Tribunals Ontario

Tribunaux décisionnels Ontario

Assessment

Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE:

December 20, 2022

FILE NO.:

WR 167642A

AMENDED DECISION ISSUED:

March 13, 2023

Assessed Person(s):

610 South Service Road Inc

Appellant(s):

610 South Service Road Inc

Respondent(s):

Municipal Property Assessment Corporation Region 19

Respondent(s):

City of Hamilton

Property Location(s):

610 South Service Road

Municipality(ies):

City of Hamilton

Roll Number(s):

2518-003-130-03700-0000

Appeal Number(s):

See Schedule A

Taxation Year(s):

2013 to 2022

Hearing Event No.:

734795

Legislative Authority:

Sections 33, 34 and 40 of the Assessment Act, R.S.O. 1990, c. A.31

APPEARANCES:

Parties

Counsel*/Representative

610 South Service Road Inc

Chantelle MacMillan

Municipal Property Assessment Corporation

Donald G. Mitchell*

City of Hamilton

No one appeared

HEARD:

September 24, 2020

ADJUDICATOR(S):

Dirk VanderBent, Vice-Chair

AMENDED DECISION

AMENDED DECISION

In accordance with Rule 99 of the Assessment Review Board’s Rules of Practice and Procedure, effective April 1 2021, related to the correction of minor errors and in accordance with section 21.1 of the Statutory Powers and Procedure Act regarding the correction of errors, this Amended Decision is issued to correct error(s) in the Decision at paragraphs 10, 13, 14, 21 and 126 regarding the 2014 taxation year land value. The amendments have been underlined for ease of reference. There are no other changes in this Amended Decision.

OVERVIEW

The Appeals

1610 South Service Road Inc (the “Appellant”) is the legal owner of the property located at 610 South Service Road West (the “Subject Property”) and has filed appeals pursuant to s. 40 of the Assessment Act, R.S.O. 1990, c. A.31 (the “Act”) for the 2013 to 2017 taxation years. The specific details respecting these assessments are discussed in greater detail below. Generally speaking, the ground of each appeal is that the assessed value of the Subject Property, as determined by the Municipal Property Assessment Corporation (“MPAC”), is too high, and, therefore, is incorrect. In addition, the property classification of the Subject Property is also in issue.

2The valuation day for the general reassessment of current value for the 2013 appeal is January 1, 2012. Pursuant to the deeming provision under s. 40(26) of the Act, the Appellant is deemed to have brought the same appeals to which the general reassessment applies, i.e. the 2014 to 2016 taxation years (the “2012 Assessment Cycle”).

3The valuation day for the general reassessment of current value for the 2017 appeal is January 1, 2016. Pursuant to the deeming provision under s. 40(26) of the Act, the Appellant is deemed to have brought the same appeals to which the general reassessment applies, i.e. the 2018 to 2020 taxation years. Furthermore, s. 19.2(5) also authorizes the Minister of Finance to prescribe a valuation day that is different from the valuation day set out in s. 19.2(1). Pursuant to s. 48.6 of O. Reg. 282/98, the Minister of Finance has set January 1, 2016 as the valuation day for the 2021 to 2023 taxation years. In effect, therefore, the assessment cycle is extended to include seven taxation years from 2017 to 2023 (the “2016 Assessment Cycle”). Therefore, in this case, there are deemed appeals for the 2018 to 2022 taxation years.

4Pursuant to s. 40(11) of the Act, MPAC and the City of Hamilton (the “Municipality”) are parties to these appeal proceedings, although the Municipality has not participated in this proceeding. As described in greater detail below, MPAC disagrees with the Appellant’s position on the correct current value for both assessment cycles.

Subject Property Description and Applicable Property Appraisal Methodology

5The Subject Property is a 5.71-acre parcel of land improved by a 109,854 square foot sports complex built in 2012 (the “Sports Complex”). This facility, known as the Gateway Ice Centre, which can accommodate 3,000 spectators, houses three hockey rinks with 14 dressing rooms, an 8,000 square foot fitness club, a restaurant and a sporting goods store as well as some offices. The ice rinks are open all year round, a factor of some significance which is discussed below.

6Under property appraisal theory, the choice of an appropriate valuation methodology to determine a property’s value is based on a property’s use. The parties agree that the correct property appraisal method to be applied is the Cost Approach, as they agree that the Subject Property’s Highest and Best Use is its current use as a hockey sports complex.

7In overview, the cost approach is a valuation methodology which separately values both ‘improvements’ on a property, i.e. buildings or other structures on the land, and the land itself. The sum of these values represents the total value of the property.

8Regarding improvements, the value of an improvement is determined by first calculating the cost to newly construct a new efficient improvement which provides the same functionality as the existing improvement (described as “Replacement Cost New”) and then depreciating this value to reflect the depreciated condition of the improvement as it existed on the valuation day. When determining the Replacement Cost New, the assessor first identifies all the structural components of the improvement, and then utilizes market data respecting the cost of construction materials and services, to calculate the estimated cost of constructing each of the structural components (described as ‘assemblies’). Typically, a computer program is utilized to complete these costing calculations. The assemblies are the input data, and the program then generates the costs for each of these assemblies to arrive at a total cost of the improvement. MPAC has its own costing program, known as the Automated Costing System (“ACS”). Such computer costing programs are sometimes referred to as cost manuals.

9Regarding the land, the Appellant acquired the land by making two purchases: a 5.03-acre parcel of farmland that was purchased on December 23, 2012 for $1,935,500 ($385,000 per acre); followed by the purchase of an additional 0.68-acre parcel on August 14, 2014 for $415,000, which was then consolidated with the first parcel, i.e. both parcels are now identified by one assessment roll number for the Subject Property. The Sports Complex was then built and it is not disputed that the effective date for the commencement of its use is November 1, 2013.

