Charleswood Legion Non-Profit Housing v. The Queen, docket 97-355-GST-I (Informal Procedure)

Date: 19980610

Dockets: 97-45-GST-I; 97-355-GST-I

BETWEEN:

CHARLESWOOD LEGION NON-PROFIT HOUSING INC., TRANSCONA PLACE INC.,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent,

Reasons for Judgment

Archambault, J.T.C.C.

[1] Charleswood Legion Non-Profit Housing Inc. (Charleswood) and Transcona Place Inc. (Transcona) are appealing assessments made by the Minister of National Revenue (Minister) pursuant to subsection 191(1) of the Excise Tax Act (GST Act). Each corporation had had a new building erected and was deemed pursuant to this subsection to have supplied a property to itself at the later (valuation date) of the time the construction was substantially completed and the time of first possession of a unit by a lessee.

[2] The issue raised by each of these two appeals heard on common evidence is the same: what was the fair market value of each property on the relevant valuation date? The Minister determined that the fair market value at the relevant valuation date was at least $2.5 million in the case of the property owned by Charleswood (Charleswood property), and at least $1.6 million in the case of the property owned by Transcona (Transcona property). The Appellants are of the view that these values were respectively $14,000 and $8,800.

[3] The difficulty raised by these appeals is that the two residential complexes were subject to caveats registered against their title which prohibited their being leased for profit. I shall refer to this type of property as “non-profit rental property” as opposed to a regular housing property leased for profit, which I shall refer to as “for-profit rental property”.

Facts

[4] The Charleswood property is located in the community of Charleswood in the City of Winnipeg, approximately 12 kilometres from the city centre, and was built specifically for senior residents. It is a six-storey apartment building with 60 units. Its rental units can be divided into two categories. In the first, we find “life tenant” units. A tenant occupying such a unit has a life long lease on his unit. Under this arrangement, the tenant pays an initial fee which may vary between $20,000 and $30,000. This fee is refundable on termination of the lease. Having paid the initial fee, the tenant can occupy his unit for the remainder of his life. However, he must also pay a monthly rent equal to his share of the monthly operating costs.

[5] In the second category, we have the “designated units”. A tenant who occupies such a unit pays a rental tied to the amount of his income. This arrangement allows him to live in a unit above the level permitted by his income. The shortfall for the landlord in the rental income from these designated units is made up by grants financed by both the provincial and federal governments. To protect their investment in this type of project, the government authorities usually place a caveat on the property.

[6] Here, the Manitoba Housing and Renewal Corporation (MHRC) administered a social housing program on behalf of the Manitoba Government and the Canada Mortgage and Housing Corporation during the relevant period. To qualify for a rental subsidy, a landlord is required, pursuant to an operating agreement, to operate the rental property on a break-even basis for a 35-year period. Therefore, the building cannot be operated for profit during this period. Equally, during this period the landlord cannot sell the property without the permission of the MHRC and any new purchaser would be bound by the terms of the operating agreement. The MHRC entered into an operating agreement with both Charleswood and Transcona to subsidize the rent of their designated units for a period of 35 years.

[7] As stated in the operating agreement with the MHRC dated November 29, 1993, Charleswood also undertook to remain a non-profit corporation without share capital whose activities were to be carried on without having as their purpose gain for its members, officers or directors. Substantially all of its gains are to be used for the purpose of promoting its main purpose and activity. On dissolution, the assets of Charleswood are to be distributed to a corporation whose main purpose is to be the provision of rental housing to “households in core needs”.[1] The Charleswood property was and still is sponsored by the Royal Canadian Legion.

[8] Pursuant to the operating agreement, the MHRC has as a remedy in case of fundamental breach of the agreement the right to purchase the project at a price equal to $1 plus the outstanding unamortized balance of the eligible cost of the project which, in Mr. Puchniak’s[2] view, represents essentially the cost minus the amount of principal paid on the mortgage.

[9] Under the operating agreement, the MHRC undertakes to pay an annual contribution to Charleswood equal to the difference between the eligible annual operating cost and the rental income from the designated units. This contribution is to be paid during the term of the agreement, that is, 35 years. Among eligible expenses are the mortgage principal and interest payments, an amount as a contingency reserve for vacancies and bad debts, a replacement reserve, and management services expenses.

