Fehrenbach v. MNR, 95 DTC 860, [1995] 1 CTC 2602 (TCC)

Margeson J.T.C.C.:-In the taxation years 1991, 1992 and 1993, the appellant sought to deduct the amounts of $5,865.42, $6,275 and $7,294.23, respectively as business development and client entertainment expenses. The appellant was a member of a partnership engaged in the practice of law during the relevant years.

In reassessing the appellant the Minister disallowed 90 per cent of the deductions. The allowance of ten per cent was based upon an earlier decision of the Tax Court of Canada with respect to the same taxpayer for the taxation years 1979 and 1980 which is presently under appeal at the instigation of the appellant.

Initially the Minister had disallowed the deduction of a portion of interest expense as not relating to money borrowed for the purposes of earning income by the partnership. At the time of the hearing and in the amended reply, the Minister consented to judgment allowing the appeal in respect to this deduction on the basis that the appellant be entitled to deduct interest expense of $3,164.50 in 1981, $4,008.50 in 1982 and $2,989.50 in 1983 in computing the appellant’s income from the partnership business.

Facts

During the years in question, the appellant was a member of the partnership of Morscher and Fehrenbach which carried on the practice of law in the area of Kitchener in the province of Ontario. He had been going to the Collingwood area since the year 1975. The area was being developed as a "four seasons area" and many condominium units, so-called, were being constructed and sold in the "Cranberry Village" area. The appellant indicated that many people were making use of such units to entertain clients and prospective clients.

The area boasted the availability of facilities for skiing, windsurfing, swimming, sailing, hiking, fishing and provided an abundance of outstanding scenery, fresh air and sunshine. The appellant had a client at that time who was doing a considerable amount of work with European investors whom he believed would enjoy spending some time in a place like "Cranberry Village". The appellant bought a two-bedroom single-storey unit in 1978 and took possession in 1979.

The owners of the units had no right to use the recreational facilities unless they paid the subscription fee. The appellant indicated that he paid this fee on behalf of his clients but did not claim it as an expense. He stated that some of the people that he entertained there purchased units and he acted for them in the performance of the related legal work. The position of the appellant was that he came to the Kitchener area from Toronto and needed to develop his law practice. He chose to purchase the unit and utilize it in his practice as his way of "marketing his skills". He believed it to be a good way of meeting prospective clients. At that time he pointed out that the amount of advertising that a lawyer could do was restricted due to regulations of the Law Society of Upper Canada. His position was that he did not want to rent the property but wanted it available 100 per cent of the time as a marketing tool. Consequently, he did not take advantage of several available schemes that would have enabled him to shelter some of his income making use of available sections of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the "Act").

The appellant referred to a specific instance when he allowed his unit to be used for an entire day by one of his clients who was entertaining a diplomatic group in efforts to obtain business relating to a "nuclear reactor". This particular job was not obtained but the same client entertained another group there resulting in the appellant acting for a client in the sale of a mall. The appellant said that he entertained many different people at the unit including professionals. Some of these people wanted to go to a more relaxed atmosphere to work, away from their offices, with their families while business was being conducted. He wanted "to do things on a more personal level". Some of the people stayed an entire day or an entire weekend. The unit was located two hours from Kitchener and it would not be reasonable to go there and back on the same day according to the appellant. He agreed that there were many days when no one was making use of the unit. His family was free to use it when it was not being used for business. He pointed out that his family was told at the beginning that it was business first. Sometimes the appellant did not like the social side of the entertainment or necessarily the guests that were there. He considered the unit to be an extension of his office sometimes when he performed specific tasks there.

The appellant’s position was that the costs of providing the food and drinks was much less than going to a restaurant, bar or hotel and these expenses can be deducted under the provisions of the Act. The appellant believed that the use of this unit in this manner provided a setting in which he could develop new clients, bring former clients back into the fold and where his clients were appreciative of the opportunity of meeting other people from the area and possibly obtaining new clients themselves.

The appellant referred to Exhibit A-l, Tabs 2, 3 and 4 which set out specifically the nature of the expenses claimed in the years in question. He also referred to Tab 5 which was a compilation of fees billed by J.A. Fehrenbach between January 1, 1979 to October 15, 1985. The appellant’s position was that there was some increase in billings due partly to the entertainment that he provided at his condominium unit.

At Tab 6 of Exhibit A-l, the appellant set out what he referred to as "selected client billings" from January 1979 to October 15, 1985 which indicated that certain fees were payable to the partnership from clients that he had entertained at the unit but he was not able to show that specific fees resulted from specific episodes of entertainment nor that such fees would not have been received irregardless of the use of the condominium unit. However, he took the position that some of the income referred to in the exhibit was received because of the use of the condominium unit and as a result of its use he obtained clients who had earlier used other lawyers and sometimes its use resulted in his retention of other clients. The appellant was allowed to refer to the Canadian Bar Association survey of lawyers’ income in Ontario in 1984 for whatever weight the Court might afford it. He also made use of financial information from his practice in 1984. By comparing his own billing-expense ratio with those in the study in the same income bracket, he concluded that his expenses were only 40 per cent of his billings whereas the relevant study groups ratio was 55 per cent. Even by using the expenses claimed in 1984 for the use of the condominium unit, his ratio was 54.35 per cent which was lower than the applicable average in the study.

The appellant took the position that the partnership agreement had not been adhered to in the earlier years, including the years under appeal and even though the partners shared 50/50 in the profits and expenses, that should not have been the case and in later years after an accounting firm was retained to set the books in order, adjustments were made which took these inequities into account and the subsequent statements reflected proper sharing of income and expenses which was more beneficial to the appellant.

The appellant said that the partners agreed that if one of the partners attempted to increase his billings by some extraordinary efforts, such as the appellant’s use of the condominium unit, then such income and related expenses were to be treated independently of the partnership income and expenses. In cross-examination the appellant agreed that the unit in question was owned by him personally during the years under appeal. His position was that he was not an avid skier, some years he did not ski at all and that he only played tennis up to 1981 or 1983 when he tore a ligament in his leg. He was married with two children of which two were skiers.

The appellant said that the expenses claimed here were the same type of expenses claimed in the taxation years 1979 and 1980. At the unit the appellant sometimes kept some legal publications, some files, some books taken from his office but most of the files and records were at his partnership law office. There was no business phone in the unit and no segregated work area. The unit was used personally by himself and his family.

The appellant decided who would be invited to the unit and his partner was not involved. The appellant owned no other recreational facility or vacation home. The unit in question was used mainly on weekends and the appellant met people there who were interested in activities similar to his own. Sometimes he might meet a client or prospective client and give him the keys. He was attempting to foster a personal type relationship into a client relationship. The time spent in the unit was sometimes of a social nature and sometimes of a business nature. Sometimes the appellant had a planned agenda.

