William Yurkiw v. Minister of National Revenue, [1978] CTC 3054, [1978] DTC 1768

M J Bonner:—The issue in this appeal is the value on December 31, 1971 (Valuation Day) of approximately 24 acres of land forming parts of River Lots 49 and 50, Parish of Kildonan, Province of Manitoba. The land in question was purchased by the appellant in 1932 and was used by him as a market garden from the time of purchase until he sold it in 1974. The appellant sold the land to Qualico Developments Ltd for $240,000 pursuant to an agreement of purchase and sale dated March 24, 1974.

The respondent, in assessing, computed the adjusted cost base of the land on the basis that its Valuation Day value was $41,875, being $1,700 per acre. The respondent acted on the basis of an appraisal made by R B Grant, a real estate appraiser who gave evidence in support of his $1,700 per acre conclusion.

The appellant contended that the Valuation Day value of the land was at least $80,000 or $3,248 per acre. Evidence in support of this contention was given by E K Farstad, a qualified real estate appraiser.

A major point of difference between the two was on the subject of the highest and best use of the land at the relevant time. Mr Farstad was of the view that the highest and best use was . . .

. . for development of a working to middle class residential subdivision containing dwellings in extension of the present new subdivision in the area. This is assuming (not unreasonable) that the present zoning could be changed on an undertaking to install the required services to the anticipated building sites.

Mr Farstad testified that in preparing his report he examined records Of work that he had done in the area of the subject property shortly before 1971 and had, at that time, formed the conclusion that development in the area would take place within eight to ten years. He acted on that conclusion and in his report made a comparative sales analysis in which he relied heavily on sales of land made to developers who had residential subdivisions in view.

Mr Grant, on the other hand, was of the view that at the relevant time the highest and best use of the land under the then existing development plans was market gardening. He adhered to this view despite his own conclusion that in 1971 the land could be seen to be about six years from development. His evidence was clear that he did not take future development potential of the land into account in reaching his conclusion as to value. He refrained from doing so because he thought that the appellant’s land had been isolated by a block of industrial land lying a short distance south of the appellant’s land. Apparently he saw that block of industrial land as an impediment to continued northerly progression of residential development taking place further south.

Mr Grant did not do any income analysis in an attempt to determine the value of the land for use as a market garden site and says that he had no idea of the viability of the land for such purpose.

The appellant’s land was bounded on the west by Gateway Road and on the east by Birds Hill Road. I am satisfied that as early as 1965 urban development could be seen to be moving northerly on a path between those roads. Two lots, River Lots 51 and 52 lying immediately south of the appellant’s land, were sold to developers in 1965. In that year the appellant received but rejected offers from a developer who sought to purchase his land. It is evident that developers did not consider the industrial area as something which presented an impediment of the magnitude suggested by Mr Grant.

It is not at all clear to me what process of reasoning Mr Grant in fact did follow. While on the one hand he apparently saw market gardening as the highest and best use of the appellant’s land he did not, in giving evidence with respect to the market data approach to evaluation which he adopted, identify any of the sales on which he relied as sales for market garden purposes. Indeed two of the sales on which he did rely were the 1965 sales of River Lots 51 and 52 which are noted above and which were made to a developer. Mr Grant indicated that the price paid in those two sales would have to be adjusted upward in reaching a conclusion as to the value on December 31, 1971, but he did not explain how such an adjustment should be made.

Mr Grant opposed reliance on 1973 and 1974 sales referred to by Mr Farstad stating in effect that they were too far removed in point of time to be of assistance. On the other hand, as noted above, Mr Grant did rely on sales made in 1965. No persuasive reasoning justifying reliance on the 1965 sales and rejection of the 1973 and 1974 sales emerged in evidence. In this context reference was made to a graph forming part of Mr Grant’s report. That graph showed the increase in the cost of serviced residential lots in Winnipeg from 1960 to 1976. While Mr Grant stated that the graph demonstrated that there was a slight increase in value between 1965 and 1971 and a much more rapid increase thereafter, he stated on cross-examination that there was no relationship between raw land values and the serviced land values shown on the graph. I am not persuaded that there is no such relationship, but in the absence of an explanation as to just what it is I find the graph not useful.

Mr Farstad in reaching his conclusion relied most heavily on six sales identified at page 6 of his report. The lands in all six cases were located to the west of Birds Hill Road. Prices paid in these sales which fell in the 1970 to 1973 time frame ranged between $2,036 per acre and $5,000 per acre. I am eliminating one of the sales which was of a site too small to be a fair comparison. The sale at $5,000 per acre was a sale of land a substantial distance to the south of the appellant’s land and therefore was closer to development and more valuable. Mr Farstad was of the opinion that on balance the sales indicated a probable range of value in the area of the appellant’s land between $2,000 and $4,000 per acre. That range in itself is about as broad as the divergence between Mr Grant’s conclusion and that finally reached by Mr Farstad.

I have had considerable difficulty in following the process of reasoning by which Mr Farstad proceeded from the range mentioned above to the final value selected by him. One of the six sales on which he relied most heavily was a sale in February of 1972 of 14.51 acres forming part of River Lot 62. The rate per acre paid by the purchaser, one Mardak, a developer, was $3,024. That land was south of the appellant’s land and thus development might be regarded as more imminent than in the case of the appellant’s land. On the one hand it is not readily apparent to me why the appellant’s land should be viewed as more valuable than the land sold to Mardak. On the other hand the determination of the price which would have been paid had a hypothetical sale taken place is something which is not capable of absolutely precise determination. I am therefore inclined to rely on the conclusion reached by Mr Farstad. He gave his evidence in an objective manner and did not show the tendency sometimes found in expert witnesses to overstate the case of the party calling him. Without giving unnecessary details, Mr Farstad could fairly be described as a person with extensive experience as an advisor in the day-to-day dealings of land developers, and thus as a person whose conclusions are likely to be reliable.

Accordingly, I have decided that the appeal must be allowed and the assessment referred back to the respondent for reconsideration and reassessment on the basis that the value on December 31, 1971, of the land in question in this appeal, was $80,000.