[10] According to Mr. Mears, the appraiser who testified at the request of the Appellants, the Charleswood property is well situated, close to facilities required for apartment buildings of this type, and near stores, medical facilities and good bus service. It is also situated close to a park and a creek. Furthermore, the building looked very good and appeared to be well built. Mr. Mears stated that its cost was $5,200,000 not including the land. Mr. Puchniak confirmed that the construction of the Charleswood property took place at a time when it was a buyer’s market. The bids that were obtained for its construction were on the low side. The same situation existed with respect to the purchase of construction materials. According to Mr. Puchniak’s recollection, the materials used were of good quality and were had at a good price. In his view, the $5.2 million included the cost of the land. However, the land was transferred to Charleswood for $1 by the Charleswood Branch of the Canadian Legion at a time when its fair market value was $400,000.

[11] The $5.2 million covered all costs, including architect’s fees of about $280,000, $120,000 for connecting the building to the Winnipeg sewer system, and the general contractor’s fees which he estimated at between $3.5 and $4 million. Mr. Puchniak stated that completion of the construction was delayed because of vandalism on the property. There was a three-month delay which cost approximately $30,000. Part of this cost was borne by the contractor himself.

[12] In order to finance the Charleswood property, Charleswood obtained a mortgage loan from the Assiniboine Credit Union Limited. According to an agreement dated November 25, 1993, this Credit Union was committed to providing a loan of $3,937,201 to Charleswood. Mr. Puchniak emphasized that this building could not have been constructed without the assistance of the MHRC.

[13] As to the Transcona property, Mr. Mears stated that it is located in the community of Transcona about 12 kilometres from the Winnipeg city centre. This property is close to facilities required for this kind of property, being within walking distance of stores, a local library, medical facilities and good bus service. The Transcona property is a six-storey masonry apartment building with 39 units. The building was built under the sponsorship of the Royal Canadian Legion, the Kinsmen and Kiwanis groups specifically for senior residents. As in the case of the Charleswood property, the tenants can be divided into two categories: life tenants and designated tenants. In Mr. Mears’ view, this property also looked very good and appeared to be very well built.

[14] The cost of the Transcona property represents a total of $2,898,109, including the purchase price of the land, which was acquired by Transcona for approximately $115,000. The cost of constructing the Transcona building was $2,783,109.

[15] An operating agreement similar to the Charleswood one was entered into between Transcona and the MHRC on July 20, 1993. In this agreement, it is stated that Transcona had arranged a mortgage loan of $2,203,788.

[16] At the assessment stage, both Appellants produced an appraisal done by Mr. Mears. To establish the fair market value of each of the two properties, Mr. Mears considered the three generally accepted approaches for valuating a rental property, which can be described as the Cost Approach, the Income Approach and the Direct Comparison Approach. In his written report, Mr. Mears stated that he only used the latter two approaches. He defined the Income Approach as follows at page 14 of his report:

Definition: The Income Approach, or capitalization method of valuation, is the test whereby a property’s anticipated future net income from all sources is capitalized at an appropriate rate into an indication of the property’s value.

The term “Capital Value” in this approach is usually taken as being synonymous with “Market Value”; that is, the estimated price that an investor would pay for the property having regard to the expected net cash flow and the required rate of interest on the capital to be invested.

Method: The Income Approach entails:

a) Ascertaining the gross annual income or the probable gross annual income of the property.

b) Deducting from this an allowance for vacancy and all expenses as might be incurred by the owner.

c) The resulting net annual income is capitalized at a rate that investors expect in similar investments with similar risk. This rate is derived from the marketplace.

[17] The Direct Comparison Approach was described as follows at page 18 of Mr. Mears’ report:

Definition: This approach is based on the principle of substitution which states that when several properties, services, or commodities provide the same utility, the one that can be bought at the lowest price will be acquired in preference to others. A prudent purchaser will not pay more for a property available under similar conditions.

Method: The Direct Comparison Approach is applied by comparing the subject property to other properties that have sold and by making adjustments for any differences between each property that would have caused the comparable to be more or less valuable than the subject.

This approach is important since buyers and sellers are often guided by the prices that occur in the market.

[18] Given that both the Charleswood and the Transcona properties were non-profit rental properties that could not be operated at a profit for a period of 35 years, Mr. Mears was in a quandary. He described the problem and the solution that he adopted in the following terms at page 13 of his report:

As has been previously mentioned in this report, the property is limited in its earning capacity for at least 35 years. There are even restrictions should it ever change hands. The agreement in place, protected by a caveat, continues to be binding on every person who acquires the building or “any part of or interest in it”.