The income tax returns of the appellant for the years 1981, 1982 and 1983 were admitted by agreement as were the notices of reassessment. He believed he was allowed the ten per cent deduction in the years under appeal because of the earlier decision of the Tax Court of Canada for the 1979 and 1980 taxation years.

The appellant agreed that the expenses claimed were based upon the whole year but adjusted for the total business use days out of the total use days for the year. Consequently, his formula was total business days divided by total use days multiplied by 100 equals the percentage claimed for business.

Therefore in 1981 when the unit was used for 71 days, 25 of which were personal and 46 of which were business, the formula application was: 46 over 71 x 100 = 64.78 per cent of expenses deductible for business or $5,865.42 out of the total expenses of $9,023.73.

The appellant said that most of the business use days related to its use for the whole day or the majority of a day and did not include occasions when he took a client back for a coffee, although no log or record was produced to verify any of this evidence. He admitted that Tab 6 of Exhibit A-l was only a sample of some of the clients invited up to the condominium unit but that did not mean that those people were necessarily there in the years in question even though they may have paid fees to the appellant in those years and in other years referred to in the exhibit.

The appellant admitted that his partners’ fees appeared to be going up as well as his own but he said that was due to the improper allocations of expenses and income during the years in question and that was subsequently corrected. In answer to a question asked by the Court, the appellant said that the only days of use charged to clients days were "substantial days".

Appellant’s position

The appellant argued that he could have used two other methods of treating the condominium unit which would have resulted in him being able to shelter some of his income in the years in question but he chose to treat the unit as he did because he intended to use it to produce income and deduct the expenses. That is why he did not rent the unit. He said that the facts corroborate his position that he used the unit to produce income.

His position was that the unit was not a lodge as defined by subparagraph 18(l)(l)(i) of the Act, and therefore, he is not precluded from deducting expenses. He referred to the decision of Judge Goetz in 1985 of his 1979 and 1980 appeal as supporting that position.

He referred to the case of The Royal Trust Company v. M.N.R., [1957] C.T.C. 32, 57 D.T.C. 1055 (Ex. Ct.), as supporting his argument that it is not necessary to trace the expense to the income. As in that case he said his purpose was to increase his business through these contacts that he could not otherwise have made. The appellant referred to The Queen v. Sie-Mac Pipeline Contractors Ltd., [1990] 2 C.T.C. 8, 90 D.T.C. 6344 (F.C.T.D.), in support of his argument that the expenses claimed there were expenses similar to those incurred in going to a restaurant, those expenses were deductible and it would be unjust to allow them and not those incurred here. That decision was subsequently appealed to the Federal Court of Appeal and the Supreme Court of Canada which clearly decided that the expenses were prohibited from deduction because of subparagraph 18(l)(l)(i) of the Act.

The appellant also relied upon Hills v. M.N.R., [1981] C.T.C. 2120, 81 D.T.C. 167 (T.R.B.), where the Tax Court of Canada allowed the appellant to deduct 25 per cent of the interest expense on a mortgage of his residence, 25 per cent of which was used to gain rental income.

The appellant referred to The Queen v. Houle, [1983] C.T.C. 406, 83 D.T.C. 5430 (F.C.T.D.), in support of his formula for arriving at the proper proportion of the total expenses to be deducted.

The appellant referred to various income tax bulletins in support of his position that even though the condominium unit was not owned by the partnership, that did not prevent the deductibility of the expenses from the income of the partner who owned the asset.

In summary, the appellant reiterated his position that he put into place a marketing scheme and the expenses related to it were deductible since the expenses were incurred for the purpose of producing income from a business. He argued that it was not necessary to show that the expense produced income results. He said that what he did was good business practice and it was reasonable.

He submitted that the appeal should be allowed with respect to the claimed expenses for the condominium unit.

Respondent's position

Counsel for the respondent took the position that the ten per cent deduction already allowed to the appellant represented expenditures for food and beverage although there was no such evidence before the Court. Counsel argued that the remainder of the expenses are not deductible as they are personal or living expenses under paragraph 18(1 )(h), they do not meet the requirements of paragraph 18(l)(a) and in the alternative they are prohibited by subparagraph 18(l)(l)(i). Further they were not reasonable and prohibited by section 67.

Counsel argued that the appellant must show that the expenses were made for the purpose of gaining and producing income and this cannot be done by merely asserting self-serving statements. She pointed out that the appellant knew the area in question and that there were recreational facilities located there. He purchased the condominium for the recreational purposes. It had nothing to do with the partnership, business or his partner. He is attempting to deduct expenses that were incurred for personal property. This was a personal recreational facility.

Counsel for the respondent was prepared to admit that in using the property as a social facility that business might be fostered but that does not convert its use into a business one. It was a personal use property being used incidentally to promote business. [Emphasis added.]

Counsel argued that it is quite telling that the expenses were not claimed against partnership income and that the type of expenses claimed here are not the type of expenses that are normally associated with expenditures claimable by a partner, but made outside the partnership, such as the use of a personal car. She further pointed out that in the years in question the partnership showed the income equally but the partnership claimed none of the expenses.

It is to be noted that the appellant attributed this to an improper allocation of income and expenses which was corrected in subsequent years according to him.

The respondent argued that no evidence was led to show the nexus between the expenses claimed and the business. That nexus is required according to Symes v. The Queen et al., [1993] 4 S.C.R. 695, [1994] 1 C.T.C. 40, 94 D.T.C. 6001. She argued that the appellant has not shown that he would have lost any business if he did not have the condominium or that he gained business in the years in question because of the use of the condominium.

The evidence given by the appellant shows only that he entertained some people at that condominium unit over a period of years including the years in question and some of these people gave him business. He did not show that these clients would have chosen some other lawyers had they not been entertained there. She also pointed out that there may very well be many reasons to explain increased billings apart from the use of the condominium.

Counsel argued further that the expenses must be reasonable under all the circumstances, in accordance with section 67 of the Act. The duty on the appellant is to show what a reasonable businessman would have believed was a reasonable expense. His expenses were not reasonable because they were incurred principally because the appellant enjoyed these amenities. Counsel argued that the Canadian Bar Association study is irrelevant because it is not related to the years in question and at best it only shows that the appellant may have been operating efficiently during the year 1984.

Counsel argued that even if the Court should find that the expenses satisfied the provisions of paragraph 18(l)(a) of the Act and were not excepted by paragraph 18(1)(h) of the Act, the formula for calculating the expenses as proposed by the appellant cannot be accepted. The unit was available for use 365 days of the year. He was writing off expenses for the whole year. Therefore, a proper deduction should be made for the expenses related to the non-use days. She suggested the following formula as a proper calculation based upon 1981 figures: total days used (71), divided by total days in year (365), multiplied by total expenses ($9,023.73). Total proportionate expenses equals $1,755.30.

