
a
substantial
pond
surrounded
by
lawns,
an
orchard,
and
a
variety
of
mature
trees.
The
land
slopes
with
hillsides
rising
to
the
west
and
north
from
the
pond.
This
portion
of
the
site
contains
more
than
3
acres.
It
is
well
maintained.
(The
approximate
areas
indicated
above
are
subject
to
correction
if
the
site
were
to
be
surveyed
and
measured.)
The
combination
of
trees
and
water
in
the
site
make
it
a
mecca
for
birds
and
there
are
a
number
of
bird-feeders
on
the
property,
which
is
evidently
something
of
a
small
bird-sanctuary.
The
mixture
of
small
land
segments
in
the
property,
as
detailed
above,
has
been
dictated
by
the
natural
topography
and
the
soil
conditions
in
the
land.
Victoria
Road
is
a
gravel
road
on
the
subject
frontage
but
farther
to
the
west
a
portion
of
it
is
paved.
Appendix
No
4
is
a
site
sketch
showing
the
arrangement
of
the
site
features
discussed
above.
3.03
At
page
6
of
A-1,
he
gave
the
highest
and
best
use
of
the
property:
HIGHEST
AND
BEST
USE
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
in
amenities
to
the
owner,
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
subject,
as
indicated
above,
is
a
rural-residential
property
which
meets
substantially
all
of
the
requirements
of
the
“A”
zone
in
which
it
is
located.
Being
a
combination
of
pond,
wooded
areas,
scrub
land
and
small
fields,
the
subject,
in
my
view,
is
unsuitable
for
agriculture.
The
provisions
of
the
Official
Plan
and
Zoning
By-Law
are
such
as
prohibit
further
subdivision
of
the
property,
either
by
way
of
severance
or
by
registration
of
a
subdivision
plan,
in
the
foreseeable
future.
The
highest
and
best
use
of
the
subject
property,
in
my
opinion,
therefore,
must
be
its
present
use
as
a
single-family
rural-residential
unit.
3.04
On
page
7,
he
also
referred
to
the
applicable
Official
Plan
and
Zoning
By-Law
to
confirm
his
opinion
of
the
highest
and
best
use.
The
applicable
Official
Plan
and
Zoning
By-Law
indicate
that
the
entire
9.2
acres
were
necessary
for
the
owner’s
use
of
the
housing
unit:
(a)
Without
9.9
acres,
more
or
less,
it
would
not
have
been
possible
for
the
owner
to
have
obtained
the
1979
consent
from
the
municipal
authorities
necessary
for
the
severance
of
the
housing
unit
from
the
adjoining
lands
and
its
sale
herein.
(b)
Without
400
feet
of
frontage,
it
would
likewise
not
have
been
possible
to
have
obtained
such
consent.
3.05
Finally
his
opinion
is
summarized
at
Page
10:
OPINION
With
9.2
acres
the
subject
is
an
integrated
whole
rural-residential
unit.
It
does
not
lend
itself
to
division,
either
within
the
existing
laws
and
by-laws
or
from
a
practical
standpoint.
As
a
partly
low-lying,
richly
treed,
exurban
home
with
a
pond
it
is
a
private
bird-sanctuary
type
of
place.
It
is
reasonably
evident,
in
my
view,
that
all
9.2
acres
were
and
are
necessary
for
the
use
of
the
unit
as
a
residence,
and
that
most
if
not
all
of
these
9.2
acres
were
also
necessary
for
its
enjoyment
as
a
residence.
Having
regard
for
the
circumstances,
and
based
on
the
facts
as
set
out
in
this
report,
it
is
therefore
my
opinion
that
the
taxable
capital
gain
arising
out
of
the
sale
of
the
property
in
1979
was
NIL.
3.06
During
the
cross-examination
of
Mr
Beaton,
counsel
for
the
respondent,
filed
as
Exhibit
R-1
the
agreement
dated
April
20,
1979
related
to
the
sale
of
the
subject
property
for
$120,000
to
Mr
and
Mrs
Geo
W
Uptegrove.
He
also
filed
as
Exhibit
R-2
an
agreement
dated
November
15,
1971,
related
to
a
sale
of
a
piece
of
land
for
one
dollar,
to
Ruth
Michael,
his
common
law
wife.
The
land
area
does
not
appear
on
the
document.