Simply put, the agreement ensures that low rental accommodation will be available for seniors in this building for at least 35 years, so precluding the building from earning any income. This factor coupled with the costs to operate, mean that the building will run at a loss, only to be brought up to the break even point by the Province. This being the case, there is no income to capitalize in the Income Approach, consequently there would be no market value for the property.

On the other hand, the building can be free of its restrictive agreement in 35 years. At that time if the owners wished, the building could convert to a market rent situation, thus earning revenue and having monetary value. The building at 35 years of age will not be at the end of its economic life. If as expected, it receives reasonable upkeep, it should have quite a few years remaining in which to be an income producing property.

In this valuation process the value of the building will be considered at that point, 35 years hence, and then discounted back to a present worth that represents the effective date of the report.

Obviously in the Income Approach, no rental data can be gathered for that year and in its stead the only alternative will be the current economic rent available in the City. The Direct Comparison Approach will consider sales that are also current and thought to be relevant to the subject property. In other words

the building will be appraised as if it were able to earn an economic income at the date of the appraisal. The final estimate of this process will show the estimated value of the building if it were able to be sold on the open market today as an income producing property. It will then be discounted at an appropriate rate.

(Emphasis added.)

[19] In applying the Income Approach, Mr. Mears first came to an estimated value of $2.8 million. As mentioned above, he first estimated the rental income based on rental market conditions existing in Winnipeg at the time of his evaluation. The operating expenses that he deducted in determining net rental income were based on estimates from the developer. He used a capitalization rate of 10.5%.

[20] The estimated fair market value of the property determined by using the Direct Comparison Approach was $2.5 million. To arrive at this amount Mr. Mears looked at six sales that had taken place between October 1992 and March 1994. The buildings involved had been constructed between 1963 and 1988.

[21] Given that the two above-mentioned values were based on the assumption that the Charleswood property was being leased for profit and given that in fact it could only be rented for profit after 35 years, he had to find the present value of such a property, namely one which would be making a profit 35 years from the date of the evaluation. Therefore, the value of the Charleswood property had to be based upon what someone would pay at the valuation date to get in 35 years’ time the income stream calculated under the Income Approach.

[22] To determine the discounted value, Mr. Mears used a 16% rate of return, which represented twice the amount of the return of 8% on current 30-year Government of Canada bond offerings. He explained why he chose the 16% rate as follows:

This type of investor, however, would require a much better return than the 8% in the previous paragraphs. The return has to be inviting enough to persuade the investor to tie down monies over a long period of time. The one difference between this investment and Government long term bonds is that they, the bonds, could be sold. Even though a loss would likely occur, they would be a more attractive prospect than a property earning no income. To overcome this factor it is estimated that the rate would have to be much higher than 8%, in fact a figure twice this amount would seem to be more appropriate. The discounted value would then be:

Income Approach: $2,800,000.00 x 0.005545764 = $15,528.00

Direct Comparison

Approach: $2,500,000.00 x 0.005545764 = $13,864.00

[23] Mr. Mears explained in the following terms his conclusion that $14,000 represented the fair market value of a property that cost more than $5 million:

These two figures represent the estimated DISCOUNTED value of the subject property at the present. Low though the figure may be, it is decidedly more than what would be paid for the building operating under its present financing agreement. The high estimate means that someone would be prepared to pay up to just over $15,000.00 to receive an investment property in 35 years. During this time no income would be received, but in 35 years they would receive a building worth about $2,800,000.00 on today’s market.

The concept may seem speculative but there is no other way of mathematically estimating a building value with the constraints of the subject. To consider a building that cost over $5,000,000.00 to build as having no value does not make sense. It will have value when the agreement expires and the discounted estimates are thought to be the only value the building has at the present time.

Favouring the estimate from the Direct Comparison Approach, the final estimate of market value for the subject property as at November 03, 1994 is: $14,000.00

[24] Essentially, Mr. Mears adopted the same approach in appraising the Transcona property. The final estimate of market value for the Transcona property as at August 15, 1994 was $1.6 million and, after discounting, $8,800.

[25] These two reports were shown to Mr. Molgat of the Real Estate Section of the Winnipeg District Office of Revenue Canada. Mr. Molgat agreed that the value of $2.5 million as determined by Mr. Mears using the Direct Comparison Approach was the market value of the Charleswood property.