For the 1981 taxation year, the second part of the formula was put thusly: total business days used (46) divided by total days used (71), multiplied by total proportionate expenses ($1,755,30) equals $1,137.24 as possible claimable expenses.

The application of the above formula in 1982 would produce a maximum allowable expense of $1,262.52 and in 1983 a maximum allowable expense of $1,483.67.

Counsel for the respondent referred to the case of Soper v. M.N.R., [1987] 2 C.T.C. 2199, 87 D.T.C. 522 (T.C.C.), as authority for this proposition. In that case, the Honourable Judge Rip found that a house in Florida owned by a nursing home corporation was being primarily maintained by the taxpayer’s use for the whole year even though the corporation intended to sell the unit later on. The Court found that the personal use benefit should be calculated on the basis of the fair market rental value for the whole year not just during the time the taxpayer actually used it.

It was further argued that the same result would be obtained by reference to Smith v. M.N.R., [1991] 2 C.T.C. 2143, 91 D.T.C. 909 (T.C.C.), where the Court assessed the value of the resulting benefit of the taxpayer based upon the availability of the condominium for the whole year for the taxpayer’s use. It was also pointed out that the appellant here kept no part of the condominium segregated for business use and it was her position that the appellant never intended to make any money from the condominium itself according to his own evidence. This distinguishes the case at bar from Hills, supra.

Counsel argued that if the expenses were related to a business, their deduction was prohibited by subparagraph 18(l)(l)(i) of the Act since this condominium unit was a "lodge" as therein defined. It was a recreational area during the years in question. It was located in a built-up area but the use of the condominium was recreational. She said that it is possible for one person to own a "lodge”.

Counsel further referred to the case of Fingold et al. v. M.N.R., [1992] 2 C.T.C. 2392, 92 D.T.C. 2011 (T.C.C.), where the Court disallowed as business expenses, items related to a wedding and bar mitzvah, pointing out that there was no evidence that the guests had received invitations as business guests although certain business clients did attend. Any business advantage gained was merely incidental.

Rebutter

In rebuttal the appellant said that this case should be decided on the evidence given here and that he gave evidence under oath as a taxpayer that supports his position. His position was that it was not reasonable to allot all of the non-use days to him personally since the condominium was 200 miles away from his home and he and his family could not make use of it except for 80 days maximum during a year. He said that business and reason dictate that the claimed expenses should be allowed as deductions from income.

The appellant argued that it was not reasonable to expect him to bring his clients to Court to satisfy the burden upon him. He said that he generated income from persons that he took to the condominium who became his clients. The only rational conclusion to be drawn from that was that the expenses were deductible. He said that there was a nexus between the billings and the entertainment even though in the case of the bank clients, it might have been the bank manager who entertained.

It was the position of the appellant that the billings went up during the years in question and that this was likely related to the business use of the condo. He admitted that he could not prove it but that was the most likely reason for the increase.

In conclusion he disagreed with the formula proposed by counsel for the respondent for the calculation of the proper proportion of deductible expenses.

Surrebutter

In Surrebutter, the respondent said that the expenditures here were not the same as those involved in taking a client to a restaurant as was suggested by the appellant.

Issues

1. Was the condominium unit a "lodge" or "camp" as referred to in subparagraph 18(l)(l)(i) of the Act?

2. If the condominium unit was not a "lodge" or "camp" as referred to in (1) above, were the expenses made or incurred for the purpose of producing income from a business or property and therefore not prohibited from deduction under paragraph 18( l)(a) of the Act?

3. Were the expenses personal or living expenses and therefore prohibited from deduction under paragraph 18(1 )(h) of the Act?

4, Were the expenses or outlays reasonable in the circumstances under section 67 of the Act?

Analysis and decision

1. Lodge or camp

In the brochure which was introduced as part of the evidence at trial, the area in question was described as a "condominium community-the homes came in different designs and sizes-condominiums were registered in neighbourhood groups. Cranberry Village was a totally planned recreational and retirement community”. It appeared from the evidence that these condominium units were intended to be self-owned and although one might be permitted to allow the units to be used by persons other than the owners or their families, they were not considered to be available for rental purposes as a business and generally they were not to be used for the purposes of conducting a business or other commercial enterprise.

The appellant indicated that the units were intended to be used in all four seasons to take advantage of the various recreational facilities in the area.

Subparagraph 18(l)(l)(i) of the Act does not define the term ’’lodge" or "camp" and the terms have been judicially considered only sparsely. The dictionary meaning of "lodge" is so broad it could easily encompass not only the type of structure involved in the case at bar but every conceivable abode no matter how large or small it is, no matter whether its use is seasonal or permanent and indeed any place that is meant to hold something. I cannot imagine that the legislators had intended such a wide application of this subparagraph.

In the case of The Queen v. Jadco Henderson Ltd., [1984] C.T.C. 137, 84 D.T.C. 6135, where the expenses were disallowed, the "lodge" in question was far different from the condominium in the case at bar and indeed was commercially operated by third parties. At the trial division level, the Court felt that the expenses would only be non-deductible if the "lodge" was owned by the taxpayer.

The case at bar is clearly distinguishable from the type of structure that was in issue in Jadco, supra, even though the condominium here was owned by the taxpayer himself.

The type of structure that was involved in Sie-Mac Pipeline Contractors Ltd., supra, was a fishing lodge known as the "Hoyea Hilton" and payments were made to the lodge for its use by the taxpayer. Such is not the case before me.

Like Goetz J.T.C.C. in Fehrenbach v. M.N.R., [1986] 1 C.T.C. 2605, 86 D.T.C. 1472,1 am not prepared to stretch the meaning of the word "lodge" or "camp" to include the condominium of the appellant here.

What the taxpayer had in the case at bar was a four seasons residence or home which was occupied as such by he and his family periodically and on other occasions was made available to others at no cost to them.

The deductions sought here are not excepted by subparagraph 18(l)(l)(i).

2. & 3. (a) Gaining or producing income from a business and (b) Personal or Living Expenses

In order for the appellant to be successful under heading (a) above, he must be able to satisfy the Court on a balance of probabilities that the expenses were incurred "for the purpose of gaining or producing income from a business" within the meaning of paragraph 18(l)(a). This is not to say that the expenses must directly lead to the production of income. See the majority decision in Symes, supra, at page 729 (C.T.C. 55, D.T.C. 6012).

that it is not necessary to prove a causative relationship between a particular expense and a particular receipt. Indeed, provided that an expense otherwise satisfies paragraph 18(1 )(a), an expense may be deductible even if it results in a loss.