Appeals and Assessments

10Regarding the appeals before the Board, the Board’s records indicate the following appeals for the following assessments made by MPAC for the 2012 Assessment Cycle:

• An appeal of a s. 33 assessment, effective November 1, 2013 adding the value of the Sports Complex building, $12,336,000, to the assessment of the Subject Property;

• Appeals of two s. 33 assessments, effective January 1, 2014 which changed the property classification of the land to the new construction commercial property class, and added the building value of $12,336,000; furthermore, for the 2015 taxation year, the land value increased to $1,128,000 in recognition of the consolidation of the purchase of the second parcel of land.

• Deemed appeals pursuant to s. 40 of the Act of both the assessed land and building values for the 2015 and 2016 taxations years.

Respecting the appeal of the land value for the 2014 taxation year, the Parties, at the hearing, indicated that there was no appeal in respect of this taxation year. Upon further review of the Board’s records, the Board has determined that this is correct.

11For the 2016 Assessment Cycle, the Board’s records indicate s. 40 appeals for each taxation year in this Assessment Cycle.

Issues in Dispute

12There are three main issues in dispute:

1. Land Value

2. Cost of the Sports Complex

3. Property Classification

Land Value

13In this case, in assessing the quantum of the land value for the 2015 and 2016 taxation years, MPAC utilized a standardized table of land values described as industrial land tables to determine the value of the land. However, in preparing for this hearing, MPAC's appraisal expert has conducted a comparable sales analyses of selected industrial properties located in Hamilton, concluding that the correct current land value for each assessment cycle is higher than MPAC’s assessed values that were derived by applying the land tables.

14Consequently, MPAC now takes the position that the assessed land value of $1,128,000 is incorrect, and that the correct value is $1,518,000 for the 2015 to 2016 taxation years. The Appellant disagrees with MPAC's position, maintaining that the correct value is the assessed value of $1,128,000. For the 2016 Assessment Cycle, MPAC's General Reassessment of the value of the Subject Property includes an assessed land value of $1,627,000 which would apply to all taxation years in the 2016 Assessment Cycle. However, MPAC again takes the position that the quantum of the assessed value is incorrect, and that the correct value is $2,398,000 for all taxation years. The Appellant disagrees, maintaining that the correct value for all taxation years is the assessed value of $1,627,000.

Cost of the Sports Complex

15The Appellant and MPAC disagree on the cost value of the Sports Complex. The genesis of this dispute is that each of them adopts a different approach to determine this value.

16MPAC's approach is to apply the cost methodology described above. In order to determine the Replacement Cost New, MPAC utilized a computerized costing “manual” which calculates the cost of construction using market data respecting the financial cost of construction materials and services. The improvement’s individual construction components (described as ‘assemblies’) are the input data, and the costing application then generates the costs for each of these components to arrive at an estimated total cost. MPAC utilized its ACS costing system to determined that the value of the Sports Complex is $11,597,000, for the 2012 Assessment Cycle.

17Because the Sports Complex was built early in the 2012 Assessment Cycle, the Appellant takes the position that the cost of the Sports Complex should be based on the actual construction costs incurred to construct the building. To this end, the Appellant has provided a list of contractor names and the amounts of money paid to each contractor. The Appellant’s evidence is that the total amount of these costs is $8,836,280. However, the Appellant acknowledges that an application for a building permit was submitted to and issued by the Municipality which states that the construction value is $10,000,000. Consequently, the Appellant’s position is that the correct value of the Sports Complex is $10,000,000 for the 2012 Assessment Cycle.

18In further support of its position, the Appellant asserts that MPAC, in conducting its ACS cost analysis, incorrectly assumed that the Sports Complex has a more advanced (and, therefore, more costly) ice rink component (described as the “arena additive”). As a result, the Appellant, using the ACS cost estimate for a less advanced system, maintains that MPAC's ACS analysis overstates the cost of the arena additive by approximately $1,200,000. The Appellant maintains that if MPAC applied the correct ACS cost for the arena additive, MPAC's ACS value of $11,597,000 would be reduced to $10,400,000. Therefore, the Appellant maintains that the ACS valuation, itself, would support the Appellant’s position that a cost value of $10,000,000 for the Sports Complex is reasonable.

19For the 2016 Assessment Cycle, both the Appellant and MPAC rely on minor market cost adjustments to arrive at their values for the 2016 Assessment Cycle.

Property Classification

20In order to understand the classification dispute, some general background information is required. First, a property’s classification is defined in a regulation passed pursuant to the Act, specifically, O. Reg. 282/98 (the “General Regulation”). Second, tax rates imposed by a municipality vary depending on a property’s classification. Third, in this case, the rate for the Residential Property Class is lower than the rate for the Commercial Property Class.

21Regarding the land, prior to the Appellant purchasing the Subject Property, it was classified in the Residential Property Class on the basis that it was farmland. As noted above, in 2014, MPAC changed the land’s classification to the Industrial Property Class. As a result of MPAC's subsequent s. 33 assessment, effective November 1, 2013, both the land and the Sports Complex were classified in the Commercial Property Class.

22As a starting point, it is not disputed that the classification of both the land and the Sports Complex would be in the Commercial Property Class. However, the Appellant argues that the General Regulation provides an exception which provides that both the land and the Sports Complex can be classified in the Residential Property Class.

23This exception is found in s. 3 of the General Regulation, which provides the definition of the Residential Property Class. Section 3(1)(2)(iv) states that land that is not used for residential purposes can, nonetheless, fall within the Residential Property Class if the land is: “land owned and occupied by … a non-profit recreational sports club, other than land used as a golf course or ski resort” (emphasis added) (the “Sports Club Exception”). As is discussed in greater detail below, the issue to be addressed in this proceeding is what constitutes ‘ownership’.

24In overview, MPAC maintains that “owned” means legal ownership. As the Appellant is the legal owner of the Subject Property, and the Appellant acknowledges that it is not a non-profit recreational sports club, MPAC asserts that the Subject Property does not satisfy the Sports Club Exception criteria. Therefore, it is MPAC's position that the Subject Property cannot be classified in the Residential Property Class.

