Land

The Crown pleadings in the appeal of the taxpayer (“118”) of a property tax assessment stated an assumption as to the property’s FMV (which had been determined as its assessed value as determined by BC Assessment), rather than the lower value inferred by the purchaser from a related share purchase agreement.

After quoting from a statement in Dosanjh v. Liang, 2015 BCCA 18 that “[t]he basic difficulty with the property assessment as evidence of property value is that the court had no basis on which to evaluate its cogency” and noting that “this Court has held that except in certain limited circumstances, the tax assessed value is not proper evidence of fair market value” (at para. 63), Skolrood JA went on to state that “the courts do not engage in a deep inquiry into the basis for the Minster’s assumptions; instead, the analysis goes to whether the assumption has been successfully disproven on a balance of probabilities” (para. 66), which 118 did not do.

The company (“Carvest”) constructed a 137-unit building in London, Ontario, for purposes of renting the units. Nonetheless, it registered each of the units under the Condominium Act in order to avoid paying property taxes at a commercial-building rate. The Tax Court had found that Carvest was required under s. 191(1) to self-assess HST on the FMV of each “condo” unit as each unit was occupied by its tenant, rather than self-assessing under s. 191(3) on the FMV of the whole building when the first tenant moved in (or on substantial completion, if later). Furthermore, it accepted that the best method for valuing condo units was comparable sales of condo units, and rejected the cost plus 6% method proposed by Carvest (in light inter alia of difficulties in allocating common-area costs to the individual units.) However, the resulting per-unit value was to be reduced by a 6% “absorption discount” to reflect the effect on the market of absorbing the sale of 137 condo units over a 16-month period.

Monaghan JA found that the Tax Court had made no reversible error. Among other submissions, she rejected the Carvest suggestion “that the proper approach is to first determine the value of the property and then decide which part of section 191 applies—subsection 191(1) or 191(3)” and stated (at para. 35):

I disagree. [C]onsistent with Nash … the first step is to identify the property to be valued [i.e., each “condo” unit].

Before going on to find that a shareholder benefit had been conferred on the taxpayer by virtue of his transferring a property to a corporation of which he was a majority shareholder for a price that was 50% higher than the property's fair market value, Angers J. stated (at p. 2580):

"This Court dealt at length with the concept of market value in relation to the concept of the purchaser having a special interest, and it acknowledged that it is possible, in certain circumstances, for a purchaser to have a special interest in acquiring property for a price higher than what otherwise [it] would be prepared to pay."

On the facts here, no special value of the property to the corporation was established.

A commercial property, and other property of the deceased, was distributed, as to 50%, to its surviving widow on a rollover basis pursuant to s. 70(6), and as to the balance to the two surviving children. For the purpose of determining whether the residuary shares of the children ought to be charged with any deduction or adjustment for capital gains tax, or recaptured depreciation, the Court indicated that such deferred tax liability should be valued, for such purposes, at two-thirds of its computed amount.

Given the dearth of comparable sales around the valuation date in question, the trial judge committed an error in not considering a valuation of the land in question performed by an expert expropriation review board pursuant to adversarial proceedings.

The V-Day value of a property was determined by discounting backwards from the date it was sold (in 1973) in an arm's length sale. For these purposes, Rothstein J. considered the date the agreement of purchase and sale was entered into (on April 5) rather than the date of closing (October 31) to be the relevant date. He also declined to adjust the price upwards to take into account an agent's commission that might have been paid had the sale been made through an agent.

The V-Day value of 2,422 acres of forest land, which was close to a site where mining exploration activity had taken place since 1954, was determined taking into account the potential value of the land for mining exploration purposes only, as opposed to its potential use as a producing mine, given the significant uncertainty that that site ever would be developed as a mining operation.

The V-Day value of a property was found to be $350,000 notwithstanding its purchase by the taxpayer on June 18, 1971 for $176,000 in light of evidence that the plaintiff negotiated a price that was well below a value that in the taxpayer's view reflected the highest and best use of the land as a bowling alley.

The V-Day value of a parcel of land was determined in accordance with the cost of development method, whose use was found to be appropriate where the land was immediately capable of being developed.

Between September 1970 and March 1971 the taxpayer entered into a number of agreements to purchase about 70 acres of land near Welland and closed the purchases in October 1971. Since the agreement for the purchase of the main parcel of agricultural land was conditional upon rezoning to permit development as a shopping centre, the price which was negotiated (and thus, the value of the package on V-Day) already reflected the value which the land assembly would have for a shopping centre development. The potential of the site as a regional shopping centre was too speculative to be given much weight.

In determining the husband's net family property for purposes of the Family Act (Ontario), potential tax on capital gains and recapture of depreciation that would arise on a sale of his farm assets were included as a liability on his net worth statement. The calculation of that tax liability was made on the basis that he take advantage of half of any tax losses available to him and half the $500,000 capital gains exemption.