See Symes, supra, at page 729 (C.T.C. 55, D.T.C. 6012), in reference to an earlier decision in Imperial Oil Ltd. v. M.N.R., [1947] C.T.C. 353, [1948] 1 D.L.R. 305 (Ex. Ct.), which was decided under the more restrictive predecessor to paragraph 18( l)(a).

After referring to a number of different tests that have been suggested as a basis for determining the issue, the Court in Symes, supra, returned to the words of paragraph 18(l)(a) itself since in Symes, as in the case at bar, the question of "personal expense" also arises. Ultimately the Court decided that one should simply ask the question: Did the appellant incur the expenses for the purpose of gaining and producing income from a business?"

It is obvious that the Court did not intend that this question relative to purpose or intent could be answered merely by referring to the statements of the taxpayer. To a large extent that is what the taxpayer in the case at bar is inviting the Court to do. Symes, supra, at page 58 (D.T.C. 6014) makes it clear that the Court will look for "objective manifestations of purpose and purpose is ultimately a question of fact to be decided with due regard for all the circumstances". There is no fixed list of circumstances to which one can refer to prove conclusively or objectively the required purpose but some of the factors that the Court felt might be considered are paraphrased as follows:

1. Whether an expense is generally allowed as an expense by accountants which might go to indicate that such an expense is widely accepted as a business expense.

2. Is such an expense as that proposed by the taxpayer normally incurred by others in the same type of business?

3. Would the expense have been incurred if the taxpayer had not been engaged in the pursuit of business income? The suggestion being that if it would have, then the strong inference is that the expense had a personal purpose.

4. Would the need exist apart from the business? If it does, then an expense to meet the need would traditionally be considered as personal.

The Court is satisfied that the expenses sought to be deducted here are not the type generally accepted by accountants so as to indicate that they are widely accepted as a business expense. To the contrary, expenditures made for the purchase of a capital asset, not owned by the business, from which any capital appreciation would be attributable to the taxpayer and not the business, which is available for the general use of the taxpayer and from which the taxpayer and his family derive a considerable amount of personal benefit are not widely accepted as business expenses.

Likewise, the Court is satisfied that such expenses as are claimed here are not the type of expenses that are normally incurred by lawyers carrying on the practice of law. It may be possible for lawyers to claim expenses related to the use of the portion of their residence used exclusively for their business, but that is obviously not the factual situation presented in the case at bar.

It is no answer to that argument that the appellant testified that other professionals were making use of their properties in the Cranberry Village Development in a similar manner and were claiming deductions for similar expenses.

The appellant did not say that he would have incurred the expenses if he had not been engaged in pursuit of business income but given his knowledge of the area, the relative close proximity of the condominium to his place of business, the personal use made of the unit by himself and his family, the availability of the unit year-round for his personal use and the relatively few days that it was used for business purposes, the only reasonable conclusion that the Court could reach would be that irrespective of his search for business income, he would have incurred these expenses or expenses related to a similar structure.

Given the appellant’s love of the recreational activities available at Cranberry Village as well as the participation of his family in similar activities, it is most likely that this need would exist irrespective of his business. The Court is not impressed by the appellant’s argument that he might have treated the condominium differently under the Income Tax Act if he had not decided to deduct the expenses as having been for business purposes. The election that he made does not turn otherwise non-deductible expenses into deductible ones. He may very well have made the wrong election.

The Court agrees with the argument of the appellant that because the partnership does not own the assets, that does not necessarily mean that the expenses cannot be deducted. However, in this case the appellant did in elude in partnership income, any moneys that the partnership earned as a result of the use of the condominium but the appellant alone deducted the expenses from his income. He gave his explanation as to why that was done in the years in question. The fact is that the income was treated as partnership income and correspondingly the expenses would normally be partnership expenses.

In any event, the type of expenses claimed here are not the type of expenses that are normally associated with expenditures claimable by a partner but made outside the partnership, such as the use of a personal automobile. That point made by counsel for the respondent is well taken.

The appellant argued that he put into place a marketing scheme and the expenses made pursuant to it were deductible as they were incurred for the purpose of producing income from a business. The Court can see no evidence of a marketing scheme in effect here. The best that can be said is that the appellant had a place to entertain someone as a client once he had met them. However, the meeting was not likely brought about because of the existence of the condominium. It is most unlikely that many clients would have been attracted to the legal services of the appellant because of the fact that he had a condominium where they could be entertained or where they might enjoy a sojourn at any given time.

The appellant led evidence to show that the efforts that he made likely produced an income stream but this result was not apparent. The evidence such as the Canadian Bar Association study, the financial information with respect to the appellant’s income and that of his partnership over a period of years and the production of the appellant’s schedule showing that some of his clients stayed at the condominium at various times including the years under appeal was all very general and it fails, in the Court’s view, to produce such a result. The appellant’s own evidence as a taxpayer that the expenditures were made for the purpose of gaining or producing income does not meet the burden. His statement that the only rational conclusion that could be drawn was that they were deductible cannot be accepted.

The Court agrees with the position put forward by the respondent that these expenses were incurred for personal purposes, to acquire a recreational facility for himself and his family, to be used incidentally to promote business if the opportunity arose.

The Court is satisfied that these expenses were not made for the purpose of gaining and producing income from a business or property and that they are personal living expenses by the appellant.

4. Were the expenses or outlays reasonable in the circumstances under section 67 of the Act?

The Court further finds that in any event, the expenses were not reasonable under the circumstances. There is no evidence to show that any effort was made to predict what effect if any, the purchase of the asset would have had in enhancing the income or that the amount of the expenditure would be reasonable in light of the expected income enhancement.

Similarly, it would be unreasonable to have the condominium available for approximately 316 to 319 days a year for personal use, use the condominium for only 46 or 49 days a year for business and expect to deduct the claimed portion of all the annual expenses except for the days actually used by the appellant and his family as personal days.

Simply put, the Court must ask, what reasonable businessman would incur such a capital expenditure as this, merely on the unfounded expectation that he might attract some new clients, without having any idea of the level of success of such action unless there was some other motive? The Court cannot conclude that this was a business decision.

The appellant surely cannot be heard to say that it would be unreasonable to expect him to bring his clients to Court to assist him in meeting the burden of proof which is his. Surely his duty is to present whatever evidence is available. The Court cannot presume that an increase in income is necessarily due to the fact that the appellant entertained past, present or potential clients.

The Court finds that none of the disputed expenses are deductible.

In the event that the Court had found that any of the expenses were deductible, it is satisfied that the most reasonable formula for calculating the proper proportion would have been that proposed by the respondent.

