J. Vincent Toolsie v. Minister of National Revenue, [1986] 1 CTC 2058, 86 DTC 1058

Kempo, T.C.J.:—The principal underlying issue in the appeals of J. Vincent Toolsie is in respect of the fair market value of the depreciable asset known as the Roadway Inn, 56-58-60 Ormond Street North, Thorold, Ontario, as at September 1, 1976. The Roadway Inn was initially constructed as an apartment in 1973 but because of various difficulties its use was converted shortly thereafter to that of an apartment motel in early 1974 and continued as such for the purpose of these appeals. There is no reason to doubt but that this was its highest and best use as at September 1, 1976.

Mr. Toolsie is appealing his tax liability for the 1977, 1978 and 1980 taxation years with respect to, inter alia, the Minister’s reduction of the capital cost allowance claimed in each year in respect of the building.

The following background information is pertinent, in June of 1973 R. J. T. Holdings Inc. (“R. J. T”), in which the appellant and one Robert Jean held equal shares, purchased the land in a vacant state for $25,500. An apartment building of 26 bachelor units was constructed thereon for the approximate cost of $158,000. A construction loan, secured by mortgage, of $100,000 to $200,000 was given by Wilgross Construction and upon completion it was reduced to $45,000 as a second mortgage by funds obtained via a first charge from Victoria & Grey Trust Company for $165,000. No documentation was tendered in support of the mortgage or appraisal details. Mr. Toolsie was unable to definitively explain the discrepancy between the building cost of $158,000 and the net first and second mortgages totalling $210,000.

In any event on March 15, 1976, the appellant negotiated for and obtained Mr. Jean’s 50 per cent interest in R. J. T. for $100,000 cash and a few months later, on August 31, he entered into a written agreement with R. J.

T. to purchase its Roadway Inn asset for $333,000. An allocation was made as to $300,000 for the building and the balance as to land and improvements. Needless to say the appellant and R. J. T. were not at arm's length at that time.

The Minister has reassessed on the basis athat the fair market value of the property at September 1, 1976 was $275,00 oaf which $221,000 was allocated to the building. Both parties called qualified appraisers in support of their respective positions and they filed their appraisal reports in corroboration and support of their viva voce evidence and opinions.

Upon due consideration of the evidence of the appellant himself (who impressed me as being fairly knowledgeable in the field) together with that of his appraiser, I am satisfied that their approach is to be preferred to that of the Minister. The principal reason for this is that the former applied 1976 cost guides in respect of an apartment while the latter used a calculator method for a motel. As noted earlier the building had been constructed as an apartment building of bachelor type rental units. Therefore the apartment cost method is to be preferred.

Given the evidence, it is my finding that the fair market value of the property at September 1, 1976 is $315,000 of which:

My reasons therefor are as follows:

1. The amount of $4,500 for the pavement is agreed upon.

2. The appellant's appraiser gave no independent support for his figure of $2 per square foot for the land-alone. Doing the best I could with the data supplied by the Minister's appraiser, the amount of $2.15 per square foot was applied to the 16,500 square feet of land involved.

3. As to the building, I have placed minimal reliance on the gross income multiplier because of insufficient historical financial data. It is my opinion that there is greater reliability in the 1976 Boeckh Manual for three-story apartment figures, used by the appellant’s appraiser when arriving at a value therefrom at $284,689. However, very few adjustments were made to the $71.71 per square foot figure employed. If one turns to the 1976 Marshall & Swift Manual for one-storey motels as some sort of guide, and employs a class “C" type “good" exterior, interior, etc. specifications therein with the appropriate area multipliers, the amount would be $255,334 for the building. However, because the building exterior could not be described as that of a “typical large chain motel,” the figure should be reduced to $250,000. Further, an amount must be added to this under “miscellaneous costs” because all units in the building have built-in kitchens. In my opinion, based on the evidence, I would allow approximately $1,000 per unit in this respect or $25,000 overall. The two amounts total $275,000.

The taxation years under appeal by Mr. Toolsie are 1977, 1978 and 1980. He has alleged in his notice of appeal that the 1977 taxation year is statute- barred, the reassessment thereof having been made beyond the four-year limitative date. the Minister, apart from a general denial of facts made in paragraph 1 of his reply to notice of appeal, took no issue therewith in his pleading. No evidence was led at trial in this respect. In order to resolve the matter I have resorted to the Court file for the relevant data.

The face of the appellant’s 1977 Return of Income indicates the initial assessment date thereof as being July 21, 1978.

The first notice of reassessment is dated September 10, 1982 which is beyond the four-year limitation date which would have been July 21, 1982. A notice of objection is dated October 6, 1982 in which objection was made, inter alia, with respect to the expiration of the four-year limitation. This was followed by a second notice of reassessment dated August 2, 1983. Prima facie the 1977 taxation year is therefore statute-barred.

Accordingly the appeals are allowed and the matter is to be referred back to the Minister of National Revenue so as to vacate the reassessment for the 1977 taxation year and for consideration and reassessment in accordance with these reasons for judgment as to the 1978 and 1980 taxation years.

Appeals allowed.