Estate of the Late Russell S Boyd v. Minister of National Revenue, [1984] CTC 2302, 84 DTC 1264

Tremblay, TCJ:—This case was heard in Vancouver, British Columbia, on May 12 and 13, 1983.

1. The Point at Issue

Pursuant to the pleadings, the point at issue is whether the appellant is correct in contending that the V-Day value of the subject property (a farm of 48.41 acres and buildings) located in the District of Surrey, BC is $188,000, the same as the sale price in 1974.

The respondent contends that the V-Day value was $146,000 and therefore there is a taxable gain of $16,550.

2. The Burden of Proof

2.01 The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 In the same judgment, the Court decided that the assumed facts on which the respondent based his assessments or reassessments are also deemed to be correct. In the present case, the assumed facts are described in the reply to notice of appeal as follows:

4. The Respondent reassessed Mr Boyd so as to include in his 1974 income a capital gain. The capital gain included in Mr Boyd’s income was calculated as follows, taking into account that three acres of the total farm was Mr Boyd’s principal residence.

	13067 Colebrook Road
Dept $1,395/acre		3 acres principal residence 45.41 acres
		farm
Dept V-Day		Sale Date
Dwelling	$ 44,000	Dwelling	$ 50,600
Land	4.200	Land	6,500
50% road	6,300	50% road	6, 300
Toral Principal Residence	54,500	Total Principal Residence	63,400
Outbuildings	10,500	Outbuildings	11,500
45.41 acres	63,400	45.41 acres	93,700
50% of road	6,200	50% of road	6,200
Fencing	1,400	Fencing	1,200
Trout Ponds	10,000	Trout Ponds	12,000
	91,500		124,600
Total V-Day $1,395/acre	146,000	Total	188,000
		Add inventory	10,000
		Total selling price	$198,000
Dept
Proceeds	124,600
V-Day	91,500
Total Capital Gain	33,100
Taxable	$ 16,550

5. In so assessing Mr Boyd, the Respondent assumed, inter alia, that the Valuation Day value of that part of the property which is not attributable to principal residence was not more than $91,500.00.

3. The Facts

3.01 The subject property is located at 13067 Colebrook Road, Surrey, BC. The size of the area, irregularly shaped, is around 48.41 acres including 3 acres on which is located the principal residence. The improvements to the property were the house, the barn and several outbuildings (a converted house, a shed, a bait house, driveway, fish ponds, gravel and fencing).

The appellant does not quarrel with the value put on the principal residence and the other improvements in paragraph 4 of the reply to notice of appeal quoted above (para 2.02), which totalled $78,400. The problem in fact concerns only the value of the piece of land (48.41 acres).

3.02 The appellant considered the highest and the best use of the subject property as residential and agricultural, and the respondent considered it only as agricultural.

In a letter written on October 15, 1979, by Mr Lee Tan, Deputy Planner of the District of Surrey, one can read:

As stated earlier in the letter of July 17, 1978, on December 31, 1971 the zoning of the above-noted property was a combination of Residential One (R-1) and Agricultural Three (A-3). The minimum area requirement for subdivision in the R-l zone was 20,000 square feet and the A-3 zone was five acres with Municipal water supply and 10 acres without Municipal water. In 1971, subdivision of the property would have been possible provided that the minumum requirements were met and that legal access was provided. It would have been reasonable at that time to provide road access to the R-l part of the site by continuing Southridge Drive eastward to meet Coulthard Road immediately north of the subject property. All other requirements of the Municipal Act and the Subdivision By-law at that time would also have to be complied with. Although a Hydro right-of-way runs through the property it would have been possible in 1971 to subdivide lots under the right-of-way so long as there was sufficient buildable area clear from the right-of-way on which to construct a house.

The size of the land of the part zoned R-l is 9.38 acres. The one part zoned A-3 is 39.03 acres.

Approximately 5 acres of the part zoned R-l is beneath the BC Hydro right- of-way and is bisected by several high voltage power lines. These power lines do not interfere to any great extent in the use of the land for agricultural purposes, however, they do preclude the erection of any buildings on this right-of-way.

There remained, in fact, 4.38 acres. Because these 4.38 acres formed an irregular area, they should be considered as 4 acres at most. It is sufficient area for a single family residence and for other buildings required for cultivation. The other area is zoned A-3.