In the end result, the appeal will be allowed and the matter referred back to the Minister of National Revenue for reassessment and reconsideration on the basis that the appellant be entitled to deduct interest expenses of $3,164.50 in 1981; $4,008.50 in 1982; and $2,989.50 in 1983 in computing his income from the partnership business.

The appellant has not been substantially successful in this appeal, therefore, there will be no costs.

Appeal allowed.

Grove Crest Farms Limited, James E. Harris,

[Indexed as: Grove Crest Farms Ltd. v. Canada]

Tax Court of Canada (Bowman J.T.C.C.), December 14, 1994 (Court File Nos. 92-2396/2445-48).

Income tax-Federal-Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)-Valuation of properties.

The issue was the determination of the V-day value of certain properties ("V-day properties") and the value in 1989 of one property ("later-day property’). All of the properties were located near a busy intersection in metropolitan Vancouver. The appellants’ appraiser valued the V-day properties at $1,038,000 and the later-day property at $295,000. The Crown’s appraiser determined the values to be $499,100 and $524,600, respectively.

HELD:

The V-day value of the V-day properties was $818,410. The 1989 value of the later-day property was $524,600. Appeals allowed in part.

L.M. Little, Q.C., and Thomas Bauer for the appellant.

Patricia Babcock for the respondent.

Cases referred to:

Harris v. M.N.R., [1966] C.T.C. 226, 66 D.T.C. 5189.

Bowman J.T.C.C.:-The central issue in all of these appeals which were heard together is the fair market value at December 31, 1971 (valuation day, or V-day) of a number of parcels of land owned by the appellants in Delta, British Columbia at or near to the intersection of Highway 17 and 60th Avenue. Other issues arise but they are for the most part subsidiary to that central issue.

Appendix A [not reproduced] to these reasons is a site plan showing the location of the various parcels in question, designated by the letters A, B, C, D, E, F, G and H, letters used by the appellants’ expert. The respondent’s expert designated the parcels by numbers, which correspond to the letters as follows: 1-A, 2-B, 3-H, 4-G, 5- E, 6-F, 7-C, 8-D.

The specific issues relating to each appellant are as follows:

A. Grove Crest Farms Limited (Grove Crest)-1988 and 1989

The shareholders of this company at all material times were:

James Harris: 42%

Arlene Kyan: 26%

(sister of James and David Harris)

David Harris: 12%

Pauline Harris: 20%

(mother of James and David Harris and Arlene Kyan)

On December 31, 1971 Grove Crest owned a 50 per cent interest in parcels A, B, C, D, E, F, and G. In 1988 it sold its 50 per cent interest in parcels A, B, E and F to a company, Nomada-Gumi Construction with which it dealt at arm’s length. Grove Crest’s share of the proceeds was $563,000. Grove Crest in filing its return of income for 1988 reported no capital gain on the disposition, taking the position that the V-day value of the properties was $804,000. The Minister of National Revenue assessed on the basis that these four parcels had a V-day value of $349,900 and that the appellant’s interest therein had a V-day value of $174,950.

In 1975 parcel C was traded with the Ministry of Highways and parcel H was received in substitution therefor. The Minister assumed there was no gain or loss on the disposition of parcel C.

In 1989 Grove Crest, as part of a distribution on winding-up, transferred its 50 per cent interest in parcel H to James Harris and its 50 per cent interest in parcel G to Arlene Kyan and David Harris. The appellant took the position that the valuation day value of its 50 per cent interest in the two parcels distributed in 1989, (G and H) was greater than the fair market value thereof on the date of distribution with the result that no capital gain was realized. It is not clear what relevance the V-day value of parcel H has, considering that it was not acquired until 1975. If it was a replacement property within the meaning of section 44 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the "Act”) the V-day value of the former property might have been relevant. This position was not taken and accordingly the value of parcel H in 1975 when it was given in exchange for parcel C on the disposition of the latter was treated as the cost base of the former when it was disposed of in 1989.

B. James Harris-1987, 1988 and 1989

On the winding-up of Grove Crest it distributed to James Harris its 50 per cent interest in parcel H. The issue is the value of that property on the date of distribution for the purpose of computing the dividend deemed to have been received by him in 1989. Relevant as well to the amount of the deemed dividend is the amount of Grove Crest’s capital surplus on hand and its capital dividend account which in turn is affected by the V-day value of the lands owned by the company.

In addition the appellant James Harris owned a 50 per cent in certain of the parcels which were sold or disposed of in 1988 and 1989. The issue is the V-day value of these properties and their value when he disposed of them, to the extent that they were disposed of to non-arm’s length purchasers.

The other issues relating to shareholder’s loans and a deduction under paragraph 20(1)(j) were not challenged.

C. Pauline Harris-1988, 1989 and 1990

The issues here are substantially the same as some of those in the case of James Harris and have to do with the amount of the deemed dividend received by her in the winding-up of Grove Crest. Other issues relating to shareholder’s loans were abandoned.

D. Arlene Kyan-1988 and 1989

The only remaining issue here is the amount of the deemed dividend received by the appellant in 1989. This in turn depends on the determination of the value on V-day and in 1989 of the lands disposed of by Grove Crest. The other issues were abandoned. The assessment for 1988 was nil and no appeal lies from a nil assessment. The respondent incorrectly contended that this was a matter of the court’s lacking jurisdiction. It has nothing to do with jurisdiction. It has to do with the appellant having nothing from which to appeal. The appellant agreed at trial to the dismissal of the appeal from Ms. Kyan’s 1988 assessment.

E. David Harris-1988 and 1989

Again, the issue is the amount of the deemed dividend received by David Harris on the winding-up of Grove Crest. In addition the appellant had a one-third interest in parcel D which he disposed of in 1989 in a non-arm’s length transaction. The issue therefor is the V-day value and the value in 1989 of his interest in parcel D. The shareholder’s benefit issue was abandoned.

Appendix B to these reasons sets out the values attributed to the various parcels on V-day and in 1989 by the parties. The expert valuator called by the appellant was Mr. Danny Grant. The expert valuator called by the respondent was Mr. John Weldon. Other appraisals were made by Revenue Canada, notably by Mr. Wong, for the purpose of the first assessment and Mr. Egelstad for the purpose of the second assessment. Only Mr. Weldon was called as a witness. Mr. Wong’s conclusions are not part of the evidence. Mr. Egelstad’s figures which formed the basis of the reassessments appealed from were put in evidence, but not his appraisal. Counsel for the respondent stated that where Mr. Weldon’s figures were less favourable to the appellants than those used in making the assessments appealed for she was not asking for additional tax (see Harris v. M.N.R.,

[1966] C.T.C. 226, 66 D.T.C. 5189).