25The Appellant maintains that the Subject Property’s land was purchased, and the Sports Complex was built, with the intention that the Appellant would hold ownership of the Subject Property in trust for two non-profit recreational sports clubs. Therefore, the Appellant maintains that: (i) these two sports clubs hold the beneficial ownership of the Subject Property; and (ii) the term “owned” in the Sports Club Exception includes both legal and beneficial ownership. Therefore, the Appellant maintains that the Sports Club Exception qualification criteria have been satisfied, and, consequently, the Subject Property should be classified in the Residential Property Class from November 1, 2013 and all subsequent taxation years.

RESULT

26The Board accepts MPAC's position on the valuation of the land and the Sports Complex building for all taxation years under appeal. Regarding classification, the Board finds that the Sports Club Exception applies only to legal, not beneficial, ownership of the Subject Property, and, therefore, the Subject Property is correctly classified in the Commercial Property Class commencing November 1, 2013 and for all subsequent taxation years.

ISSUES FOR THE HEARING

27The issues to be addressed in this Decision are:

1. What is the correct land value for the Subject Property?

2. What is the correct cost value of the Sports Complex?

3. What is the correct property classification of the Subject Property?

PRELIMINARY MATTERS

28During the course of the hearing, the Appellant sought to qualify Mr. Claude Bumstead to give property appraisal opinion evidence. Mr. Bumstead is both a paralegal registered with the Law Society of Ontario, and a professional property appraiser. He is associated with the firm that represents the Appellant. This firm has both a paralegal division and a property value appraisal division. As Mr. Bumstead has dual qualifications, he accepts work assignments from both divisions.

29MPAC opposed this qualification request. MPAC did not question Mr. Bumstead’s training, education, and experience as a property appraiser; however, as described in greater detail below, MPAC maintains that Mr. Bumstead’s professional obligations as a paralegal conflict with an expert’s duty to the Board to provide non-partisan evidence as set out in the Acknowledgement of Expert Duty (Schedule C to the Board’s Rules of Practice and Procedure (the “Rules”)).

30The Board ruled against MPAC on this qualification issue, indicating that the Board would provide written reasons for its disposition in this Decision. The Board’s reasons are as follows.

31Mr. Bumstead testified that he had clearly indicated to the Appellant that he would be providing only non-legal services as a property appraiser, and that he obtained the client's consent before accepting the assignment. He also confirmed that he did not conduct any work for the Appellant as a paralegal advocating on the Appellant’s behalf. As MPAC called no evidence to counter his testimony, the Board accepts Mr. Bumstead’s evidence in this regard.

32In support of its submission, MPAC relies on Rule 1.02 of the Law Society of Ontario’s Paralegal Code of Conduct (“Code of Conduct”) which states:

1.02 INTERPRETATION

Definitions

1.02 In these Rules,

"affiliated entity" means any person or group of persons other than a person or group authorized to provide legal services in Ontario;

"affiliation" means the joining on a regular basis of a paralegal or group of paralegals with an affiliated entity in the delivery or promotion and delivery of the legal services of the paralegal or group of paralegals and the non-legal services of the affiliated entity;

"associate" includes:

a) a licensee who provides legal services in a firm of licensees through an employment or other contractual relationship; and

b) a non-licensee employee of a multi-discipline practice providing services that support or supplement the practice of law or provision of legal services;

"client" means a person who:

a) consults a paralegal and on whose behalf the paralegal provides or agrees to provide legal services; or

b) having consulted the paralegal, reasonably concludes that the paralegal has agreed to provide legal services on his or her behalf

and includes a client of the firm of which the paralegal is a partner or associate, whether or not the paralegal handles the client's work [Emphasis added];

"conflict of interest" means the existence of a substantial risk that a paralegal's loyalty to or representation of a client would be materially and adversely affected by the paralegal's own interest or the paralegal's duties to another client, a former client or a third person. The risk must be more than a mere possibility; there must be a genuine, serious risk to the duty of loyalty or to client representation arising from the retainer;

33MPAC emphasizes that: (i) the Code of Conduct definition of “client” indicates that the Appellant is a client of the firm irrespective of whether or not a paralegal associated with the firm handles the client’s work; and (ii) that Mr. Bumstead, as a paralegal, is an “associate” of the firm. MPAC argues, therefore, that the Board must interpret that Mr. Bumstead is a paralegal representative for the Appellant, even though he has not handled the client’s work. As such, MPAC submits that Mr. Bumstead cannot fulfil an expert’s duty to the Board to give independent and impartial evidence in this proceeding as he has a conflicting obligation to represent the Appellant’s interests.

34In addressing this submission, the Board first observes that this Code of Conduct defines the parameters of what constitutes a conflict of interest. It provides that, when determining whether there is a conflict of interest, consideration must be given to every paralegal in the firm, not just the paralegal who handles the work, i.e. the client’s designated representative. However, this Code of Conduct does not deem that every paralegal in a firm is the client’s designated legal representative.

35Furthermore, this Code of Conduct regulates “conflict of interest” as between a paralegal and his/her client, not a third person, which includes regulatory bodies such as the Board.

36The Board also observes that Rules 3.04(13), (14) and (15) of the Code of Conduct expressly contemplate that paralegals may be affiliated with a multi-discipline practice. These subsections state:

Multi-Discipline Practices

(13) A paralegal in a multi-discipline practice shall ensure that non-licensee partners and associates observe this rule for the provision of legal services and for any other business or professional undertaking carried on by them outside the professional business.

