Russell Price v. ‘Minister of National Revenue, [1978] CTC 2498, [1978] DTC 1375

The Assistant Chairman:—In June of 1968, a Mrs Mitchell of Moncton, New Brunswick, a widow of about seventy years of age, let it be known to the mother of Russell Price (the appellant) that she wished to dispose of a parcel of land on the northern limit of the City of Moncton. Shortly after that the appellant bought the property for $6,500, payable $1,000 down and the balance by a mortgage back, payable at the rate of $1,000 per year for four years and a final payment of $1,500 at the end of the fifth year, all without interest. The appellant, when he acquired the property, boarded up the house and, I believe, the barns which were on the property to keep out trespassers, but shortly thereafter he was ordered by the city to demolish those buildings. He did as he was ordered by the city. He did not use the property in any fashion while he owned it although he may have visited it about every three months. In December of 1972, he was approached by a person named McGuigan, who said he was acting for a government and wanted to buy the property. McGuigan believing, as did the appellant, that the property contained. 70 acres, first offered $500 an acre, or $35,000. The appellant had been told by a Mr Donahue that he was getting $1,600 an acre for his property which was about a quarter of a mile away. Another person (Bell) with property next to the appellant’s property stated that he was getting $900 an acre. About mid-January 1973, McGuigan returned and told the appellant that if he did not sell his property, it would be expropriated. The appellant stated he would take $1,000 an acre and, as a result, by document dated January 12, 1973, the appellant, for a consideration of $500, granted to McGuigan’s principal an option on all his property valid until July 12, 1973, at a price of $1,000 per acre. The option was duly exercised and, since the property only contained about 63 acres, the appellant sold it for $63,210.

When the appellant filed his income tax return for the 1973 taxation year, he reported neither a taxable capital gain nor a deductible loss. The Minister, after learning of the facts, concluded that the Valuation Day value of the property was $25,000 or $395 per acre and concluded the appellant, on the disposition of the property, had a gain ‘of $38,210, of which $19,105 was taxable. He assessed the appellant accordingly and in due course the appellant appealed to this Board. He stated in his Notice of Appeal from that assessment that the adjusted cost base of the property was equal to its selling price. Because of the averaging provisions in the Income Tax Act, the 1974 assessment was also appealed.

The question to be resolved is, What was the Valuation Day value of the property in question? It is clear that neither party places any weight on the actual purchase price paid by the appellant some three and one-half years earlier. His purchase price of the 63 acres would indicate a cost of about $100 per acre, whereas, as at Valuation Day the Minister valued it at $395 per acre, and he himself valued it at $1,000 an acre.

Both the appellant and the respondent called as a witness, a person whom the other party admitted would qualify as an expert. Each gave his opinion as to the Valuation Day value of the property and the reasons therefor. I can only say that it seems strange that two persons considered experts in their field can be so far apart in their valuation of a particular piece of property. Per acre, the difference in dollars is virtually $600. This is not a great difference when one values a parcel per acre at $50,000 and another’s estimate is $49,400, but when one appraiser puts it at $400 and the other at $1,000 an acre, the difference is remarkable. One appraiser has valued it about two-fifths as high as the other, or the other has valued an acre at two and one-half times as much as the other one. It would seem to me that, if the valuation reports of the experts had been exchanged with each other weeks in advance of the hearing and considered by both, the experts might have agreed on a valuation or narrowed their differences considerably. Whether or not the reports of the experts were exchanged I do not know, but if they were the difference is more remarkable.

The land in question is in the northern part of the City of Moncton fronting on the east side of Caledonia Road somewhat north of the Trans-Canada Highway. There is access to the property from the Trans-Canada Highway via Elmwood Drive and Caledonia Road. The northern limit of the property in question is the boundary of the City of Moncton. Rather than try to fully describe the location of the property, I shall reproduce and attach as Appendix I hereto, a sketch which was in the report prepared by Mr de Stecher, the appellant’s expert. The sketch is not a copy from a survey, but is drawn to give one a visual appreciation of the appellant’s property and also its relative position to land owned by Bell, Donahue, etc. Caledonia Road runs in a north-northeasterly south-southwesterly direction and runs along part of the western limits of Lots #6, 5, 14, 7 and 19, where it curves to run in a westerly direction. Immediately to the west of Caledonia Road is the Canadian National Railway right of way which crosses Caledonia Road at the intersection of Lots #16 and 19. The railroad tracks continue in a southerly direction and cross the TransCanada Highway. Access to Caledonia Road from the Trans-Canada Highway is via Elmwood Drive which is somewhat west of the crossover of the tracks and the Trans-Canada Highway. The quality of Caledonia Road was never extremely good although it did at one time have a hardtop surface. The road appears to become not much more than a trail north of Lot 5. Immediately north of Lot 7 and south of Lot 15 is Fillmore Road. It runs from the western limit of the lot marked “M Melanson”, westerly to the eastern limit of Caledonia Road. The Bell property did not front on Caledonia Road. No mention was made with respect to the ownership of the land (unnamed and unnumbered) immediately west of both the Bell property and the Price

