George Golden v. Her Majesty the Queen, [1980] CTC 488, 80 DTC 6378

Mahoney, J:—This appeal from a reassessment of the plaintiff’s 1973 income tax return was heard on common evidence with John McGuckin v The Queen, Court No T-500-79; Eleanor Golden v The Queen, Court No T-503-79 and Leemar Holdings Ltd v The Queen, Court No T-505-79. The plaintiffs in this and the other actions, hereafter “the vendors”, were all of the partners in Bel Air Syndicate. In March, 1973, the syndicate, in an arm’s length transaction, sold Bel Air Apartments, Edmonton, Alberta, to knowledgable real estate operators for $5,850,000, allocated $5,100,000 to land and $750,000 to “equipment, buildings, roads, sidewalks etc.” The Minister of National Revenue reassessed the vendors under section 68 of the Income Tax Act, SC 1970-71-72, c 63.

Where an amount can reasonably be regarded as being in part the consideration for the disposition of any property of a taxpayer and as being in part consideration for something else, the part of the amount that can reasonably be regarded as being the consideration for such disposition shall be deemed to be proceeds of disposition of that property irrespective of the form or legal effect of the contract or agreement; and the person to whom the property was disposed of shall be deemed to have acquired the property at the same part of that amount.

The reassessment resulted in a substantial recapture of depreciation by the vendors.

The vendors had acquired the Bel Air Apartment site in 1953. It was raw land, then on the edge of development in Edmonton, between 4 and 5 miles from the city centre. The site, five contiguous lots, was a single parcel of 27.32 acres, more or less. What was then the largest apartment complex in western Canada was completed on the site in 1955. It consisted of 25 apartment buildings containing twelve two-bedroom and twelve one-bedroom suites each, 600 suites in total. The buildings were of frame construction with brick veneer. They were three storey walk-ups, the first floor being half below grade. The apartments were distributed equally, four of each size on each floor. The site was landscaped with paved sidewalks, roads and park ing areas. A single storey, frame on slab, office and workshop building was construced later. There were no other changes or additions on the site prior to the sale. The buildings were reasonably well maintained. There is no evidence of abnormal vacancy prior to the sale. When built, the development probably approached the allowable density under the 1931 zoning bylaw then in effect. The R-3 zoning provided by by-law 2137, adopted October 13, 1971, and in effect when it was sold, permitted considerable additional development. The apartments and office covered only about 16% of the site; by-law 2137 permitted 30% coverage in an R-3 zone. While the vendors had not actively sought to sell the property, they were not, for a variety of personal reasons, interested in undertaking its additional development. It was still zoned R-3 when sold; no rezoning application had been made.

The Bel Air site is in the northeast quandrant of the intersection of Groat Road and 114 Avenue. After it was developed, a regional shopping centre was built on a site in the southwest quandrant of that intersection. The developer invited major department stores to bid for a location in the centre; Eaton’s bid but was disappointed. It was well known to the vendors that NM Skalbania Ltd has acted for Eaton’s in a number of real estate acquisitions. There were others in the purchasing syndicate but, for convenience, I shall refer to them collectively as “Skalbania”. I accept that, when approached, the vendors believed, in good faith, that Skalbania’s interest was in the land, not its improvements. Skalbania’s conduct confirms that. There is no evidence that Skalbania ever entered any of the buildings before agreeing to the purchase. The vendors and the real estate agent involved are not aware of anything but an exterior viewing.

On March 7, 1973, Skalbania made an unsolicited offer, without prior negotiation or consultation, of $5,600,000, subject to the following valuation breakdown: land $2,600,000; buildings $2,400,000 and “trucks, equip, road etc $600,000”. The vendors rejected that offer. Negotiations ensued, On March 14, the sale was agreed to. The purchase price was increased to $5,850,000, allocated $5,100,000 to land and the balance to equipment and improvements. A $50,000 deposit was paid with a further $150,000 deposit payable March 20 against delivery of the vendor syndicate’s 1972 statements. Acceptance of the offer was “on condition that the purchaser is a Canadian Company and a Canadian Taxable Corporation”.