Affiliations

(14) Where there is an affiliation, before accepting a retainer to provide legal services to a client jointly with non-legal services of an affiliated entity, a paralegal shall disclose to the client

(a) any possible loss of confidentiality because of the involvement of the affiliated entity, including circumstances where a non-licensee or staff of the affiliated entity provide services, including support services, in the paralegal’s office;

(b) the paralegal’s role in providing legal services and in providing non-legal services or in providing both legal and non-legal services, as the case may be; [Emphasis added]

(c) any financial, economic or other arrangements between the paralegal and the affiliated entity that may affect the independence of the paralegal’s representation of the client, including whether the paralegal shares in the revenues, profits or cash flows of the affiliated entity; and

(d) agreements between the paralegal and the affiliated entity, such as agreements with respect to referral of clients between the paralegal and the affiliated entity, that may affect the independence of the paralegal’s representation of the client.

(15) Where there is an affiliation, after making the disclosure as required by subrule (14), a paralegal shall obtain the client's consent before accepting a retainer under that subrule.

37In this regard, the Board notes that Rule 3.04 (14) (b) of the Code of Conduct expressly provides that a paralegal may provide non-legal services or both legal and non-legal services. The Board also observes that Rule 3.04 of the Code of Conduct regulates the relationship between a paralegal or persons providing non-legal services and their client, not a third person, which includes regulatory bodies such as the Board.

38Regarding compliance with Rule 3.04 of the Code of Conduct, Mr. Bumstead testified that he did not act as legal representative or advocate for the Appellant at any stage of the appeal proceeding, that he advised the Appellant that we would not be acting as the Appellant’s representative, and that the Appellant agreed to this condition.

39In summary, Rules 1.02 and 3.04 of the Code of Conduct do not resolve the issue before the Board. The question, therefore, is whether Mr. Bumstead’s affiliation as a paralegal with the firm that represents the Appellant, renders him unwilling or unable to meet his duty as an expert witness as set out in the Acknowledgement of Expert Duty.

40In addressing this question, the Board first observes that, even if Mr. Bumstead was considered to be a legal representative of the Appellant, Rule 4.04 of the Code of Conduct allows a paralegal to testify before a tribunal, where permitted to do so pursuant to a tribunal’s rules of procedure. Rule 14 of the Board’s Rules provides that a paralegal representative may testify in a general proceeding with leave of the Board.

41However, the Board has already found that Rule 1.02 of the Code of Conduct does not deem that Mr. Bumstead is a designated paralegal representative for the Appellant in this proceeding, and Mr. Bumstead has testified that he has not acted in this capacity. Therefore, Rule 14 of the Board’s Rules does not apply. Mr. Bumstead stated that he understood his role as expert witness, and that he was prepared to meet his obligations as set out in the Acknowledgment of Expert Duty which he signed. He further testified that he made the Appellant aware of his obligations and that the Appellant accepted this as a condition of his retainer.

42In White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23, [2015] 2 SCR 182, the Supreme Court of Canada addressed the appropriate threshold for admissibility which flows from the expert’s primary duty to be fair, objective and non-partisan. The Court observed that the expert witness must be aware of this primary duty and be able and willing to carry it out. In this regard, the Court stated, at paragraphs 47, 48 and 49:

47… While I would not go so far as to hold that the expert’s independence and impartiality should be presumed absent challenge, my view is that absent such challenge, the expert’s attestation or testimony recognizing and accepting the duty will generally be sufficient to establish that this threshold is met.

48Once the expert attests or testifies on oath to this effect, the burden is on the party opposing the admission of the evidence to show that there is a realistic concern that the expert’s evidence should not be received because the expert is unable and/or unwilling to comply with that duty. If the opponent does so, the burden to establish on a balance of probabilities this aspect of the admissibility threshold remains on the party proposing to call the evidence. If this is not done, the evidence, or those parts of it that are tainted by a lack of independence or impartiality, should be excluded. This approach conforms to the general rule under the Mohan framework, and elsewhere in the law of evidence, that the proponent of the evidence has the burden of establishing its admissibility.

49This threshold requirement is not particularly onerous and it will likely be quite rare that a proposed expert’s evidence would be ruled inadmissible for failing to meet it. The trial judge must determine, having regard to both the particular circumstances of the proposed expert and the substance of the proposed evidence, whether the expert is able and willing to carry out his or her primary duty to the court. …

43Mr. Bumstead has executed the required Acknowledgement of Expert Duty, in which he acknowledges his duty to provide opinion evidence in this proceeding that is fair, objective, and non-partisan. The Board received no other evidence to suggest that Mr. Bumstead had not or would not meet this obligation. For these reasons, the Board did not accept MPAC’s submission that Mr. Bumstead should not be qualified to give opinion evidence in this proceeding.

ANALYSIS

Issue 1: What is the correct land value for the Subject Property?

Overview

44John Young (“MPAC's Expert”) and Claude Bumstead (“Appellant’s Expert”) were each qualified to give property appraisal opinion evidence.

45It is not disputed that MPAC’s assessed land values for the Subject Property were obtained from a data source described as an industrial land table. The Appellant’s Expert testified that the land values in these tables were derived from hundreds, if not thousands, of industrial land sales, which are adjusted and analyzed, and generally accepted as a reasonable indication of land value. MPAC did not dispute this evidence.

46However, in preparing for the hearing, MPAC's Expert conducted a comparable sales analysis of vacant industrial properties in close proximity to the Subject Property, which led him to conclude that the land value of the Subject Property for each assessment cycle should be higher than their assessed values. The Appellant disagrees, arguing that MPAC's assessed land values, based on the industrial land table values, are the correct land values.

Appellant’s Evidence

47Mr. Bumstead expressed his view that, an appraiser should only deviate from applying the values in the industrial land tables where there is compelling evidence in “pocket areas”, which the Board interprets to refer to sales of comparable properties situated within reasonable proximity to a subject property. He also expressed his view that deviating from the values in the industrial land tables would create an inequity when one is determining overall value. The Board interprets this to mean that, if the land value of other industrial properties in the vicinity of the Subject Property were assessed at the industrial land table values, and should the Subject Property be assessed at a higher value, then it may be necessary to adjust the assessment of the Subject Property to make it equitable with that of similar lands in the vicinity, as required under s. 44(3)(b) of the Act.