R v MNR 2501 property and which fronted on Caledonia Road and Fillmore Road. The frontage of the subject property on Caledonia Road was 226.85 feet, its depth on the south side was 4338.81 feet and its width at the rear was 689.81 feet. It is to be noted that the Donahue property abutted the CNR right of way and the Trans-Canada Highway but it did not have access to it.

Apparently in the late 1960s and the early 1970s there was developing on some of the land on both sides of Caledonia Road west of where it crosses the CNR right of way, a private industrial park known as the Caledonia Park. It was a private development being developed by Kenwood Realty Limited (hereinafter referred to as “Kenwood”). At the same time there was in existence, as there had been for many years, a corporation known as the Moncton Industrial Development Limited (hereinafter referred to as “MID”). This corporation was created as a corporation without share capital by the Province of New Brunswick and its officers were appointees of either or both the City of Moncton and the Province. MID and its officers were interested in the industrial development of the city. Their function, I believe, was to have an inventory of land in the city to encourage, for the benefit of the city at large, industrial development. In 1971, MID had, I understand, many acres of land available for industrial development. The land which the appellant sold in 1973 by the option he gave to McGuigan was sold to MID.

Mr de Stecher, the valuation expert of the appellant, gave evidence to indicate how he arrived at the valuation of $1,000 per acre at the end of December 1971. His appraisal report states that, in his opinion, the highest and best use of the land was:

Having considered the nature and location of the property and other factors affecting its use, the Highest and Best Use is estimated to be for future Industrial Development together with the adjoining properties.

In substance this opinion does not appear to be substantially different from the view expressed by Mr Hayward, the respondent’s expert:

As a result of our investigation and analysis, it was concluded that the present use of the land (Vacant) be continued until such time as development and zoning regulations dictate another use.

Mr de Stecher, in endeavouring to reach his valuation, considered, besides the general terrain and other land features, certain parcels of land, namely, Lots 1, 4, 15, 16 and 19 as numbered on Appendix I hereto, as being the best guide to the value of the subject land (Lot 14). Lot 18, also so numbered, was rejected for special reasons which will be mentioned; and other lots were not considered because they were thought to be too small. His data with respect to the sale of those lots, including the subject parcel, was as follows:

As to Lot 16, Mr de Stecher has a note stating that this parcel was purchased by Kenwood for $32, 000 ($492 per acre) by agreement four years previously.

Mr de Stecher’s written appraisal gives the following comments as to all the above numbered parcels:

Sale No 1—This had no frontage to the Caledonia Road and was in fact land locked.

Sale No 4—This land had no frontage to either the Caledonia Road nor to the Trans-Canada Highway. n.

Sale No 14—Subject Property.

Sale No 15—This was similar in location and size but had access onto the side road (Fillmore Rd) off the Caledonia Road.

Sale No 16—This was backland and had no frontage to the Caledonia Road. Access was by a 66 foot Right-of-Way over Daigle Lumber Co land. It was wooded also.

Sale No 18—This sale comprised the backland of the Filles de Jesus property on Elmwood Drive and extended east of the CN Railway. Examination of this sale in the course of valuing the main property in 1973, led to the conclusion at that time, that the price had been at considerably below the 1971 market. for that. location. Some consideration would be given to its proximity to Sale No 17. For these reasons it should not be justified as a basis for comparison.

Sale No 19—Similar in location and frontage, to the subject and all wooded. Smaller area but similar depth.

In his oral testimony, with respect to sale #18, Mr de Stecher investigated this sale and stated:

We were actually shocked to find that they had sold it so cheaply because, to me, it just doesn’t make sense. I came to the conclusion that they were not advised, they were not well-informed as to the value of their land, and, in . fact, they. were rather innocent. because I found another discrepancy over a piece of land which they owned which, they-had been, told by somebody that it contained something like twenty-four acres, and so when we checked the drawings and made our own calculations, we found that it was something like thirty-five acres of land, which they had contemplated selling thinking it was twenty-four. We had to get a survey done which verified our suspicion and, altogether they were not very businesslike in their dealing with their own property. When I came to consider that one, which was one of the very few sales outside the Moncton Industrial Park, I had to discount it because, in additiôn to that—selling it for $500 an acre—on the:same day they gave the purchasers a mortgage for $26,000. In other words the purchaser only paid $5,000 cash which makes it even more ridiculous than it would have been, and that of course I knew about three or four years ago.

