Delmer E Taylor:—This is an appeal against an income tax assessment in which the Minister of National Revenue decreased the Valuation Day (V-Day) value of $240,000 reported by the appellant in connection with the sale of a certain parcel of real estate, to an amount of $158,000. The respondent relied, inter alia, upon sections 3, 38, 39, 40, 54 and 53 of the Income Tax Act and section 26 of the Income Tax Application Rules, SC 1970-71-72, c 63, as amended.
Facts
The appellant, a physician and surgeon, practices in the Municipality of Burnaby, Province of British Columbia. In 1966, he purchased property located at Royal Oak and Kingsway in the Municipality of Burnaby at a price of approximately $85,000. The property contained several small stores plus two houses. The buildings were rented by him to various tenants until 1974 when the property was sold for $325,000. In filing his income tax return for the 1974 taxation year the taxpayer took the position that the V-Day value of the property was $240,000. He claimed expenses of $2,000 and reported and paid tax on a taxable capital gain of $41,500. By notice of reassessment issued on October 18, 1975, the Minister of National Revenue reassessed him for his 1974 taxation year. The Minister determined that the V-Day value of the property was $136,000. In January 1977, the appellant filed a notice of objection to the said reassessment and by a further notice of reassessment issued on August 5, 1977, the Department increased the V-Day value from $136,000 to $158,000.
Contentions
The appellant maintained that the V-Day value of the property was $240,000 while the position of the respondent remained at $158,000. Evidence
The appellant provided background evidence in the matter but the major information was supplied by two evaluators, Mr Heinz Brett for the appellant, and Mr Koivane Yuh for the respondent. The result of the Brett appraisal was to indicate a value for the subject property on V-Day of $220,000; that of the Yuh appraisal $158,000 for the land. Considerable effort went into examining, cross-examining and re-examining each of these witnesses on the bases of data included and conclusions in their respective reports. In summary, it could be said that there were major areas of disagreement between the experts on all of these points, and that the mathematical results reached ($220,000 and $158,000 respectively) reflected the individual emphasis and perspective of each one. Brett placed considerable weight upon offers to purchase the subject property for $250,000, which offers were dated January and March 1972 respectively and were filed with the Board as Exhibits A-1 and A-2, while Yuh disregarded these altogether. Also, Brett relied heavily in his “comparables” on a certain piece of property in the area, the data for which it was evident in his report was incomplete or at least inconsistent with the real estate transfer records filed with the Board by counsel for the respondent as Exhibit R-2. Further, a parcel of property directly across the corner from the subject property had been optioned by a purchaser in May 1972 and bought later that year for $300,000. Brett claimed it was similar to the subject property, if anything it was less desirable, while Yuh disregarded the purchase altogether as having no relevance.
Argument
Both counsel recognized in a very professional way the difficulty facing the evaluators in reaching conclusions regarding the subject property when there were no actual comparable sales. Since both reports were made some three years after the sale and Six years after V-Day, for the evaluators to take into account the changes which had taken place in the area during those several years and make appropriate adjustments provided a real challenge to them. Although pointing out that their value as physical evidence was limited because of their nature, counsel for the appellant requested some consideration be given to the offers to purchase the subject property, and also to the sale of the adjacent property, information on both offers having been submitted to the Board.
Findings
The Board does not fault either evaluator but simply states, as a basis for its own conclusions, that to rely on one report to the exclusion of the other would be a questionable procedure. Equally in my view, for the Board to simply cut the difference between the reports approximately in half to resolve the issue could initiate a process of then selecting certain features of each report in an effort to justify and support such a conclusion, thereby running the risk of inverted decision-making. It appears to me that matters of V-Day valuation, if only because of their nature, frequency and importance, deserve a basis for determination on principle rather than expediency. The instant case provides some scope for the Board to make a critical analysis of the presentations.
It would be an unusual situation indeed for an evaluator to be engaged by a taxpayer in connection with an income tax assessment, and not become aware of the mathematical basis of the dispute with the Department. It is equally obvious that many departmental appraisals (as is apparently the case in this matter) are prepared when the taxing officials are unable to conclude an accord with the taxpayer. While the Board appreciates that these situations which the respective appraisers face would not affect the professional nature of their efforts, they do tend, when added to the retrospective difficulties and intervening physical changes particularly associated with real estate properties, to moderate the ultimate value of any such appraisal reports.