48The Appellant’s Expert did not otherwise challenge the comparable sales analysis conducted by MPAC's Expert.

MPAC's Evidence

49MPAC's Expert’s comparable sales analysis was set out in his valuation report for each assessment cycle. In summary, he concluded that the correct land value is $266,000 per acre for the 2012 assessment cycle, which results in a total value of $1,518,000 (rounded) for the 5.71 acres. However, it must be remembered that the second 0.68-acre parcel of land was not acquired until August 14, 2014. For the 2016 Assessment Cycle, he concluded that the correct land value is $420,000 per acre which results in a total value of $2,398,000 (rounded).

50In overview, for the 2012 Assessment Cycle, MPAC's Expert identified four vacant industrial land properties including the Subject Property. The three other properties are all located in reasonable proximity to the Subject Property. The property sales for all four properties were within six months of the January 1, 2012 valuation date, the Subject Property sale value being the highest price per acre. MPAC's Expert did not apply a time adjustment to the sales, as the sales occurred so close to the valuation date that the adjustment, if applied, would be nominal. He then used the median sale value per acre (which, in this case, is lower than the average value) to arrive at his opinion of the total value of the Subject Property’s land.

51For the 2016 Assessment Cycle, MPAC's Expert identified six vacant industrial land properties which did not include the Subject Property. All six properties are located in reasonable proximity to the Subject Property. The property sales occurred on dates ranging from June 30, 2014 to July 17, 2017. MPAC's Expert applied a time adjustment to the sale values and, again, used the median sale value per acre (which, again, was lower than the average value) to arrive at his opinion of the total value of the Subject Property’s land.

52MPAC's Expert did not directly address the question of whether he should deviate from applying the values in the industrial land tables. However, based on his comparable sales analyses, he concluded that MPAC’s assessed land values, which are based on the industrial land tables, were understated.

Submissions

53Each party relies on the opinion of their Expert in support of their position regarding land value.

Findings on Issue 1

54The determinative question that the Board must address is whether the Board should rely on the industrial land table values for each assessment cycle, instead of the opinion of value based on MPAC's comparable sales analyses. In this regard, the Board accepts the Appellant’s Expert’s observation that, if the correct current value of the Subject Property’s land value is determined to be higher than the assessed values of other similar properties in the vicinity, then an equitable reduction may be warranted, as required by s. 44(3)(b) of the Act which states:

(3) For 2009 and subsequent taxation years, in determining the value at which any land shall be assessed, the Board shall,

(a) determine the current value of the land; and

(b) have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land to make it equitable with that of similar lands in the vicinity if such an adjustment would result in a reduction of the assessment of the land.

55However, s. 44(3)(b) clearly requires that the Board must first determine the current value of the land, and only after this determination has been made, can the Board proceed to determine if an equitable adjustment is required. This means that, when determining the correct current value of the Subject Property, the Board does not consider the assessment of other lands in the vicinity. As such, the Board does not accept that the industrial land table values should be selected, simply to avoid the potential consequence that an equitable adjustment may be subsequently required.

56The Appellant’s Expert has also emphasized that MPAC’s land table values should be considered reliable as they are based on sales data for a large number of sales occurring over a broad area. However, the Board notes that the Appellant’s Expert also acknowledged that there may be evidence of a different value for properties situated in specific market areas within the broader area. In this case, MPAC's Expert’s comparable sales analyses, indicate that the market for vacant industrial land within reasonable proximity of the Subject Property is higher than the values shown in the industrial land tables. In this regard, the Board also notes that the sales for the selected comparable industrial properties occurred over a six-year period from June 2011 to July 2017, which does not suggest that the occurrence of market transactions at higher sale values has been transient.

57The Board does not adopt the Appellant’s Expert’s view that there must be “compelling evidence” to deviate from the land table values. In reaching this conclusion the Board notes: (i) neither the Act nor the General Regulation provide for such a requirement; and (ii) the Board received no evidence that property appraisal theory supports such a presumption. Instead MPAC must meet its evidentiary burden to establish the correct current value of the Subject Property.

58The Board finds that the comparable sales analyses conducted by MPAC's Expert do establish that the correct current values of the Subject Property’s land is higher than the assessed values reported by MPAC. As the Board finds that the comparable sales analyses, themselves, are reasonable, the Board accepts MPAC's position respecting the correct current value of the Subject Property’s land for both assessment cycles. In reaching this conclusion, the Board observes that the Appellant purchased the two parcels of land for a total of $2,350,000 ($1,935,000 plus $415,000), which is considerably higher than MPAC’s $1,518,000 value for 2012 Assessment Cycle, and only marginally less that MPAC’s $2,398,000 value for the 2016 Assessment Cycle.

59Returning to the matter of whether an equitable reduction may be required, the Board has already observed that neither party has raised the application of s. 44(3)(b) as an issue in this proceeding, and the Board received no evidence respecting the assessed value of any properties other than the Subject Property.

Issue 2: What is the correct cost value of the Sports Complex?

Overview

60In overview, MPAC's Expert has applied the ACS manual to estimate the value of the Sports Complex. The Appellant’s Expert, who had licensed access to ACS, agrees that ACS is an appropriate method to estimate the cost value of the Sports Complex, but he cautions that such estimates may need to be tested against actual costs to ensure that ACS produces reliable estimates. In this case, there is no dispute regarding the cost estimates produced by ACS for all of the assemblies except the arena assembly.