Finally
he
filed
as
Exhibit
R-3,
an
agreement
dated
September
13,
1972,
related
to
a
sale
of
a
piece
of
land,
the
area
of
which
is
10
acres.
The
grantor
is
Stan
Michael
and
the
grantee
Byron
Essery,
in
trust.
The
price
was
for
one
dollar.
3.07
Mr
Bruce
Walker,
the
respondent's
appraiser,
filed
his
report
as
Exhibit
R-4.
Mr
Walker,
basing
on
six
comparables,
concludes
that
the
selling
price
in
April
1979
of
$120,000
was
an
appropriate
price
and
that
the
price
per
acre
was
$4,500.
Therefore
the
land
value
was
$41,310
($4,500
x
9.18
acres).
|
Land
Value
|
$
41,000
|
|
Building
Value
|
$
71,000
|
|
Site
Improvements
|
$
8,000
|
|
$120,000
|
No
opinion
was
given
of
the
value
of
the
land
on
December
31,
1971.
Concerning
the
highest
and
best
use,
he
writes
on
page
13
of
A-1:
Highest
and
Best
use
The
highest
and
Best
Use
is
defined
as
that
use
which
will
produce
the
greatest
benefit
either
in
money
or
amenities
over
a
given
period.
In
this
connection
consideration
is
given
to
many
factors,
such
as
zoning,
size
and
utility
and
condition
of
existing
improvements,
economic
conditions,
supply
and
demand
of
similar
properties.
As
previously
stated,
the
subject
property
zoning
permits
single
family
dwellings.
The
subject
property
has
value
in
use
as
a
residential
living
unit
and
considering
its
present
age
and
condition,
should
continue
to
provide
that
utility
for
many
years
to
come.
The
subject
property
conforms
with
the
surrounding
development.
There
are
several
other
similar
properties
in
the
area
of
the
subject
and
in
various
parts
of
Puslinch
Township.
Demand
for
this
type
of
property
is
good.
Considering
all
factors,
it
is
my
opinion
that
the
present
improvement
represents
the
highest
and
best
use
of
the
land.
4.
Law
—
Cases
at
Law
—
Analysis
4.01
Law
The
main
provision
of
the
Income
Tax
Act
involved
in
the
instant
case
is
the
one
which
gives
the
definition
of
“principal
residence".
It
is
the
end
of
54(g)
which
reads
as
follows
in
English
and
French
version:
and
for
the
purposes
of
this
paragraph
the
“principal
residence”
of
a
taxpayer
for
a
taxation
year
shall
be
deemed
to
include
the
land
subjacent
to
the
housing
unit
and
such
portion
of
any
immediately
contiguous
land
as
may
reasonably
be
regarded
as
contributing
to
the
taxpayer's
use
and
enjoyment
of
the
housing
unit
as
a
residence,
except
that
where
the
total
area
of
the
subjacent
land
and
of
that
portion
exceeds
/2
hectare,
the
excess
shall
be
deemed
not
to
have
contributed
to
the
individual’s
use
and
enjoyment
of
the
housing
unit
as
a
residence
unless
the
taxpayer
establishes
that
it
was
necessary
to
such
use
and
enjoyment;
et,
aux
fins
du
présent
alinéa,
la
«résidence
principale»
d'un
contribuable
pour
année
d'imposition
est
réputée
comprendre
le
fonds
de
terre
sur
lequel
repose
le
logement
et
toute
partie
d'un
fonds
de
terre
contigu
qui
peut
raisonnablement
être
considéré
comme
facilitant
au
contribuable
l’usage
et
la
jouissance
du
logement
à
titre
de
résidence,
sauf
que,
si
la
superficie
totale
du
fonds
de
terre
sous-
jacent
et
de
cette
partie
dépasse
un
demi-hectare,
l'excédent
est
réputé
ne
pas
avoir
facilité
au
particulier
l’usage
et
la
jouissance
du
logement
considéré
comme
résidence,
à
moins
que
le
contribuable
ne
prouve
que
cet
excédent
était
nécessaire
à
cet
usage
et
à
cette
jouissance;
4.02
Cases
at
Law
Counsel
for
the
parties
referred
to
the
following
cases
at
law:
1.
Carter
v
MNR,
[1980]
CTC
2623;80
DTC
1537;
2.
MNR
v
Yates,
[1983]
CTC
105;
83
DTC
5158;
3.
Matador
Inc
et
al
v
A-G
(Can),
[1980]
CTC
51;
80
DTC
6018;
4.