Overview

The properties in question are all situate at or near the junction of Highway 17 and Highway 99 in the municipality of Delta, about 13 miles south of Vancouver. The intersection is a busy one. Highway 99 is the major north-south freeway linking Vancouver to the United States. Highway 17 links Highway 99 with the British Columbia Ferries terminal at Tsawwassen. Delta is a municipality forming part of Metropolitan Vancouver. Approximately one-quarter of its area consists of farmland. Its population was growing at a relatively rapid rate. Between 1971 and 1976 it grew from 46,000 to 64,000.

Mr. Grant, in his report, referred to a number of factors that he considered significant in determining the value of the properties as of V-day. These factors were:

1. In 1968, development of the Roberts Bank Superport began, and upon completion in 1970, became one of the largest bulk loading ports in North America. In addition to the original 4,000 acres of land expropriated to facilitate the port, 6,000 acres of foreshore lands were designated for future port development.

2. Construction was completed to improve the Tsawwassen Highway between Highway 499 and the Tsawwassen Ferry Terminal, which included widening to four lanes with the addition of appropriate turning lanes and access roads.

3. Redyking of the perimeter of Boundary Bay and the Delta portion of the Fraser River was commenced.

4, Construction of the Delta Municipal Hall in 1968 and the Justice Building in 1972 at the intersection of Highway 17 and 48th Avenue was completed.

5. Construction of neighbourhood shopping centres and numerous commercial buildings within the Tsawwassen and Ladner commercial areas took place.

6. At valuation day, with the planned Superport development, anticipation of extensive development, employment and the requirement for related land requirements was a major market factor. Speculative purchases for land for all types of uses was the norm, particularly after the Crown had taken 4,000 acres from private lands for the one purpose alone.

Further purchases for green belts to pacify objectors to the Superport were carried out in 1971 or 1972. These were major market considerations until a socialist government was elected in August 1972 and froze all development in December 1972.

I regard items 1, 2, 5 and 6 as being of greater importance than items 3 and 4.

One of the most significant events was the freeze on development that took place following the election in August 1972. The freeze itself is not relevant to the V-day value, because it was subsequent to V-day, but it affects the weight that one can put on sales that took place after December 1972. Following the freeze on the development of agricultural farmlands, the provincial government created a land commission and established an Agricultural Land Reserve (ALR). Agricultural lands included in the ALR had to be removed from it if they were to be developed for some purpose other than farm use.

At V-day all of the lands in question were zoned A-l (agricultural) and on the regional plan were designated RRL (lowland rural area). They were all part of a farm that had been in the Harris family for five generations. They were actually farmed. Grove Crest Farms is one of the largest potato producers in British Columbia. I accept Mr. Grant’s opinion that they were well located for commercial or residential development. Their location would make them attractive subjects for speculative purchasers. The probability or possibility, if any, of obtaining zoning for commercial uses would be a factor that would influence a speculative purchaser. In determining the fair market value of property at a particular point in time the Court must postulate the existence of a hypothetical willing and knowledgeable vendor and a hypothetical willing and knowledgeable purchaser, neither of whom is under any compulsion, and, based upon the evidence, including the opinions of experts, attempt to determine what price they would have negotiated. The question that must be determined is what these two hypothetical persons would perceive to be the chances of obtaining commercial zoning on December 31, 1971 and how their perception of those chances would affect the deal that they would theoretically have struck on that day. With the benefit of hindsight one would have to conclude that, in light of subsequent events, the chances were virtually non-existent. The hypothetical vendor and purchaser did not have that knowledge of subsequent events on December 31, 1971 and the conclusion must be based upon the knowledge that they would be presumed to have had at that time.

The single most important factor that separated Mr. Grant and Mr. Weldon was the highest and best use of the subject properties. This in turn was affected by their view of the possibility or probability of rezoning. Mr. Grant’s view of the highest and best use was as follows:

It is concluded that at the date of valuation, December 31, 1971, the highest and best use of the subject properties is as speculative holding properties pending development for predominantly commercial uses with continued interim use for commercial agriculture.

Mr. Weldon’s was the following:

Agricultural use with Nos. 4 and 8 having future potential for industrial development and Nos. 2 and 6 having some possibility for rezoning to a commercial highway travel use.

Highest and best use is a concept used in the valuation of land. It has been expressed in various ways in the cases to which counsel referred me. It means merely the highest economic use to which the land may reasonably be expected to be put. The two experts approached the concept from somewhat different directions, neither one of which is altogether satisfactory. Mr. Grant described the highest and best use as "speculative holding properties pending development for predominantly commercial uses with continued interim use for commercial agriculture". This enigmatic statement covers all bases without conveying any information. Speculative holding is not a use at all. Mr. Weldon did not do much better. He determined the highest and best use on the basis not of the land’s economic potential but on the basis of its zoning.

In the final analysis I did not derive much help from either of these two philosophically different approaches. It would seem to me that the determination of highest and best use in the context of determining the value of land involves a two step process:

A. What is the highest economic use to which the land can reasonably be put, leaving aside the existing zoning?

B. If the existing zoning permits that use, no further enquiry need be made. If not, what effect does the existing zoning have? How does the possibility or probability of rezoning, or the lack thereof, affect the likelihood of the lands being put to that use?

My conclusion, based upon the evidence of persons who were knowledgeable in the real estate market in 1971, is that the properties, or at least some of them, had a potential for redevelopment as commercial property. We must consider the situation as of December 31, 1971. The land freeze, following the change in government in 1972 and the subsequent establishment of the ALR was not reasonably foreseeable on V-day and could not have been anticipated. The events in 1972 had the effect of dampening the price of properties bought for speculative purposes and for that reason sales after those events should be treated with caution. That said, the values per acre determined by Mr. Grant reflect an optimism as to the chances of commercial rezoning that is not altogether justified by the evidence of such witnesses as Mr. Tom Goode, the mayor of Delta in 1972 and for several years thereafter. While one cannot be categorical in characterizing a municipal council as "pro-development” as opposed to "nogrowth" it appeared to me that any developer purchasing the lands on December 31, 1971 could not anticipate that any application for rezoning of the subject lands to commercial, residential or even industrial from agricultural would have an easy passage. By the time Mr. Goode became mayor in 1972 the council of Delta was, as he put it, "no-growth", and at least one half of the members of that council were members on V-day.

Conversely, I think Mr. Weldon’s V-day values do not take into account sufficiently the speculative value of the subject lands which, situate at the intersection of two busy highways, were in a good location for commercial development. There were already three major commercial developments adjacent to one of the subject properties, parcel F-a motel, a Shell service station and a Chev-Olds dealership. I accept Mr. Grant’s view that prices in the area were being pushed up by the development of a superport and by a relatively rapid increase in the population of Delta. I think some additional weight should be given to the value of the expectation that existed on December 31, 1971 that there was a reasonable possibility of rezoning of the subject lands as commercial.