61As noted earlier in this decision, the costing issue is in respect of the arena additive. This particular assembly refers to the components of the ice rinks – the ice pad (concrete floor, refrigeration piping and refrigeration equipment), the armoured glass panels, and the dasher board. MPAC's Expert gave uncontradicted testimony that ACS provides different values for the arena additive depending on the rating of the facility, there being three rates: Professional, Regional, and Neighbourhood. He testified that a Professional Facility has equipment that allows for the concrete surface to be used, for example, for a basketball game, and then quickly converted to an ice rink. A Regional Facility does not have the same level of sophisticated equipment as a Professional Facility. It refers to a modern facility that provides ice surfaces year-round. For costing purposes, MPAC’s Expert’s uncontradicted evidence is that more costly ice rink components are required to maintain ice surfaces in the warmer months. The Neighbourhood Facility refers to a facility which only provides ice rinks during the cooler winter season.

62It is MPAC's position that the Sports Complex should be rated as a Regional Facility. The Appellant argues that it should be rated as a Neighbourhood Facility. ACS’s cost estimates for the arena additives (three rinks) for the Subject Property, based on the January 1, 2012 valuation date are $3,220,000 if the Sports Complex is rated as a Regional Facility, and $2,064,000 if it is rated as a Neighbourhood Facility.

63In terms of the total value of the Sports Complex, for the 2013 to 2016 taxation years, MPAC assessed the total value as $12,336,000. MPAC's position in this hearing is that, due to some corrections to the original calculation of the building’s value (which are not in dispute), the correct value is somewhat reduced, being $11,597,000. The Appellant’s Expert indicates that, if the ACS costing of the arena additive is based on the Neighbourhood Facility rating, the total ACS cost estimate is reduced to $10,530,864. The Appellant’s Expert stated that the building permit estimate submitted by the Appellant to the City for the construction of the Sports Complex was $10,000,000, which supports his conclusion that correct current value of the Sports Complex is $10,000,000 for all taxation years in the 2012 Assessment Cycle. MPAC does not agree with this analysis.

64Regarding the 2016 Assessment Cycle, after returning its assessed value of the Subject Property for the 2017 taxation year, MPAC inspected the building and discovered that it had mis-described one of the building’s components (other than arena additive). This required a small downward adjustment to the building value. MPAC corrected this error for 2018 and following taxation years. This reduced value is $12,070,000. It is MPAC's position that this is the correct current value for the 2017 and subsequent taxation years. The Appellant’s position is that the correct current value is $10,407,000. The Appellant obtained this value by adjusting the original $10,000,000 value to reflect both higher construction costs as they existed on the January 1, 2016 valuation day, and an increased depreciation rate, as obviously the age of the building has increased since the 2012 Assessment Cycle.

Evidence

MPAC’s Evidence

65MPAC's Expert presented the ACS cost analysis of the Sports Complex, including the evidence respecting the ‘arena additive’ as described above.

66Regarding the Appellant’s evidence respecting the $10,000,000 building permit, MPAC adduced the issued building permit into evidence (“Building Permit No. 12 107974 00 C3”). In the section entitled “Description of the Work”, the Appellant’s representative stated: “To construct the building structural only (foundation & superstructure) for a recreational hockey arena ‘GATEWAY ICE CENTRE INC.’.” MPAC's also adduced six other issued building permits for the construction of the Sports Complex. The total of the construction value on all seven permits is $20,000,000 (rounded).

67Regarding the Appellant’s list of company names and the amounts of money paid to each company (the “Costs List”), MPAC's Expert testified that it appeared that the general contractor and the Appellant Owner are the same person, and that one of the companies was owned by the Appellant. Regarding the general contractor, MPAC's Expert explained that the Costs List did not appear to include the general contractor’s overhead and profit. He also stated that several indirect costs are not included in the Costs List, which include such items as construction financing and architect design costs. He explained that these costs would be considered in determining the sale price of the Subject Property if it were to be sold. He noted that the ACS system allows for such costs, which are calculated as a percentage of the estimated total construction cost of all the building components, the percentages being 33 per cent for the 2012 Assessment Cycle valuation, and 25 per cent for the 2016 Assessment Cycle.

68MPAC's Expert also stated that the Costs List supplied by the Appellant did not provide a detailed explanation of the specific components of the Sports Complex building, so it was impossible to determine if the Costs List provides a comprehensive list of costs for all building components. As he expressed it, relying on a Costs List prepared by an owner, would effectively allow the owner to conduct its own property assessment.

Appellant’s Evidence

69As described above, the Appellant’s Expert testified that, although he considered ACS to be a reliable tool for determining costs estimates, such estimates must be tested against actual costs.

70Regarding Building Permit No. 12 107974 00 C3, in cross-examination, he acknowledged that the construction value shown on this Building Permit was the Appellant’s estimate. He stated that, although the construction value shown on the Building Permit is not exact, it was his opinion that this value is in the realm of reasonability when compared to actual costs. However, he conceded that he was not aware that Building Permit No. 12 107974 00 C3 referred only to the foundation and superstructure component of the Sports Complex, and that there were other building permits, approximately $10,000,000 in total value, that had been issued for construction of the interior of the Sports Complex.

71Regarding the costing of the ‘arena additive’, the Costs List includes a line entry entitled “Custom Ice” in the amount of $2,118,439.50. In cross-examination, the Appellant’s Expert acknowledged that he did not review the construction documents, but he considered it a safe assumption that it included all costs to install the three ice rinks. However, he acknowledged that he did not know what was included in the Custom Ice cost, nor did he know what was included in the ACS rate applied for the ‘arena additive’ for a Regional Facility.

72Regarding the percentages applied to calculate indirect costs, the Appellant’s Expert stated that he did not disagree with the 33 per cent rate for the 2012 Assessment Cycle.

Findings on Issue 2

73The evidence and submissions raise three questions:

1. Can the correct current value of the Sports Complex be determined based on the actual cost of construction?

2. If so, does the evidence adduced respecting the actual costs of construction support a conclusion that the correct current value of the Sports Complex is $10,000,000?

