McArthur, J.T.C.C.:—Harry Wynberg Jr., Peter Wynberg, and Gerard F. Wynberg, the appellants, appeal under the informal procedure, the respondent's reassessments of their 1988 and 1989 taxation years. The appeals were heard on common evidence.
The issues arise from the value placed on a property sold and transferred by the appellants to Wynberg Landscaping Ltd. on September 19, 1989.
In May 1987 the appellants and their brother Bernandus purchased, for $75,000, approximately 77.3 acres of vacant land located on Elmwood Drive within the Northern extremities of the City of Moncton. At that time the four brothers were equal shareholders of Wynberg Landscaping Ltd.
The land was purchased primarily to provide top soil and a place of operation for the landscaping company.
In March 1989, Bernandus Wynberg transferred his interest in the property to his three brothers based on a value of $213,000 and he sold his shares in the corporation to his father Hendrikus for $25,000.
On September 18, 1989, the appellants transferred the property to the company for the sum of $225,000. The respondent takes the position that the fair market value of the property, at the time of the transfer was no more than $113,500.
The property has approximately 960 feet of frontage along Elmwood Drive with a depth of 3,600 feet, about 70.5 acres are zone R.A. and 2.3 acres R.R. It is relatively high and dry and suitable for development. A deteriorated house and barn were considered of little or no value.
Elmwood Drive runs from the centre of the city in a northerly direction. The subject land is situated on the east side of Elmwood Drive and just north of the TransCanada Highway (highway). The city centre of Moncton and major residential development is concentrated south of the highway.
At the time of purchase any residential development on the R.R. zoned lands had to be serviced with drilled wells and septic tanks and each building lot required a frontage of 100 feet. In 1988 a privately owned sewer line was constructed in front and across the street from the subject lands. The sewer was owned and controlled by the proprietors of a minihome development about a mile north of the subject lands who, in their discretion, permitted other property owners to hook up to the lines for a $1,000 fee.
The appellant Harry Wynberg, amongst other matters, gave evidence as to value, referring to the consideration placed on the lands upon the purchase of Bernandus Wynberg's interest using a figure of $213,000 and the sale of several lots between 1990 and present date at a price of approximately $22,000 each. Two of these lots were transferred to himself for $20,000 each. The Court would, of course, be required to exercise hindsight to give weight to these transfers.
A qualified expert appraiser for the appellants presented an appraisal wherein he concluded the market value of the property as of September 1989 was $235,000.
This report was prepared in the late summer of 1991. The same witness prepared an earlier estimate of value for Bernandus Wynberg, the outgoing partner in September 1988. In that document he expressed the opinion that the market value of the subject property was $213,405.
Addressing the later valuation, the appraiser referred to three methods used to evaluate real property. He used the direct sales comparison approach to determine the market value (market approach). He concluded that the highest and best use for the property was that of residential lots along the Elmwood Drive frontage and future residential subdivision for the rear acreage.
The appellants’ appraiser attempted to compare the subject lands, with similar properties in the vicinity. He commenced from the premise that the property had sewer services, although requiring drilled wells, and the frontage zoned rural residential could be subdivided into 75 foot residential building lots immediately and the rear acreage zoned rural area to be developed for residential use sometime in the future. He referred to the possibility of industrial use sometime in the future as a second alternative.
In the majority of instances, the appraiser referred to comparables in more densely developed areas closer to the centre of the city serviced by municipal water and sewer. He arrived at a value of $126,900 for 11 front lots with 75 feet frontage and $112,000 for the remaining rear lands that he calculated to be 80 acres at $1,400 per acre. The total parcel was rounded at a value of $235,000.
The Minister presented evidence of value as of September 19, 1989, through a qualified appraiser with Revenue Canada. He also chose the direct sales comparison approach and determined that the highest and the best use of the lands was residential development along Elmwood Drive for the R.R. zoned area and future development for the large R.A. zone parcel at this point, their similarities ended.
The respondent's expert viewed the property as very rural in nature, not to be compared with active residential development to the south of the TransCanada Highway and to be considered without sewer or water services. He discounted the sewer line because it was privately owned and controlled.
He chose, as comparable, lands in the less populated and undeveloped area north of the highway.
The appellants’ comparable properties were predominately located to the south of the highway in residential developed areas with available water and sewer services. The respondent analyzed sales of vacant land north of the highway and within a radius of approximately one and one-half miles of the property. The respondent concluded eight lots at $14,000 per lot totalling $112,000.