Matador
Inc
et
al
v
MNR,
[1980]
CTC
2105;
80
DTC
116.
4.03
Analysis
4.03.1
Counsel
for
the
respondent
objected
to
the
facts
and
the
conclusion
of
the
appellant’s
appraisal
report
on
the
basis
that
it
does
not
conclude
to
a
value
of
the
property.
On
the
one
hand,
if
it
is
true
that
the
report
does
not
conclude
to
a
value
of
the
subject
property,
on
the
other
hand
it
gives
numerous
facts
related
to
the
property
(description,
zoning,
highest
and
best
use)
which
are
useful
to
help
the
Court
in
arriving
at
a
conclusion
concerning
the
first
point
at
issue:
the
necessity
of
the
total
area
of
the
subjacent
(sic)
land
for
the
use
and
enjoyment
of
the
principal
residence.
Those
facts
are
ordinarily
found
in
an
appraisal
report
because
they
affect
the
value.
4.03.2
The
respondent's
appraisal
report
concludes
to
a
value
of
the
subject
property
at
the
time
of
the
sale
in
1979.
However
the
said
value
was
in
dispute.
The
same
report
did
not
give
the
V-day
value
of
the
said
property
which
is
the
subsidiary
point
at
issue
according
to
the
general
contention
of
the
respondent
This
V-day
value
would
have
helped
the
Court
to
understand
part
of
the
assumptions
of
facts
described
in
subparagraph
3(g)
of
the
reply
to
notice
of
appeal.
The
said
report
however
gives
also
some
facts
related
to
the
subject
property
(highest
and
best
use,
site
analysis,
zoning)
which
are
useful
to
help
the
Court
in
arriving
at
a
conclusion
concerning
the
main
point
at
issue.
4.03.3
One
of
the
main
criterion
argued
by
counsel
in
the
argumentation
was
the
severance
policy.
Indeed
in
the
Yates
decision,
referred
to
above,
given
by
Mr
Justice
Mahoney
of
the
Federal
Court,
Trial
Division,
the
substance
of
the
decision
was
that
the
taxpayers
(Mr
and
Mrs
Yates)
could
not
legally
have
occupied
their
housing
unit
as
a
residence
on
less
than
ten
acres,
and
the
portion
in
excess
of
one
acre
was
necessary
for
their
use
and
enjoyment.
In
the
Carter
decision,
(referred
to
above)
Mr
Commissioner
Bonner
of
the
then
Tax
Review
Board
sustained
the
position
of
the
Minister
"that
the
principal
residence
ought
not
to
be
valued
as
severed
unless
it
was
in
fact
severed
or
severable
under
The
Planning
Act
RSO
1970,
c
349.
4.03.4
The
official
plan
issued
by
the
City
of
Guelph
concerning
the
severance
policy
was
introduced
in
1972.
It
can
be
summarized
as
follows:
The
parcel
to
be
severed
must
not
be
prime
agricultural
land
(sec
5.2a)
the
severance
must
not
conflict
with
the
local
zoning
by-law
(sec
5.2.1.1a),
only
one
severance
is
permitted
from
any
existing
parcel
of
land
(sec
5.2.1.1e)
and
the
parcel
to
be
severed
must
contain
at
least
25
acres
(sec
5.2.1.2b).
In
the
zoning
map
of
the
municipality,
the
subject
property
is
zoned
“A”’
agricultural.
In
the
by-law,
such
zoning
permits
farms,
one-family
detached
dwellings
and
certain
recreational,
institutional
and
medical
uses
(sec
7.1).
Properties
in
“A”
agricultural
zoning
require
a
minimum
lot
area
of
4.0
hectares
(9.9
acres),
a
minimum
frontage
of
121.9
metres
(399.8
feet)
and
for
a
two-storey
non-farm
dwelling,
a
minimum
floor
area
of
750
square
feet
(sec
7.2).
The
area
of
the
principal
residence
on
the
subject
property
was
1222
square
feet
(B
Walker
report,
p
10)
the
subject
property
is
400
feet
of
frontage
by
a
depth
of
1000
feet:
9.18
acres
(B
Walker
report,
p
5).
It
is
true
that
the
area
of
the
subject
property
is
only
9.18
acres.
The
respondent
contends
it
is
the
third
severance.
