Joseph Kenneth Pritchard v. Minister of National Revenue, [1982] CTC 2832

M J Bonner:—This is an appeal from an assessment of income tax for the 1977 taxation year. The only issue here is what, for purposes of the computation of the taxable capital gain realized on sale, was the value on V-Day of a parcel of land sold by the appellant during 1977. The Appellant says it was $1,500 an acre. The respondent assessed on the basis that it was $1,000 an acre. The land, having an area of about fifty-two acres, was located in the Township of Gloucester, a short distance south and west of the Ottawa International Airport. It lay just outside the Greenbelt which enclosed the built-up urban area of the City. The improvements on the land consisted of a track used for training race horses and a barn used to house the beasts. Both improvements were constructed in 1971.

Two real estate appraisers were called to give evidence at the hearing, James H Whelan on behalf of the appellant and Bernard P Murphy on behalf of the respondent.

Mr Whelan said that the highest and best use of the property at V-Day was “speculative for future uses”. Mr Murphy said that the highest and best use of the land was its then existing agricultural use, .. while awaiting the realization of its potential as development land”. Both valuators agreed that developers had commenced buying land in the area in the early 1960’s. Thereafter, prices exceeded levels justified by farming only. The valuators were, in effect, saying the same thing. What they were saying was that the market value was the price that was justified, having regard to the perception of the market place as to the potential of the land for future urban development.

It follows, of course, that the improvements on the appellant’s land were of no use to potential purchasers and neither valuator included any amount in respect of those improvements.

From a practical standpoint, no urban development appeared possible without water and sewer services. In preparing their reports, both experts reviewed those developments in the planning process in the 1960’s and 1970’s which related to plans for servicing the area where the appellant’s land was located. It would seem that in the mid-1960’s there was hope that early development might be possible if sewer mains capable of servicing the area were installed to feed a plant which was proposed to be built at the junction of Mosquito Creek and the River Road. In 1967, however, doubts about the feasibility of that plant arose when the Ontario Water Resources Commission questioned the effect which its construction might have on the quality of water in the Rideau River. In July of 1968 the Regional Municipality of Ottawa-Carleton was created. It was under a statutory obligation to prepare an official plan. In the course of the planning process consultants were retained by the Region to prepare a report on the development of water works and waste water control. The consultant’s report was completed in January of 1970. The conclusions of the consultant were accepted by Regional Council. One of those conclusions was that the construction of the collector sewer necessary to tie the subject lands into the regional system ought not to be commenced until 1981 or 1982.

The events just outlined appear to have had an adverse effect on the market for land in the area of the appellant’s parcel. The appellant’s valuator, Mr Whelan, put it this way in his report:

It would appear after 1967 when concerns were raised about the quality of water in the Rideau River system and plans for the proposed sewage treatment plant at Mosquito Creek were abandoned that there was a decrease in real estate activity in the area and no increase in price.

Real estate prices did not increase in the subject area again until 1974 when the area became part of the Regional Government Official Plan, at which time they began to increase dramatically.

Mr Whelan appears to have assumed that the result of events pointing to a deferral of development was a levelling off of prices with no price decrease.

Mr Murphy, the valuator called by the respondent, reviewed the same events and said that his investigation of prices paid revealed a decrease. The report which was returned to and accepted in principle by Regional Council in January of 1970 he said provided “the death blow for early development of the subject neighbourhood”.

Mr Whelan referred to seven sales which he thought to be comparable. He said he “gave weight” to four of them, Nos 2, 3, 4 and 7, in reaching his conclusion that the market value of the appellant’s land was $1,500 an acre. Two of the four sales were made in 1965, one was made in 1967 and one (Sale 7) was made in 1971. I will deal with the 1971 sale later on. I can find no satisfactory answer in the evidence to the question why, in light of what Mr Whelan called the “decrease in activity” which took place after 1967 and in light of the diminished prospect of early servicing, the pre-1968 sales can be regarded as indicative of what a hypothetical purchaser would pay on December 31, 1971. The other three sales, Nos 1, 5 and 6, are of historical interest only. They were made in 1961 and 1962. In short, Mr Whelan’s assumption that there was no price decrease can rest on only one sale referred to in his study, his Sale 7.