Property #16 was the key property. It had access via a 66-foot right of way. It was a serviced lot and about one-half a mile south of the Subject property. It had immediate access to Elmwood Drive and, to that extent, it was a more desirable property. As Mr de Stecher stated, if one looked at dates only, Lot 16 would appear to have been sold to Kenwood for $492 per acre and then virtually immediately sold to MID for $994 per acre. He explained that he had spoken to the president of Kenwood, Russell O’Blenis, who informed him that four or five years before 1971 he had an oral option or agreement to buy this land from the owner LeBlanc for $27,000. When he came to exercise the option in 1971, it was found that other people had to sign the deed and, to get them to do so, a .further $5,000 was paid. Lot 16 was the first lot purchased in this area east. of Caledonia Road by. MID and, while discussions were held with respect to the purchase of other land, there was a gap in time until later in 1972 to negotiate the purchase of the other properties including the subject property. In considering his other lots to arrive at a value in December 1971, Mr de Stecher made a time adjustment of 10 per cent per year. Based on this adjustment, the LeBlanc property would have been worth about $700 an acre and the subject property, based on the appellant’s purchase price, worth about $137 per acre. Mr de Stecher also stated that he spoke to a Mr Black who was the auditor of MID and he (Black) recalled a meeting of MID when the officers of MID agreed to buy the property for $1,000 an acre. Mr de Stecher stated he knew nothing about the availability of funds to buy this property.

Mr Hayward was the expert called on behalf of the respondent. As stated, he valued the property at $25,000, or about $400 per acre. His comment was that MID was selling increasing acreage per year, having sold to industry about 26 acres in 1972, and, considering the acreage they had on hand, barring any unforeseen developments the land would not be required for industrial or residential development for a number of years. He expressed the view that, when considering size, shape, location and services available, it could not be considered as being a very desirable property as at the date of appraisal. In reaching his conclusion he considered Lot 18, Lot 16 (the sale LeBlanc to Kenwood), and a sale west of Elmwood Drive outside of Moncton. As to Lot 18 he considered it slightly superior to the subject property— it had rail and a trunk sewer and it was zoned M-Industrial. He pointed out that it did not have access to the Trans-Canada Highway. With respect to Lot 16 he considered it much superior to the subject property. It had many services, eg railway, highway, telephone and electricity, with. water and sewer a short distance away. The third parcel he considered on Elmwood Drive was sold for $12,000, or $240 per acre. While it had services such as highway, telephone and electricity, he considered it inferior to the Price property. Where needed he adjusted the selling price for time at the rate of 10 per cent per year. In considering this property he considered it as an entity in itself and not as part of a whole as Mr de Stecher did.

As to MID Mr Hayward, like Mr de Stecher, spoke to an. officer of that company, a Mr MacPherson who was the general manager. He informed Mr Hayward that this general property was a deal presented to the Board of Directors by one of its members and it sounded pretty good. Mr Hayward continued that Mr MacPherson indicated that they did not have any appraisals done of the property. According to Mr Hayward, a department of the provincial government established a commission to proceed with a feasibility study of the land in question. He understood there was a budget set up once the feasibility study was approved and some money was made available to get options.

With respect to Lot 18, he spoke to the individual who had listed this property and that person was an accredited appraiser. Mr Hayward stated that that individual felt the vendor received a good price for the property. Mr Hayward, when he made his valuation of the Subject property, was an employee of the Department of National Revenue. However, before he was so employed (1972), he had worked for the provincial Department of Municipal Affairs as a property evaluator. In Mr Hayward’s opinion, MID had acquired properties in excess of their market value. In considering sales, he did not use the sale by Kenwood to MID as he did not feel the sale was as good a sale as #18 or the sale by LeBlanc to Kenwood. His comment on the LeBlanc option was—was there an option, what were its terms, and what was its duration? It is difficult to give an oral option weight when one does not know what its terms are. In cross-examination it was clearly established that Mr Hayward did not discuss the “deal” between LeBlanc and Kenwood with Mr O’Blenis—the person to whom Mr de Stecher talked. As I understand the evidence, it does not appear that it was established that Mr Hayward knew of the “deal” to cause him to talk to Mr O’Blenis. Considerable time was spent on reviewing what was supposed to be Minutes of a director’s meeting of MID on November 30, 1971, pertaining to a 65-acre parcel of land (which was not further identified). Those Minutes record the passing of a motion to the effect that MID was to purchase the property at the quoted price of $1,000 per acre subject to council approving the MID bank loan of the necessary funds. Apparently there were men at that meeting other than those mentioned in the portion of the Minutes read and, in summary fashion, I could say that Mr Hayward agreed they. were competent businessmen. It was suggested in cross-examination that the agent who acted for the vendor on sale #18 was later not used by them on another sale—but Mr de Stecher was—and that that agent was not used subsequently as, in effect, he was incompetent. Mr Hayward had no knowledge of this. As to the sale west of Elmwood Drive, he did not know the vendor but he spoke to a “Young” Sumner. He did so to verify the price paid, not because he thought it was too high or too low. Mr de Stecher stated in rebuttal that, about a week before the hearing, he spoke to a man whom he understood was the general manager of the purchaser of the property at Elmwood Drive. He investigated that transaction because he thought the sale price was low. He was informed that the vendor was old and ill and initially he wanted $30,000 for the property, which the purchaser rejected. Later the purchaser returned and the vendor said he wanted $10,000, whereupon the purchaser said he would settle for $12,000 and, at that price, purchased the property. Mr de Stecher stated in conclusion: “the impression I had was that it was a forced sale”.