After discounting the gross selling price for a variety of documented reasons, he reduced the net value for the purposes of his report to $50,000. He concluded that the rear (70.5 acres) had a market value of $63,450 being $900 per acre for a total for the entire parcel of $113,500. I accepted the accuracy of the acreage presented by the respondent rather than that of the appellants.
In analyzing the evidence and reports of the appraisers, including related exhibits I have great difficulty in accepting one to the exclusion of the other. Both relied on comparables but having commenced from a different premises, both chose different properties. The appellants’ witness viewed the property as being serviced by the equivalent of municipal services and used comparables closer to the city centre on the south side of the highway in or about active subdivisions with municipal services.
The respondent's witness viewed the lands as not serviced and rural in nature and used country lots as comparables which were closer to the property and several miles from the appellants’ comparables. Generally, these two basic different approaches gave rise to the wide gap in values. The analysis used by each expert differed in many respects. I do not intend to review the detail used by each expert in arriving at his conclusion except to mention there was a considerable gap between them.
Counsel for the appellants directed attention to the sales after the relevant date. After concluding that the general rule is not to take anything into consideration that occurred after the relevant date, Judge Brulé in Ample Investments Ltd. v. M.N.R., [1990] 2 C.T.C. 2217, 90 D.T.C. 1748 (T.C.C.) at page 2219 (D.T.C. 1750) stated:
. . the Courts have accepted the limited use of hindsight in cases where conditions have not materially changed in the interim.
Judge Nolan of the Supreme Court in the matter of Roberts v. The Queen, [1957] S.C.R. 28, 6 D.L.R. (2d) 305 at page 36 (D.L.R. 313), commented:
In my view, evidence of a sale after the enactment can, in the absence of special circumstances, be relevant to the value prior to the enactment.
Mr. Harry Wynberg Jr. gave evidence to the effect that consent to hook up to the private sewer line for two lots was given as early as October 1989, putting in doubt the approach taken by the respondent's witness who completely discounted the value of the private sewer.
The Court, obviously, must be cognisant for whose benefit the appraisals were prepared. While real property appraising is not expected to be an exact science, it is disappointing, in the case at bar, to see such divergent conclusions. It is difficult to comprehend that two qualified real estate appraisers, both with many years of experience, be over 100 per cent apart in their conclusion as to the value of the same parcel of land on a given day.
To quote Judge Brulé again in Ample, supra, at page 2220 (D.T.C. 1750) he stated :
In situations such as this, it is comforting to follow the comments made by Mr. Justice Walsh, in Bibby v. The Queen, [1983] C.T.C. 121, 83 D.T.C. 5148 (F.C.T.D.) at page 131 (D.T.C. 5157):
While it has frequently been held that a Court should not, after considering all the expert and other evidence, merely adopt a figure somewhere between the figure sought by the contending parties, it has also been held that the Court may, when it does not find the evidence of any expert completely satisfying or conclusive, nor any comparable especially apt, form its own opinion of valuation, provided this is always based on the careful consideration of all the conflicting evidence. The figure so arrived at need not be that suggested by any expert or contended for by the parties.
Having considered all of the evidence as to value, I have come to the conclusion that the appellants have over stated and the respondent under stated the value. A figure somewhere in between that sought by the contending parties is called for. The Court places a value on the subject property, as of September 19, 1989 of $170,000. The appellants' capital gain and capital gains deduction to be calculated on a value of $170,000.
There remains an issue with respect to the shareholders' loan.
The dispute is whether the shareholders' benefit of $15,406 be added to the taxpayers' incomes for taxation year 1988 pursuant to subsection 15(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").
The respondent maintains that the appellants did not successfully rebut the respondent's conclusion, after an audit of the corporation, that there was in 1988 taxation year a shareholders' benefit totalling $15,406 which was not paid within one year.
The appellants’ position is that the shareholders’ loans were extinguished upon the transfer of the property by the appellants to the corporation in 1989, given a market value of $225,000.
Subsection 15(2) is designed to prevent the tax free distribution of corporate profits to the shareholders by way of loans. The principal amount of the loan is to be included in income unless it is repaid within one year from the end of the taxation year in which it is made.
I find that there existed as shareholders' benefit as of year end January 31, 1989, of $15,406 ($5,135 for each of the three appellants).
I find that the net value of the property, transferred to the corporation by the appellants in September of 1989, be applied to reduce or extinguish the shareholders' loans at year end January 31, 1989 ($15,406). The net value, of course, is based on a fair market value of $170,000.
The matter is referred back to the Minister for reconsideration and reassessment. The appellants’ counsel is entitled to costs.
Appeal allowed in part.
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