3.03 The following figures showed a summary of conflicting V-Day values pursuant to the pleadings and the valuation reports:

3.04 The fact that Mr Pekonen, witness for the appellant, is not a member of a provincial or a Canadian appraisal institute, and despite his experience in the appraisal field, the Court cannot consider the opinion contained in his report, or any hearsay evidence that an expert could use. The Court may consider certain facts proven by him as an ordinary witness. The Court states that such a situation complicates the administration of the evidence and does not help the appellant’s case.

3.05 The position of the respondent is based on 7 comparables, all located in the District of Surrey, but mainly, on one comparable (Sale 1) located next door to the subject property. It has an area of 46.22 acres. It was zoned A-3. It is also subject to BC Hydro right-of-way. The easement occupies some 15.15 acres. It was sold on March 7, 1972, for $63,500. After an adjustment for buildings of $5,000, the respondent arrived at an adjusted price of $58,500 ($1,265 per acre). It was first listed at $89,000. It is reported by Mr Pekonen that the vendor had told him that the price of $63,500 was a “sacrifice” price because he had financial difficulties.

3.06 According to Mr Folstad the value of the land in the District of Surrey increased from 1971 to 1974. However, this was not really confirmed by specific facts.

3.07 It was commonly admitted that the Agricultural Land Reserve Act also called the Land Freeze Act was passed in October 1972. It was a surprise. The government brought it in overnight, froze the price of everything and in the course of about six months the municipalities advised the province on what land should or should not be included.

3.08 The date of the sales of the greatest part of the comparables used by Mr Folstad and Mr Pekonen in their reports were before October 1972. It was then the Agricultural Land Reserve Act was passed.

Counsel for the appellant contended that “the Agricultural Land Reserve Act” was “one of the hottest political issues around, and certainly, after the land reserve came in late in 1972 and the potential of this hidden development, an agriculturally A-3 zoned piece of property did not go up. In fact, it went down”. (Argument p 11).

3.09 All the comparables used by the respondent are classified as A-3. Concerning the 17 comparables used by the appellant, seven are zoned A-3: minimum subdivision size permitted is 10 acres; 10 are zoned residential (seven of the R-l: minimum size of five acres for agricultural use and 20,000 sq ft for residential use, and three of them as residential units with less than two acres). Among the seven comparables zoned A-3 and for the reasons given in paragraph 3.05 above, the appellant rejected the one (sale 17) that the respondent considers as the most significant because it is located next door to the subject property.

3.10 The appellant considers comparable 16 as one of the most significant because it is located closer to the subject property. It was vacant land which was sold in October 1971 solely for agricultural purposes. The sale was not a comparable of the respondent. The 33.48 acres was sold for $75,000 ($2,240 per acre). However, the respondent’s comparable five located one-half mile from the subject property was ignored by the appellant. It was sold at $34,000 for 22.21 acres ($1,530 per acre). The date of sale being November 14, 1972, the respondent made an adjustment at the time of $3,000. He also had adjustment for buildings of $1,000 giving it an adjusted price of $30,000 ($1,530 per acre). This comparable does not have any BC Hydro right-of-way across it. The improvements at the date of sale were an old shed and a house of nominal value. This was considered as superior to the subject property and there was an adjustment made for a loss of $1,000.

4. Analysis

4.01 For the facts described in paragraph 3.02 above, the Court concludes that the subject property must, in substance, be considered as zoned A-3 and therefore the best comparables are those zoned A-3.

4.02 As pointed out above, in paragraph 3.04, the Court has to ignore all parts of the report which may be considered as opinion and hearsay evidence that an expert is authorized to give concerning information received.

Therefore, the Court cannot accept the hearsay evidence concerning the fact that the vendor in sale 17 of the appellant, which is sale one of the respondent, told him that $63,500 was a sacrifice price accepted because of financial difficulties.

This comparable becomes the most important one because it is located next door to the subject property.

The price of $63,500 includes the buildings on it. The respondent made an adjustment for buildings, as if the buildings were superior to those of the subject property, but he did not make an adjustment for easement because the subject property occupies only five acres, and this comparable occupies 15.15 acres.

The Court cannot ignore sale number five of the respondent and sale number 16 of the appellant and, with the one next door, these three sales are the closest to the subject property. The sale price per acre is $1,530 (sale no five of the respondent) and $2,240 (sale no 16 of the appellant).

The Court, considering these three sales, concludes that the price of $1,500 per acre is a reasonable price, to which must be added the value of the principal residence of $44,000 and the improvements of $34,400.

5. Conclusion

The appeal is allowed in part and the matter referred back to the respondent for reassessment in accordance with the above reasons for judgment.

Appeal allowed in part.