[26] However he thought that applying the 35-year discount, which resulted in a very low evaluation, did not make any sense. Therefore, a survey was done as to the approaches taken by the various offices of Revenue Canada across the land. Mr. Molgat, in his testimony, indicated that the Vancouver office of Revenue Canada took the view that the valuation of a non-profit rental property should be based on cost. The Calgary office took the view that the valuation amount was equal to the reversionary value of the building plus the balance of the mortgage on the building. The London office took the view that the valuation amount should be equal to 60% of the cost.

[27] An opinion from the head office was requested and the following directives (Venne directives) were issued by Mr. J. A. Venne, Director, Tax Policy - Special Sectors, Policy and Legislation, in a letter addressed to Mr. E. H. Gauthier and dated June 20, 1994. Here are the most salient portions of that letter:

The purpose of this letter is to suggest the following terms of reference to your real estate appraisers in appraising housing projects operated on a non-profit or subsidized basis. For this purpose, the housing project should be a residential complex owned by a registered charity, a municipality, or a non-profit organization that is operated on a not for profit or subsidized basis. (A non-profit organization means a person that is organized and is operated solely for a purpose other than profit, no part of the income of which is payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof.)

Where a non-profit housing project is identified by Excise/GST as requiring an appraisal of fair market value, we would ask that Departmental real estate appraisers use the definition of fair market value as prescribed by the Appraisal Institute of Canada. In completing reports on these projects, Departmental appraisers should ignore any existing caveats, leases, agreements, restrictions or special payments of any kind that would not normally be associated with a fee simple property title. However, if an encumbrance is a normal or typical market related encumbrance, such as leased land, such typical market related encumbrances should be considered.

In essence, final estimates of value of non-profit and other subsidized projects should reflect a project’s value with an unencumbered title. It is our understanding that in most cases this would be reflected in a market rent approach excluding bridge subsidies.

[28] Mr. Molgat, in applying these directives, came to the conclusion that the Appraisal Report prepared by Mr. Mears was not in conformity with them and excluded the discount made by Mr. Mears. He therefore concluded that the fair market value of the property was the amount determined by Mr. Mears before his adjustments for a discount. Mr. Molgat came to a similar conclusion with respect to the Transcona property.

[29] During his testimony, I asked Mr. Mears whether he thought that a willing vendor would agree to sell the Charleswood Property for $14,000. Mr. Mears candidly acknowledged that he did not think that such a sale would occur. He was only confident that a willing purchaser would only pay $14,000 for such a property.

[30] For the hearing of these appeals, the Minister decided to request formal appraisals from a professional appraiser. Mr. Larry R. Bainard, an employee of Revenue Canada, Customs, Excise and Taxation prepared an appraisal report for each of the Charleswood and Transcona properties. Essentially, he followed Mr. Mears’ approach except that he applied the Venne directives: he valued the property using the Direct Comparison Approach but without taking into account the caveat affecting the properties. The value determined using this approach was $3 million for the Charleswood property. Using a capitalization rate of 10%, he also estimated the value based on the Income Approach at $2.7 million.

[31] With respect to the Transcona property, Mr. Bainard followed the same approach and came to the conclusion that its value was, under the Income Approach, $1.5 million and, based on the Direct Comparison Approach, $1.7 million. He chose $1.7 million as the fair market value.

[32] Essentially, the expert witnesses for the Appellants and the Minister acknowledged that the Income and Direct Comparison Approaches, strictly applied, do not generate proper results. In Mr. Mears’ opinion, the Cost Approach was not a proper one either. However, he did not provide a convincing explanation for this conclusion. His only explanation was that the building was not worth $5.2 million.

[33] During the testimony of Mr. Puchniak, I asked him why Charleswood would build a complex at a cost of $5.2 million when, according to Mr. Mears, the market value of similar rental properties was approximately $2.5 million. Mr. Puchniak stated that there was no way that Charleswood could have found an apartment building at such a price: “It would be unrealistic to expect to find a building at $2.5 million. ... It could not be done for $2.5 million”.

[34] Mr. Puchniak also stated that the Royal Canadian Legion would not allow the sale of the Charleswood property for $15,000. He acknowledged however that it would be possible to transfer the Charleswood property to a non-profit corporation which would assume the mortgage and the obligations pursuant to the operating agreement. He could not identify any purchaser for this building other than another non-profit corporation.