However
pursuant
to
Section
5.2.1.1
of
the
Official
Plan
Guelph
and
Suburban
Planning
Area,
only
one
severance
is
permitted
from
any
existing
parcel
of
land.
Such
contention
of
the
respondent
is
contrary
to
the
evidence
described
in
paragraph
3.06.
Indeed
Exhibit
R-2
is
dated
November
1971.
Thence
it
was
issued
before
the
official
plan
was
introduced
in
1972.
Exhibit
R-3
is
dated
September
13,
1972.
There
is
no
evidence
that
it
was
not
approved
by
the
appropriate
committee
of
the
City
before
the
enactment
of
the
Official
Plan.
From
the
fact
that
the
appellant
was
authorized
by
the
City
to
sell
the
subject
property,
it
can
be
assumed
that
it
was
pursuant
to
the
severance
policy.
Maybe
the
subject
property
was
the
balance
of
the
original
piece
of
land
purchased
by
the
appellant.
This
however
was
not
in
evidence.
The
fact
that
there
is
a
difference
of
less
than
three
quarters
of
an
acre
(9.90
-
9.18)
cannot
in
substance
affect
the
decision
of
this
Court,
that
the
subject
property
could
not
be
severed
less
than
9.18
acres.
Therefore
based
on
the
Yates
decision,
this
appeal
should
be
allowed.
4.03.5
There
is
another
point
in
favour
of
the
appellant’s
thesis
which
is
maybe
stronger
than
the
preceding
one.
The
description
of
the
subject
property
given
in
paragraph
3.02
and,
among
others,
the
fact
that
the
house
is
situated
600
feet
back
from
the
road,
in
the
rear
portion
of
the
property,
it
seems
to
the
Court
that
the
highest
and
best
use
of
the
whole
land
is
for
the
use
and
enjoyment
of
the
principal
residence.
The
whole
description
in
3.02
is
to
be
read.
Moreover
because
the
subject
land
is
Dumfries
soil,
its
best
use,
with
the
other
elements
(trees,
pond,
etc)
is
for
the
enjoyment
of
the
residence.
Here
is
an
extract
from
“Soil
Survey
of
Wellington
County",
Report
No
35
of
the
Ontario
Soil
Survey.
It
was
prepared
by
the
Research
Branch,
Canada
Department
of
Agriculture
and
the
Ontario
Agricultural
College:
DUMERIES
SERIES
The
main
area
of
Dumfries
soils
is
in
Erin
and
Puslinch
Townships.
These
soils
have
developed
from
stony
soil
material
derived
mainly
from
limestone.
The
material
is
therefore
calcareous
and
free
carbonates
can
be
found
at
depths
of
18
to
24
inches
except
in
places
of
severe
erosion
where
they
occur
at
the
soil
surface.
The
topography
is
hilly;
slopes
are
steep,
irregular
and
short;
depressions
or
“potholes”
are
common.
Since
water
runs
rapidly
off
the
steep
slopes
or
readily
percolates
through
the
stony
materials
the
Dumfries
soils
are
well
drained.
However,
within
the
areas
shown
on
the
soil
map
there
are
often
areas
of
poorly
drained
soils
too
small
to
be
delineated.
These
potholes
contain
water
a
large
part
of
the
year,
cannot
be
easily
drained
and
therefore
are
not
arable.
It
is
obvious
to
the
Court,
that
under
the
circumstances,
the
said
piece
of
land
cannot
be
used
for
farming.
4.03.6
Finally
the
Walker’s
report
is
in
the
sense
of
the
conclusion
of
the
use
and
enjoyment
of
all
the
land.
In
the
quotation
of
highest
and
best
use
in
paragraph
3.07
above,
one
can
read
among
others:
the
subject
property
has
value
in
use
as
a
residential
living
unit
and
considering
its
present
age
and
condition,
should
continue
to
provide
that
utility
for
many
years
to
come.
The
subject
property
conforms
with
the
surrounding
development.
There
are
several
other
similar
properties
in
the
area
.
.
.
The
Court
concludes
that,
taken
as
a
whole,
the
subjacent
(sic)
land
must
not
be
severed
because
it
contributes
only
to
the
use
and
enjoyment
of
the
housing
unit
as
residence.
5.
Conclusion
The
appeal
is
allowed
and
the
matter
referred
back
to
the
respondent
for
reassessment.
The
appellant
is
entitled
to
party
and
party
costs.
Appeal
allowed.
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