In short, I doubt that any appraiser working under these conditions can be expected to provide more than a calculated approximation of a theoretical value, and this will always leave open one vital question which cannot be answered. What would a ready and willing buyer have paid for the particular property in question at December 31, 1971, assuming that the owners were disposed to part with it on that date? No mathematical formulae or presumed comparability will ever with accuracy determine that. It is for this reason, in my view, that the Board is not only entitled but bound to take into account a range of information broader than merely the appraisal reports in requiring that the appellant discharge the primary onus upon him. Looking at it from the taxpayer’s side, what are the rules that were set up by the Department for him? Why and how is he now here with a problem that cannot be resolved empirically? It has its genesis in the responsibilities assigned to the taxpayer under the Income Tax Act to determine “Valuation Day value’’ (December 31, 1971 for real property). These are contained for all practical purposes in Information Circular 73-27 dated November 8, 1973, replaced by 73-27R dated March 17, 1975. There were minor changes from 73-27 to 73-27R but the changes did not affect the essence of the message.
From an examination of the Circular, particularly paragraphs 2, 3, 4, 5 and 6, it can readily be seen that in previewing the difficulties which would inevitably arise, the Department left not only the initiative but also the procedure largely to the goodwill and judgement of the taxpayer. In paragraphs 7 through 10, the Department provides for some alternative route for valuation, using publicly available data accumulated by officials. However, in my view, the significant direction is contained in paragraphs 11 and 12. I must interpret these to mean that the information from the Data Bank should not be substituted for that gathered by the taxpayer. While this Information Circular does not have the force of law, it cannot be disregarded in the Board’s decision since it gives virtually the only framework with which taxpayers have been provided to date. In my opinion the taxpayer is requested to follow the general course outlined in paragraph 3, the more specific course outlined in paragraph 4, or the specific route in paragraphs 5 and 6. He is also informed that he may utilize (separately or in conjunction with any of the above) the services indicated in paragraphs 7 to 10. There appears to be no compunction to choose one method over the other, and there is clearly no indication that a particular method is not acceptable. If anything, the Circular leans away from reliance on the documented Data Bank approach.
In the instant case, the appellant has available information in compliance with the provisions of paragraph 3, which included reference to the sale across the street. Presumably it has not been considered adequate by the Department. A letter of opinion (in accordance with paragraph 4 of the Circular) was not obtained by the taxpayer, but two offers to purchase were filed with the Board. These were not considered acceptable by the Department since they contained conditions required by the interested purchaser. The taxpayer has further provided an appraisal by a qualified appraiser (paragraph 5 of the Circular) and it has been found insufficient by the Department. Counsel for the respondent, in cross-examination, did successfully show at least one material weakness in the Brett report. Counsel has also presented the respondent’s own evidence in the form of a departmental appraisal. In effect, the respondent now goes to the Data Bank, or something very similar, for supportive statistics—a method cautioned against in the referenced Circular. It was clear to the Board from the examination and cross-examination of the appraisers that there was a high potential for some selective perception in the utilization and interpretation of such data, and that therefore the Department’s warning in the Circular was well founded.
Reviewing this situation, to determine if the appellant has cast reasonable doubt upon the valuation of the respondent, the Board finds that the general information provided (paragraph 3 of the Circular) allows substantial comfort to the taxpayer and that the more specific information (paragraph 4 of the Circular) should not be completely ignored in any determination. As indicated earlier, the Board does not rely greatly upon either appraisal report, the data in one virtually offsetting the data in the other. It is clear Brett believes the period from 1966 through 1971 showed at least as great or greater annual increments in the value of real property generally than the period 1972 to 1974, whereas Yuh views the matter in quite the reverse fashion. I doubt that the Board can support either opinion based merely on the evidence submitted at this hearing. The two major factors (the sale of the adjacent corner, and the offers to purchase) cannot be eliminated for consideration by the Department when the only alternative proposed in support of the assessment is an appraisal report based on Data Bank information, which report is itself disputed by a Similar report prepared on behalf of the appellant. It should be noted that there is no indication in the Circular that an appraisal prepared by a taxpayer on December 31, 1971, would be regarded more favourably in later years by the Department, when disposal occurred, than one prepared as at December 31, 1971.
The appellant has met the onus of showing that the method (an evaluation report) adopted by the respondent in determining the adjusted cost base ignores factors (the adjacent sale and the offers to purchase) which have at least equal validity, and on their own merits are indications of the value of the property. It should therefore not be used as a substitute for the basis upon which the taxpayer has relied to produce his own valuation of $240,000.
Decision
The appeal is allowed and the matter referred back to the respondent for reassessment accordingly.
Appeal allowed.