Analysis

[35] Subsection 191(1) of the GST Act provides as follows:

191. Self-supply of single unit residential complex or residential condominium unit

(1) For the purposes of this Part, where

(a) the construction or substantial renovation of a residential complex that is a single unit residential complex or a residential condominium unit is substantially completed,

(b) the builder of the complex

(i) gives possession of the complex to a particular person under a lease, licence or similar arrangement (other than an arrangement, under or arising as a consequence of an agreement of purchase and sale of the complex, for the possession or occupancy of the complex until ownership of the complex is transferred to the purchaser under the agreement) entered into for the purpose of its occupancy by an individual as a place of residence,

(c) the builder, the particular person or an individual who is a tenant or licensee of the particular person is the first individual to occupy the complex as a place of residence after substantial completion of the construction or renovation,

the builder shall be deemed

(d) to have made and received, at the later of the time the construction or substantial renovation is substantially completed and the time possession of the complex is so given to the particular person or the complex is so occupied by the builder, a taxable supply by way of sale of the complex, and

(e) to have paid as a recipient and to have collected as a supplier, at the later of those times, tax in respect of the supply calculated on the fair market value of the complex at the later of those times.

[36] There is no dispute as to the relevant time for which the valuations had to be done. The only issue relates to what the fair market value was and, more specifically, to the proper method to adopt in arriving at this value.In a letter sent for my attention, counsel for the Minister stated that there was no issue with respect to the rebates to which both Charleswood and Transcona were entitled.

[37] It should also be noted at the outset that this Court does not have any jurisdiction to increase the amount of the assessments. Therefore, the fair market value, in effect, cannot be set higher than the amount that was determined by Revenue Canada in establishing its assessments. The practical issue accordingly boils down to whether the fair market value as estimated by Revenue Canada exceeds fair market value for the purposes of subsection 191(1) of the Act.

[38] Counsel for the Appellants argued that the appraisals by the Minister’s experts should be discarded because they were not done according to the standards generally used by professional appraisers. The Venne directives, in his view, tainted the results of those appraisals. It should be noted, in defence of the appraisals by the Minister’s expert, that the appraisal reports specifically state as one of their limiting conditions that they are subject to restrictions imposed by departmental directives. According to the Minister’s expert, these reports meet the Uniform Standards of Professional Appraisal Practice (USPAP) which recognize that an appraiser is entitled to base an evaluation on other standards if administrative rules in effect in that particular jurisdiction so require.

[39] In my opinion, this whole debate is a red herring. The issue is not whether or not the appraisal reports were done in accordance with USPAP standards. The issue is not whether Revenue Canada was right in adopting the Venne directives in determining the fair market value. The issue is what the fair market value of each of the subject properties was and what the best approach is to determining that value.

[40] It would be useful to set out the meaning of “fair market value” that has been adopted by the courts. In Re Mann Estate, [1972] 5 W.W.R. 23, at p. 27, aff’d [1973] CTC 561 (B.C.C.A.), aff’d [1974] CTC 222 (S.C.C.), we find this definition :“ ‘fair market value’ is the highest price available estimated in terms of money which a willing seller may obtain for the property in an open and unrestricted market from a willing, knowledgeable purchaser acting at arm’s length”.

[41] During the course of argument, I asked counsel for the Appellants whether he would be arguing that the subject properties were worth only $14,000 and $8,800 respectively if, instead of appearing before this Court, he was appearing before an expropriation tribunal. Counsel replied that if such had been the case, his clients would have had to accept those low values.

[42] I do not share this point of view of counsel. Surely, his clients would not have accepted as compensation for the expropriation of their respective properties such low amounts after having just constructed the buildings for at least $5.2 million and $2.7 million respectively.[3] The Appellants’ appraiser was more candid. He acknowledged that the Appellants would not have agreed to sell their respective properties for the amounts determined by him. In my view, the estimate of the fair market value proposed by Mr. Mears does not meet the standard enunciated in the definition referred to above, that is, that the amount must be the price that both vendor and purchaser would accept. It has to be an amount that both sides would deem to be a fair price.

[43] I do nevertheless share the view of counsel for the Appellants that the approach followed by the Minister, as modified by the Venne directives, was not appropriate either for the determination of the fair market value of the subject properties. However, I come to this conclusion for reasons other than those suggested by counsel for the Appellants.