Mr Whelan regarded Sale 7 as a sale of sixty-four acres at a price of $90,000 and as, therefore, being a transaction pointing to a rate of $1,406 an acre. The land sold was divided into two parcels, one located on either side of the River Road. At the time of the sale, a house and a small out-building were situated on the parcel lying to the west side of the River Road. Mr Whelan. attributed no value to the buildings. He said the house was about one hundred years old, uninsulated and in very poor condition.

It appears that Mr Whelan’s view of the transaction was faulty. Had the sale price been based on land value only, the purchaser would, undoubtedly, have made an effort to ascertain the area sold. Mr Murphy’s research into the transaction included scaling the area on Registry Office maps and an investigation of title. It satisfied him that the vendor in Sale 7 owned and conveyed not only the sixty-four-acre parcel which had been conveyed to her predecessor in title by the 1894 deed upon which Mr Whelan relied, but also a further ten-acre parcel conveyed to that same predecessor in 1908. That predecessor left all of the land to the lady who was the vendor in Sale 7 by a Will which referred to the land as “containing seventy-five acres, more or less”. Later, an acre was taken for road widening. Although the copies of the Registry Office documents which were put in evidence are not conclusive, they do tend to indicate that the sale was one of seventy-four acres, not sixty-four acres. Thus, on Mr Whelan’s reasoning, the sale points to an acreage rate of $1,216.

Furthermore, there was evidence which points to the conclusion that Sale 7 was a Sale not only of land, but also of buildings which added to the value of the land in the market place. Firstly, the purchaser renovated the house. Secondly, a mortgage given back to the vendor contained a clause entitling the purchaser to a partial discharge of “the house and lot” upon payment of $25,000. The lot upon which the house stood was an area of nine acres, situated on the west side of the River Road, the balance of the land being on the east side. If the house was regarded as being of no value and the sale was regarded by the parties thereto as a sale of land only at an acreage rate, it would appear rather surprising that a figure as high as $25,000 was exacted as the price of a partial discharge of nine acres. There was no suggestion in the evidence that the land on the west side of the River Road possessed a remarkably higher value than the land on the east side, save for the fact that there was a house on it.

In argument, the appellant’s counsel tried to redeem Mr Whelan’s reliance on his Sales 1 to 6 by suggesting that because of the highest and best use it was necessary in the search for comparables to look for sales to developers. I do not agree. Developers form only part of the buying public and, according to Mr Whelan, they were not buying in the area in 1971. When it is necessary, as it is here, to discover value at a time in 1971, it is necessary to examine prices paid by those who were buying and selling land in the area at the relevant time. It is illogical to do what Mr Whelan appears to have done, that is to say, to form an opinion based on the operation of the market place at a time when it was influenced by a perception of the probable course of future events different from that which existed in 1971.

The next question is whether there is anything in Mr Murphy’s evidence which supports a conclusion that the land was worth more than $1,000 per acre. The short answer is that there is not. There may be some validity in the criticism made by the appellant’s counsel of Mr Murphy’s reliance on four sales of land which lie to the south of the Rideau Road and which was, therefore, likely to be developed much later than the appellant’s land. Further, there may be some validity in the criticism of Mr Murphy’s reliance on 1973 sales. It is not at all clear that the market in that year and the market in late 1971 were the same. However, Mr Murphy’s Sales 10 and 9 (the latter being Mr Whelan’s Sale 7) both tend to support his conclusion and indicate that Mr Murphy made adequate adjustment for time and for differences between land lying south of the Rideau Road and land lying to the north thereof. Mr Murphy’s Sale 10 was a sale in June of 1971 of one hundred acres at a price of $80,000. The land in question lay in the next Concession to the east of the appellant’s land and only a quarter mile to the south. Development may have been slightly more remote in Concession 1 than in the Broken Front Concession, but the distance between the two parcels was not so great as to be inadequately compensated by the difference between the $800 per acre sale price and the $1,000 per acre attributed to the appellant’s land.

I cannot find, on the balance of probabilities, that the evidence supports a conclusion that the assessment of tax is too high. The appeal will, therefore, be dismissed.

Appeal dismissed.