In arriving at the market value for Assessment Act purposes of lands used as a nursing home, the value of a licence issued pursuant to the Nursing Homes Act was included, notwithstanding a contention that the licence was personal property and accordingly should be excluded from the value of "real property".

Houlden J.A. stated: "Where lands and premises have an inherent capacity for a certain type of use and a licence from the proper authorities authorizes the ultilization of that capacity, the value of the licence is a component part of the value of the land. The licence is not property but a form of governmental control, like zoning, which may enhance the value of the land for which it is issued."

In 1976 an adjoining land owner ("Ogilvie") in need of expanding its facilities paid what was apparently a substantial premium over their open market price for lands of the taxpayer. Since there was no evidence that in 1971 the potential of Ogilvie as a special purchaser of the lands would be taken into account in determining the fair market value of the lands at V-Day, it was impermissible to work backward from the price actually paid by Ogilvie in 1976 in determining the V-Day value of the lands.

It was also noted that "conventional wisdom to which evaluators appear to subscribe generally fixes the economic life of an industrial building at between 40 and 50 years."

In determining the open market value of the assets of an estate, the assets must be considered as they were when the deceased died. Land which was rented to a company controlled by the deceased accordingly was valued as a reversion expectant on the determination of the tenancy rather than as unencumbered freehold land.

Four months prior to V-Day the taxpayer was granted an option to acquire land from an arm's length party for $40,000, and five months after V-Day he exercised that option. The option price apparently was ignored in determining the V-Day value of the land.

The V-Day value of a property was determined by assuming that its value steadily increased from the dates of its acquisition to disposition in equal monthly increments.

"It is well settled that the one essential criterion for utilizing comparable sales as indicators of land value at a particular point in time is that the comparables be similar to and in the proximate area or location of the subject property at that time." The V-Day value indicators of the taxpayer's expert appraiser met this test.

In a determination of the V-Day value of real property, subsequent sales of similar properties close to the valuation date may be used, provided no new information has become public knowledge in the interval and no changes in general economic conditions have occurred, that would affect the value of the property.

There is no requirement that the Department use as its expert a "neutral" appraiser, as opposed to someone who is its employee, nor that such employee's report be corroborated.

A Town Planner's opinion on value was not admissible.

Although it is necessary to look at what would be in the mind of a well-informed vendor and a well-informed purchaser as of the valuation date, and the fact that the development potential of the subject property still had not been achieved 12 years later thus cannot be taken into account, the amount for which the subject property was sold 6 years after the valuation date may be taken into account as indicating a fairly rapidly escalating trend of prices.

If the development potential of a property is between 10 and 20 years distant, only a portion of that potential should be included in the value arrived at.

The highest and best use for 173 acres of land located, on V-Day, 30 miles south of Hamilton and 18 miles from the nearest industrial (Stelco) development was found to be farming, notwithstanding some speculation at the time that the Ontario government was planning a new urban centre for the area.

Given that the "rented opinions" of the land appraisers used in this case were unreliable, the plaintiff's original method of calculating the V-Day value of land should be adopted, which was to prorate the gain which accrued between the dates of purchase and sale on a straight line basis:

V-Day value = original cost + (total gain x number of months between purchase date and V-Day divided by number of months between purchase date and sale date).

Anyone may give his opinion as to the V-Day value of his property without qualifying as an expert witness - but no great weight need be given to that opinion.

The V-Day value of 147 acres of vacant land was set at $750 an acre which was based on a sale of 36 acres of adjoining land in 1965 for $500 an acre, plus a time adjustment of $250.

The land residual technique was applied, in allocating a purchase price between building and bare land, where the best use for the land would have been to demolish the building and erect a larger one, but B.C. legislation prohibited any tampering with the existing building. The residuum thereby allocated to the bare land was small: $60,000 out of a total consideration of $230,000.

It was found that it could not be successfully argued that the Minister's expert land appraiser had failed to have regard to the surrounding circumstances of comparative sales used for assessing the V-Day value of the subject property. In the expert's own words, "'Sales of dissimilar properties [were] discarded, sales of similar properties [were] carefully reviewed and adjusted for specific factors of dissimilarity.'"

A building producing rental income was valued by averaging the results of a market value approach and an income approach. The market value approach involved looking at the price per square foot of usable area that buildings in the vicinity had been sold for in the 2 years before and after the valuation date. The income approach entailed capitalizing what would have been a reasonable level of net rental income for the building.

An unaccepted offer to purchase land is not evidence of the fair market value of that land if there is some question as to whether the offer actually was made and there is no means of ascertaining whether the offeror had any knowledge as to the value of the land.

The taxpayer sold his residence to a company in the restaurant business, which was only interested in the bare land. The superstructure accordingly was removed from the land and sold for $18,500. It was found that the fact that the purchaser "assigned no functional value to the building does not mean that there was no market value in the structure", and that it was fair to infer that the purchaser, "in the price it was willing to pay to obtain the property, assigned some value in the market sense, to the structure."