[44] To select the appropriate approach to determining the fair market value of real estate, we have to take into account the nature of the property and each case must be assessed on its specific facts. Here we are called upon to valuate non-profit rental properties and not a for-profit rental project. In my view, the Income Approach is a flawed method in the case of non-profit rental properties because no income could be generated from such properties. The same logic applies with respect to the Direct Comparison Approach. The properties that were used as comparables in this particular case were properties rented for profit. I think it is fair to assume that purchasers of those rental properties would have taken into account their return on investment when agreeing to the prices they paid for them. Therefore, in my view, the comparables used were inappropriate. We cannot compare for-profit rental properties with non-profit rental properties. This method could only be useful if sales of other non-profit rental properties could have been identified. However, there was no such evidence here.

[45] Given that the two approaches followed here by the experts are not, in my view, appropriate, we must envisage other possible solutions. The two that deserve consideration are the Cost Approach and, for lack of a better term, the “Most Likely Sale Price Approach”.

The Cost Approach

[46] I believe that the Cost Approach should not have been ignored by the two experts. In circumstances such as those in this case, the fair market value should be very close to the cost paid by the Appellants because the two buildings were brand new at the relevant valuation date. This is the approach followed by my colleague judge Taylor in Timber Lodge Limited v. The Queen, [1994] G.S.T.C. 73. Here we do not have to apply any adjustments for economic depreciation, which would have been the case had the valuations taken place several years after the construction of the buildings. If Charleswood and Transcona were prepared to pay $5.2 and $2.9 million for these properties — amounts the major portion of which represents the costs incurred for erecting the buildings, which costs were negotiated with, and paid to, arm’s length parties — then these properties should be worth in most cases what the two corporations paid for them. It is true that the land for the Charleswood property was bought for $1 from the Royal Canadian Legion in a situation where the parties were not dealing at arm’s length. Given that the fair market value of the land was $400,000, it is therefore probable that the property would be worth more than the $5.2 million cost. In Transcona’s case, $115,000 was paid for the land and we do not know if it was acquired from an arm’s length party. In the unlikely event that this amount exceeded the fair market value, it should not have much of an impact on the total fair market value given that it would only represent a small fraction of the total cost.

[47] There may be special circumstances in which some of the costs incurred for the construction of a building may not be reflected in its fair market value. For example, if there were cost overruns and other inefficiencies during construction, the cost of such property may be above its fair market value. There may be other situations where the cost of property is below fair market value because the land was acquired for $1, as is the case with Charleswood, or because the owner gets involved in the construction of the building and does not charge for his time. Just to take an extreme example, if the cost of a building only included the material and not the labour cost, then clearly the value should be above the cost of the building. Here, there is no evidence of such special circumstances, except for the cost overrun of $30,000. Given that a portion of this cost overrun was assumed by the builder and that the amount represents a small fraction of the total cost, it would not have much impact on the determination of the final value.

The Most Likely Sale Price Approach

[48] One other approach that could be used is to try to estimate at what price a non-profit corporation would dispose of its property to the most likely purchaser: another, arm’s length, non-profit corporation. For the first 35 years, the subject properties cannot be disposed of without the consent of the MHRC. This consent in all likelihood would not be given unless the sale was made to a non-profit corporation, especially with the construction having just been completed and the first tenant having just moved in. In my view, the transfer would in all likelihood take place for at least the sum of $1 plus the assumption by the purchaser non-profit corporation of the unpaid amount of the mortgage on the property. The fact that the MHRC could buy each of the properties from Charleswood and Transcona for an amount essentially equal to this amount is a good indication that this would be a minimum acceptable price.

[49] In my view, the fair market value of the two subject properties should not exceed their cost[4] and should not be lower than the amount of the mortgage loans used to finance their acquisition. In the case of the Charleswood property, the value would range between $5.6 million (representing the cost of the building ($5.2 million) and the value of the land ($400,000)) and $3.9 million (the amount of the mortgage). With respect to the Transcona property, the value would be between $2.9 and $2.2 million. Here it is not necessary to be specific as to the actual fair market value because the Minister has used in each case as the fair market value an amount lower than the lowest possible fair market value. I have therefore no hesitation in concluding that neither Appellant has established that the assessment of the Minister is ill-founded. The fair market value of the Charleswood property was at least to $2.5 million and of the Transcona property, at least $1.6 million.

[50] For these reasons, the appeals of the Appellants are dismissed.

Signed at Ottawa, Canada, this 10th day of June 1998.

"Pierre Archambault"

J.T.C.C.

---