V-day values

Parcels A (RC-1) and E (RC-5)

Parcel A, comprising 4.53 acres was valued as of V-day at $6,500 per acre by Mr. Egelstad, $3,000 per acre by Mr. Weldon and $11,100 per acre by Mr. Grant. It is contiguous to parcel E (RC-5), comprising 28.59 acres which was valued at $4,000 per acre by Mr. Egelstad, $3,500 per acre by Mr. Weldon and $6,500 per acre by Mr. Grant. It is not clear why parcels A and E were not valued as a unit. Mr. Grant concluded that parcel A was adversely affected by its shape and location and the heavy traffic on 64th Street going to and from the municipal dump. The garbage trucks also go past parcel E. He estimated the "site value" of parcel A at $50,000. It is not clear why it should have a value per acre of $11,100 whereas the larger parcel E would have a value of only $6,500 per acre. Mr. Weldon considered E to be somewhat more valuable than parcel A, notwithstanding its "inferior zoning potential". Indeed, Mr. Weldon considered that parcels A and C should be valued as a unit because of the existing and future access problems affecting parcel C (RC-7) which was severed from the rest of the farm by Highway 99. This does not seem to me to be reasonable. It appears to be more appropriate to value parcel A with parcel E.

The three comparable sales relied on most heavily by Mr. Grant in valuing parcel E were his comparables 1, 2 and 23. Comparable 23 was a 46.48 acre parcel and was located at 60th Avenue and 64th Street and it sold in February 1970 for $250,000, or $5,379 per acre. His comparables 1 and 2 (Mr. Weldon’s 10 and 12), also located on 60th Avenue are of less relevance in determining the value of parcels A and E. They were both sold to the Corporation of Delta and were both zoned industrial. Generally speaking I tend to be somewhat cautious in using sales to governmental bodies as an indication of what prices could be expected in the open market. Although comparable 23 (Mr. Weldon’s 5) was also zoned industrial I think that in the market that prevailed in December 1971 the comparable is some indication of what parcels A and E could have been sold for.

I put the value of A and E at $6,500 per acre on the basis that the sale of comparable 23 was about two years prior to V-day, but it was zoned industrial. This I think reflects a more reasonable premium that the commercial potential of the entire parcel would probably command.

Parcels B and F (RC-2 and 6)

These parcels, comprising a total of 49 acres were valued as a unit by both Mr. Weldon and Mr. Grant. Mr. Egelstad assigned a V-day value of $3,700 per acre, Mr. Weldon, $4,500 per acre and Mr. Grant, $12,000 per acre. They are obviously a unit.

Mr. Grant treated as the most relevant sale his comparable 4 (Mr. Weldon’s 13). Mr. Grant’s comparable 4, comprising 10.61 acres, and zoned industrial, was sold on November 2, 1970 to a hotel developer, Georgian Enterprises Ltd., for $100,000 or $9,425 per acre. The property was resold on May 1, 1973 for $180,000, or $16,965 per acre. Mr. Weldon did not consider the second sale of this comparable. Mr. Grant concludes from this double sale that the rate of increase was 2 per cent per month. The interval was 30 months and as a pure exercise in mathematics it works out to 1.85 per cent per month, assuming a constant rate of increase, which would give a V-day value to his comparable 4 of $12,900 per acre. He supports his conclusion as well by reference to his comparable 5, a parcel of 97 acres which was zoned industrial and sold for $10,623 per acre in August 1976. I do not regard this sale as particularly relevant. It took place in 1976, four and one half years after V-day. It was sold to Roberts Fisheries and had 900 feet of frontage on Deas Slough.

Mr. Weldon considered his comparable 1 as most relevant to parcels B and F. This comparable sold in April 1969 for $4,505 per acre. It was a large parcel comprising 324.80 acres and was located at the intersection of Highway 17 and 56th Street and was bought by the employees of a real estate company with rezoning in mind.

I regard Mr. Grant’s comparable 6 as being of somewhat greater relevance. It was sold in 1969 for $150,000, or $7,504 per acre. It comprises 19.99 acres and was zoned agricultural. It is some distance from B and F, but assuming a gradual increase in agricultural farm prices and taking into account a certain speculative premium for the subject lands, it would indicate a value on December 31, 1971 of $8,500 per acre for parcels B and F.

I should comment briefly on certain options that were given to Royal Oak Holdings Ltd. on parcels B and F in 1974 and extended in 1976. The option price was originally $20,000 per acre and it was raised to $27,000 per acre when the option was extended, a total of $21,000 was paid for the options. I am not inclined to place much weight upon these options as an indication of the V-day value of parcels B and F. Certainly the price of $20,000 or $27,000 per acre, had the options been exercised, would have indicated a much higher value than any of the appraisers assigned to the properties, but they were not exercised: their exercise was economically contingent upon Royal Oak being able to have the property rezoned to permit a regional shopping centre. It was not successful in doing so and the option lapsed. Had it succeeded $20,000 or $27,000 per acre would have been a realistic price for a property from which the developer could have earned millions. $21,000 for the options was a modest gamble and relatively cautious commitment in the context of a potential multi-million dollar deal. It does not indicate a great deal of optimism about the chances of getting rezoning. The options do however confirm what I think is fairly obvious in any event-that an experienced developer saw the property as having an excellent location for a shopping centre.

Parcel C and H (RC-7 and 3)

Counsel stated that I need not consider the V-day value of parcel C because it was exchanged for parcel H in a transaction in 1975 with the Department of Highways. If its V-day value was irrelevant I am not sure just why all three appraisers determined its value as of that day. If parcel H was a replacement property for parcel C, the latter’s V-day value would have been relevant in determining the adjusted cost base of parcel H. As noted, that position was not taken and no further consideration need be given to parcel C. The value of parcel H on April 15, 1975 was treated as its adjusted cost base upon its disposition in 1989. Mr. Little informed me that the appellants were prepared to accept Mr. Weldon’s appraisal of parcel H as of April 15, 1975 of $295,100 or $4,500 per acre.

Parcel D and G (RC-8 and 4)

These two parcels, almost identical in size and shape, are separated from the rest of the farm, and are located at the corner of 60th Avenue and 64th Street. They are zoned agricultural. D is 12.26 acres and G 12.65 acres, for a total of almost 25 acres. D has frontage on both 60th Avenue and 64th Street whereas G fronts only on 60th Avenue.

Mr. Egelstad assigned a value of $5,000 per acre to each of D and G. Mr. Weldon valued D at $7,000 per acre and G at $6,500. Mr. Grant’s values were $9,000 per acre for D and $8,000 per G.