As to the determination of the issue, each counsel submitted that I should accept the valuation put forth by the expert he called and reject that put forth by the opposing expert. For the appellant, his submission for rejecting the valuation of Mr Hayward was that it is wrong to think that MID would pay more than the fair market value for the land, and also that each of the three comparables used by Mr Hayward were all successfully attacked as being weak and therefore worthless. From the respondent it was submitted that, in effect, Mr de Stecher’s valuation was no valuation at all—he used no comparables and had only in substance relied on sales to MID. In addition it should be noted, counsel for the respondent submitted, that MID only proceeded to get options late in 1972 or early 1973. The only sales which were not to MID which might be considered by Mr de Stecher were rejected by him as he believed the vendor was ill- advised, it was a forced sale, or there was an option five years before the sale.

There are three sales which could serve as comparables. I was asked to reject each and every one of them, not because the vendor or purchaser in each and every one of them gave evidence before me, but rather, because in one case I was advised that there was an agreement five years before the deed was given and the vendor was an honourable man and lived up to his word. Where was the vendor, LeBlanc? Where was the officer of the purchaser, O’Blenis? In the other case it was concluded that the vendors were ill-advised however there was evidence that the agent for the vendor on the sale of Lot 18 was a qualified appraiser. Am I to hold he was incompetent without him being before me? I was invited to conclude that Mr de Stecher was engaged by that same vendor for a subsequent transaction and the previous agent was not so engaged because of his previous shortcomings. In the third case it was submitted that it was a forced sale and so should be rejected. Were no serious. attacks made on Mr Hayward’s valuation, I would have nd hesitation in accepting it. However, I should look at other features and Mr de Stecher’s valuation as well.

The increase in value of the property in the period of the appellant’s ownership is tremendous, especially since one cannot, over the period, show an increase in the value of property in the general area. This property went from $6,500 in 1968 to $63,000 in 1973—a rate of over $10,000 a year. Mr Hayward did say that, after 1971, property generally increased considerably in value. The property, except for the con- tinuing growth of such trees as were on it and the tearing down of the house and barns, was in the same condition at the time of sale as it was at the time of purchase. Not only was it not used during the appellant’s ownership, but it produced nothing.

Mr de Stecher values the property at $1,000 per acre even though, because of time, he adjusts it to $900. In considering other properties he shows and considers a time adjustment but in the case of the subject land he still states he felt it was worth the $1,000. Lot 16, which would appear to be a better lot, he shows at less than $1,000 because that was what its selling price reflected. That lot also had railway services and a 66-foot right of way to Caledonia Road. In addition, Caledonia Road would appear to be in better condition in that area as opposed to its condition opposite the appellant’s property. Also Lot 16 was very close to sewers and services whereas the subject property was approximately one-half a mile away and unserviced. As I read his valuation, no adjustment was made by Mr de Stecher for this lack of sewers and services or accessibility to the railway.

After considering the evidence and the submissions by counsel, I have concluded that it has not been shown that the 1973 assessment made by the respondent is incorrect. I am of the view that more than hearsay attacks on the comparables used by the respondent’s appraiser is necessary to reject his appraisal in total. This is especially so when it appears that the appellant’s appraisal is weak since no. discount or adjustment was made to the valuation because of time or the lack of services, which were available to another lot which was used as a basis for that valuation.

Since I have not disturbed the 1973 assessment, there will be no change in the 1974 assessment. The result is judgment will go dismissing the appeal of the appellant with respect to: each of those taxation years.

Appeal dismissed.