3. Did MPAC apply the correct facility rating when determining the cost of the arena additive?

1. Can the correct current value of the Sports Complex be determined based on the actual cost of construction?

74In addressing this question, it is important to refer to the definition of “current value” in s. 1 of the Act, which states:

“current value” means, in relation to land, the amount of money the fee simple, if unencumbered, would realize if sold at arm’s length by a willing seller to a willing buyer

75From this definition, it is clear that current value is the sale price of a property (both land and improvements), if a notional sale of the property occurred on the applicable valuation day. Therefore, respecting the ‘improvement’ component of a property, ‘current value’ is not based on the actual cost of construction of an improvement. Instead, it is based on what a willing buyer and seller agree the ‘improvement’ is worth. The underlying rationale for using the cost approach method to determine current value, is that a willing buyer would not pay more to purchase a property with an improvement, than the buyer would pay to build a new improvement on a vacant property, which, of course, would be based on an objective evaluation of what it would cost to build a new improvement. Consequently, a willing buyer would not solely rely on the construction costs incurred by the property owner who is selling the property. Therefore, because current value is a notional sale value, there must be an objective analysis of the costs to construct the improvement, not a subjective analysis based solely on the actual costs incurred to construct the existing improvement.

76To further explain the above observation, the Board notes that a property owner may be fortunate enough to construct a building for below-market construction costs, but, as pointed out by MPAC's Expert, this does not mean the property owner would sell the property at a value based on these costs. Similarly, a property owner may be unfortunate enough to construct a building at above-market costs, or, for example, incur higher construction costs due to inefficient project management. However, this does not mean that a buyer would be willing to buy the property at a value based on such above-market costs.

77For this reason, the Board does not accept the Appellant’s submission that the current value of the Sports Complex can be based on its actual cost of construction, even though the Sports Complex was built fairly close to the January 1, 2012 valuation day. However, the Board does accept the Appellant’s Expert’s observation that an objective estimate of construction cost rates must, nonetheless, be validated by actual market data.

2. Does the evidence adduced respecting the actual costs of construction support a conclusion that the correct current value is $10,000,000?

78As the Board has found that the current value of the Sports Complex cannot be based on its actual cost of construction, it is, strictly speaking, unnecessary to rule on this question. However, as this was a major issue in this appeal proceeding, the Board will address it.

79The Board begins by observing that, irrespective of whether actual costs or ACS estimates are used in determining value, it is not disputed that the cost approach requires that all component assemblies must be identified, and a cost estimate be provided for each assembly. The evidence adduced by the Appellant simply does not provide this information. All that was provided was a list of companies and the amount paid to each company. Although the Appellant asserted that it had invoices to support the data shown on the Costs List, these invoices were not adduced into evidence. As such, the Board accepts MPAC's Expert’s evidence that the Appellant has not provided an adequate description of the assemblies to be valued, or sufficient information to determine the estimated cost of each assembly.

80The Board further observes that, even if the Costs List were accepted, it indicates a total value of $8,836,280, not $10,000,000. The Appellant’s Expert attempts to shore up his analysis by reference to Building Permit No. 12 107974 00 C3. However, this permit clearly indicates that it does not apply to all of the building components, and no evidence was adduced to explain how the estimated $10,000,000 cost was calculated. Also, the additional building permits issued indicate a total construction cost of approximately $20,000,000.

81In summary, therefore, the Board finds that evidence adduced respecting the actual cost of construction does not support a conclusion that the correct current value of the Sports Complex is $10,000,000 as of the January 1, 2012 valuation day.

3. Did MPAC apply the correct facility rating when determining the cost of the arena additive?

82In light of the above findings, the only reliable evidence before the Board respecting the current value of the Sports Complex is MPAC's ACS analysis. The Appellant has argued that, even if ACS is used to value the Sports Complex, MPAC’s cost value assigned to the arena additive is too high, because this is value for a Regional Facility, and the Sports Complex should be rated as a Neighbourhood Facility.

83In addressing this question, the Board notes that, as the Appellant’s Expert has pointed out, ACS, itself, does not provide a definition or description of what constitutes a Neighbourhood, Regional, or Professional Facility. The Board further observes that neither party provide a detailed description of the sub-components included in the arena additive, or the construction cost data used to value these sub-components. The only evidence MPAC has provided to the Board is MPAC's Expert’s description of the criteria used to define each facility rating, together with the observation that, as the Sports Complex provides ice rinks year-round, the Sports Complex is a Regional Facility.

84The Appellant counters with its Expert’s analysis that the actual costs of the Sports Complex is $10,000,000, and that, if ACS is adjusted to show the arena additive cost value for a Neighbourhood Facility, then the ACS total value will be fairly close to $10,000,000. However, the problem with this analysis, is that it presumes that the correct value of the Sports Facility is $10,000,000 based on its actual costs, and the Board has not accepted that the evidence supports this value. The Appellant has not provided any evidence or explanation as to why the Sports Complex is a Neighbourhood Facility as opposed to a Regional Facility. Therefore, the Board finds that the Appellant has not provided any probative evidence to establish that the Sports Complex should be rated as a Neighbourhood Facility.

85Based on the above analysis, the Board finds that the only probative evidence adduced in this hearing is MPAC's Expert’s evidence. For this reason, the Board accepts MPAC's Expert’s analysis that the Sports Complex is a Regional Facility, because it is not disputed that the Sports Complex provides ice rink surfaces year-round. Consequently, the Board finds that MPAC's ACS analysis reflects the correct value for the arena additive.

Conclusion

86Based on the above analysis and finding, the Board accepts MPAC's cost valuation obtained by applying ACS.

Issue 3: What is the correct property classification of the Subject Property

Overview

87In this case, the Appellant, 610 South Service Road Inc, is the legal owner of the Subject Property. The Appellant does not qualify as a non-profit recreational sports club. However, it is not disputed that the purpose of building the Sports Complex was to provide services to two organizations - the Stoney Creek Minor Hockey Association and The Greater Hamilton AAA Hockey Club Inc., both of which are non-profit organizations (the “Non-Profit Organizations”).