No one who participated in the negotiations for the purchasers testified. The realtor, Frank Downey, was not present. George Golden, the only witness who participated in the negotiations, did not suggest that the bargaining had been hard on the allocation of the purchase price. It is not for me to speculate why Skalbania did not find it necessary to insist on a higher allocation to depreciable assets; he bought the land for $5,100,000 and he paid for it and I have no reason to suspect, much less infer, that it was worth anything less to him.

I accept that the value of the Bel Air land to Skalbania in March, 1973, was $5,100,000. That is what Skalbania, a knowledgable purchaser, dealing at arm’s length, agreed to pay for it on March 14, 1973. Accepting that, I do not find it necessary to review the evidence of either Russell I Barrigan or Magnor Kvatum and merely observe that their evidence, which I accept, confirms that $5,100,000 was not an unreasonable price for Skalbania to pay for the land alone in March, 1973.

It remains, however, that what was sold was not the land alone but, along with it, other things and that, what must be determined under section 68 is not the value of the land to the purchser but “the amount that can reasonably be regarded as being the consideration for . . . disposition” of the land in the circumstance that land and other things were sold. It clearly is a determination to be approached from the point of view of the vendor, not the purchaser; it is consideration for disposition, not consideration for acquisition, that the section specifies.

That point was made in H Munday v MNR, [1971] CTC 585; 71 DTC 5321 in which Dumoulin, J, pointed out:

Once again, let us bear in mind that the vendor alone is to be considered.

The vendors argue that this case has been overruled by the Supreme Court of Canada in The Queen v Malloney’s Studio Ltd, [1979] CTC 206; 79 DTC 5125. I disagree. That decision turned on the fact that the land was sold “clear of all buildings”. Here, the buildings, equipment and so on, as well as the land, were sold.

Finding, as I must, that the determination is to be made from the vendors’ point of view, I can only conclude that they have led no evidence whatsoever upon which I can rely in reaching the determination. In the apparent absence of hard bargaining on the allocation of the purchase price, the agreed allocation is of no use, notwithstanding that the parties to the transaction were both knowledgable and at arm’s length. The only inference I can draw from all the evidence is that Skalbania’s initial allocation of $2,600,000 to the land was arbitrary rather than considered and that there is no real basis for relying on it as reflecting a reasonable consideration for the land from the vendors’ point of view. I am left with only the opinion of the defendant’s expert witness, Norris Bamber.

Bamber is a professionally qualified appraiser. He was an employee of the defendant at all material times and the vendors objected to the admission of his evidence on that ground. I rejected the objection. His employment is certainly a factor to be considered in weighing his evidence and fair grist for the mill of cross-examination but it does not render his evidence inadmissible.

Bamber’s report on the value of Bel Air Apartments as at March 14, 1973, is an update of a valuation as at December 31,1971, made for a purpose not in issue here. The slightly lower total valuation on the later date, $5,900,000 rather than $5,963,000, reflects an overcapacity of apartment accommodation in Edmonton at the time, attested to by other witnesses. He valued the land alone at $2,020,000 as at December 31, 1971. He concluded that, as at March 14, 1973, a reasonable allocation of the total value to land alone would have been $2,320,000. That is somewhat more than the amount used by the Minister in his reassessment. Bamber’s approach conforms to accepted standards and, as stated, it is the only evidence I have that is really directed to the issue. The vendors’ expert, Kvatum, expressed an opinion only on the value of the land alone, assuming its rezoning to commercial use and its commercial development, which, as stated, tended to confirm the value from the purchasers’ point of view but is not directed to the determination to be made under section 68.

The vendor’s 1973 income tax assessments will be referred back to the Minister of National Revenue for further reassessment on the basis that the consideration for the disposition of the land alone, by the Bel Air syndicate on March 14, 1973, was $2,320,000. The defendant will be entitled to costs.