It is interesting to observe that parcels D and G were on V-day, according to Mr. Weldon, the most valuable of all of the seven parcels appraised whereas in Mr. Grant’s view they were significantly less valuable than parcels B and F. Moreover, the difference between Mr. Grant and Mr. Weldon in respect of D and G was relatively small-between $1,500 and $2,000 per acre whereas the difference between them in respect of parcels B and F was substantial-$7,500 per acre.

The valuation of parcels D and G involves fewer imponderables than the valuation of the other parcels. They are of a regular shape, they front on two roads that are not limited access highways and they do not have the mixed blessing of being located at the interchange of two major four-lane highways. They did not have either the advantages or the disadvantages of being on such highways. They are both small enough that if considered separately they could command the higher price normally obtained for smaller parcels, yet if put together they had sufficient acreage to support a small farming operation, or if rezoning could be obtained, a moderately sized commercial development. Although zoned agricultural they were designated for industrial use in the Delta Plan Review.

I think that on V-day they had the best possibility of being rezoned for industrial use and possibly even for commercial use. Geographically the closest of Mr. Weldon’s comparables was his number 5, (Mr. Grant’s 23) a 46.48 acres parcel at the northwest corner of 64th Street and 60th Avenue. It sold in February 1970 for $250,000. Mr. Weldon considered that it was sold for $3,767 per acre whereas Mr. Grant calculated $5,379 per acre. The difference per acre is attributable to the fact that Mr. Weldon assigned a value of $74,900 to the improvements and Mr. Grant, nil. Mr. Weldon’s comparable number 10, (Mr. Grant’s 2) a parcel of 20.97 acres sold for $7,964 per acre on September 20, 1972. It was located on 60th Avenue and was zoned industrial. It is reasonably comparable to both D and G, although as stated above I tend to treat sales to municipalities with some caution. The same observation might be made about Mr. Weldon’s comparable 12 (Mr. Grant’s 1) which was also sold to Delta in October 1970 and was also industrially zoned. Mr. Weldon considered his comparable 13 (Mr. Grant’s 4) as the most relevant to D and G. It sold on November 2, 1970 for $9,425 per acre and was zoned industrial. I do not regard Mr. Weldon’s comparable 14, which was zoned agricultural, as being of any particular assistance. It is a long way from any of the subject properties and seems to have had little potential beyond its agricultural use. It sold for $4,200 per acre on December 22, 1971, within nine days of V-day. The same observation can be made of Mr. Weldon’s comparable 15, which sold on August 15, 1972 for $5,100 per acre. It is accepted that this property was, because of its location, inferior to D and G. It is of some passing interest that Mr. Grant’s comparable 21, which is adjacent to Mr. Weldon’s 15, sold in 1976 for over $12,000 per acre.

A number of Mr. Weldon’s other comparables, 16, 17, 18 and 19 were a considerable distance from the subject properties, were admitted by Mr. Weldon to be inferior to D and G and, in my opinion, are not sufficiently comparable to be of much assistance.

Mr. Weldon’s comparables 20 and 21 are closer to D and G and they sold for $7,384 and $7,680 per acre. Their location is inferior to that of D and G but they were zoned industrial.

Mr. Grant considered that the most relevant comparables were his 20, 21 and 22 which sold at $7,627 per acre on June 3, 1976, $12,115 on June 1, 1976 and $7,914 on June 11, 1976 respectively. They were all zoned agricultural. They were all sold several years after V-day and are some distance from D and G. Their location appears inferior to D and G. They are of limited assistance in determining the value of D and G on December 31, 1971, but they do indicate that even for agriculturally zoned land the bottom did not exactly fall out of prices even after the agricultural land freeze and the establishment of the ALR.

Taking all of these factors into account I think that a fair value on V-day of parcel D is $8,000 per acre and, for parcel G, $7,000 per acre.

Improvements

I have not considered the value of the improvements. They were dealt with in the experts’ reports but not in the viva voce testimony or in argument. Mr. Weldon’s V-day value for the buildings was slightly higher than Mr. Grant’s. I can see no reason for differing from Mr. Weldon’s figures.

1989 values

It was agreed between counsel that the 1989 value of parcels D and G was $22,000 per acre.

Parcels A, B, E, and F, were sold in 1988 to Nomada-Gumi Construction and accordingly their value in 1989 need not be considered.

This leaves only parcel H which Mr. Egelstad valued at $492,000, or $7,500 per acre. Mr. Weldon valued it at $524,600, or $8,000 per acre and Mr. Grant valued it at $295,000, or $4,000 per acre. The value is for land only, since the improvements were owned by third parties.

Mr. Grant’s estimate-it is admittedly not a formal appraisal-of the value in 1989 is precisely the same as Mr. Weldon’s appraisal as of April 15, 1975, a value which the appellant accepts. Mr. Grant’s estimate of value appears to be premised on the assumption that between 1975 and 1989 there was no change in the value of this parcel which comprised 65.6 acres. This does not seem reasonable.

Both experts agree that the land was to be valued as agricultural land. Its highest and best use was the same as its zoning. There is no suggestion that by 1989, which was about 17 years after the land freeze and the establishment of the ALR, it had any speculative potential for any higher use.

Mr. Weldon analyzed eight sales in the Delta area in arriving at his value of $8,000 per acre. The closest geographically to parcel H is the sale by the appellants of parcels A, B, E and F to Nomada- Gumi Construction in 1988 at a price of over $14,000 per acre. This is, I think, the best indication of value of all of the comparables which he used. The price of the other comparables ranged from $4,570 per acre to $21,574 per acre. One cannot ignore the Nomada- Gumi Construction sale and, based on the comparables used by Mr. Weldon, there is no reasonable basis upon which I could conclude that the 1989 value of parcel H was less than $8,000 per acre, the figure determined by Mr. Weldon. As agreed by counsel for the respondent, the figure used on assessing of $7,500 per acre must stand.

Summary

The net result of these findings may be summarized as follows. The total values exclusive of buildings of parcels A, B, G, E, F, and D are:

V-day

Mr. Eglestad: $455,300

Mr. Weldon: $499,100

Mr. Grant: $1,038,000

as determined in this judgment: $818,410

1989 (Parcel H only)

Mr. Eglestad: $492,000

Mr. Weldon: $524,600

Mr. Grant: $295,000

As determined by this judgment: $524,600

As agreed the appeal from the 1988 assessment of Arlene Kyan is dismissed. The other appeals are allowed and the assessments referred back to the Minister of National Revenue for reconsideration and reassessment to the extent necessary to give effect to the findings in these reasons, provided that where the values determined herein would result in a treatment that is less favourable to the appellants than that accorded on assessing, the values used on assessing must be maintained.

Since success is divided the parties should bear their own costs.

Appeals allowed.