88As a matter of law, one person may hold the title to a property, i.e. the legal owner, but can agree to hold the property in trust for another person, described as the beneficial owner. In many cases, the timing of the creation of the trust can be important. As discussed in greater detail below, a trust can be created at the time the legal owner and beneficiary orally agree to the trust arrangement. However, there is a legal requirement that the oral agreement must subsequently be confirmed in writing following the date that the legal owner created the trust.

89The Appellant’s evidence, adduced by two witnesses called by the Appellant, is that, in 2012, the directing minds of the corporate Appellant, 610 South Service Road Inc, and the Non-Profit Organizations agreed that, in order to qualify for the Sports Club Exception, the Appellant would hold legal ownership of the Subject Property in trust for the Non-Profit Organizations.

90It is the requirement to confirm the oral agreement in writing that has created complications in this case. In overview, it transpired that the Appellant entered into three subsequent trust agreements with the Non-Profit Organizations. To understand why this occurred, it must be remembered that the legal owner, 610 South Service Road Inc, is a corporation. The first two written trust agreements dated January 6, 2015 and July 18, 2016 (one agreement for each of the two Non-Profit Organizations) created beneficial ownership of the corporate shares of 610 South Service Road Inc, not beneficial ownership of the Subject Property itself.

91MPAC emphasizes that, as a matter of law, corporate shareholders do not hold legal title to the property owned by a corporation, other than when the corporation is wound up (see Covert et al v. Minister of Finance (N.S.), 1980 CanLII 229 (SCC), [1980] 2 S.C.R. 774 at pp. 797 and 820-821) (“Covert”). Therefore, MPAC argues that transfer of the corporate shares did not create beneficial ownership of the property itself, and, as such, the Sports Club Exception does not apply.

92It is not disputed that, to address the above concern, the Appellant eventually entered into a third written trust agreement, dated March 7, 2018, which revoked the previous two trust agreements and established that the Non-Profit Organizations held beneficial ownership of the Subject Property, itself. In light of this third amending trust agreement, MPAC accepted that the Sports Club Exception applied commencing March 7, 2018.

93The Appellant argues that, as the oral trust agreement was made in 2012, and ultimately was confirmed by the March 7, 2018 written trust agreement, the Non-Profit Organizations have held beneficial ownership of the Subject Property since 2012. Therefore, the Appellant maintains that the Sports Club Exception applies for all taxation years, and, consequently, the Subject Property must be classified in the Residential Property Class.

94However, at this hearing, yet another complication arose. MPAC submitted that it made an error when, in 2018, it agreed that the Sports Club Exception would apply if the non-profit organization held beneficial ownership of the property. Relying on a decision of the Ontario Divisional Court, MPAC now asserts that the Sports Club Exception can only apply if a non-profit organization holds legal ownership of a property, i.e. the exception does not extend to beneficial ownership. Consequently, MPAC submits that, for the Subject Property, the Sports Club Exception cannot apply to any of the taxation years under appeal. The Appellant disagrees, arguing that the Sport Club Exception does extend to beneficial ownership, relying on other court decisions which support the conclusion the that the term “owned” in the Sports Club Exception includes beneficial ownership.

Submissions

95As the evidence respecting this question is not in dispute, and the submissions of the parties are based entirely on the legal interpretation of the Sports Club Exception as set out in the General Regulation, the Board will address the parties’ legal submissions in its findings below.

Findings on Issue 3

96The above overview confirms that the questions the Board must address are:

1. Does the term ‘owned’ as used in the Sports Club Exception include only legal ownership?

2. If the term ‘owned’ includes beneficial ownership, has the Appellant established that a trust was created to provide the Non-Profit Organizations with beneficial ownership, and, if so, what is the date the trust was created?

1. Does the term ‘owned’ as used in the Sports Club Exception include only legal ownership?

97In overview, in presenting its analysis, the Board will first summarize the findings in the relevant decisions advanced by the parties, in the order in which the decisions were issued. The Board will then conduct its analysis of the application of this jurisprudence to the interpretation of the Sports Club Exception.

98Section 3(1) (2) of the General Regulation states:

3.(1) The residential property class consists of the following:

2. Land not used for residential purposes that is,

i. farm land to which subsection 19 (5) of the Act applies for the taxation year for which the land is being classified, other than land in the farm property class or land prescribed under section 44,

ii. land used by a non-profit organization for child care purposes that is either,

A. land owned by the organization, or

B. land leased by the organization, other than land that would otherwise be in the commercial property class or the industrial property class,

iii. land owned by a religious organization other than land occupied by a tenant and used for a commercial activity,

iv. land owned and occupied by a non-profit service organization, a non-profit private club, a non-profit cultural organization or a non-profit recreational sports club, other than land used as a golf course or ski resort,

v. land owned by a conservation authority, other than land occupied by a tenant and used for a commercial activity or land used as a golf course or ski resort,

vi. land used as a golf course, including buildings or structures used for the purpose of maintaining the golf course, but not including any other buildings and structures and the land used in connection with those other buildings or structures,

vii. land used as a driving range for at least four consecutive months a year but not including any buildings and structures and the land used in connection with those buildings or structures,

viii. land used as a ski resort, including ski-lifts and buildings or structures used for the purpose of maintaining ski hills or trails, but not including any other buildings and structures and the land used in connection with those other buildings or structures,

ix. vacant land principally zoned for residential development but not principally zoned for multi-residential development,

x. buildings used exclusively for the purposes of storing private aircraft and land on which those buildings are located,

xi. land used to provide horse trail rides or horse riding lessons to the public.

99In Re McMaster University and City of Hamilton et al., 1973 CanLII 410, a decision issued in 1973, the Court of Appeal for Ontario stated, at page 9, “As an ‘owner’ is not defined in the (Assessment) Act, I would take it that this term is used to refer to the legal owner.”

100The Appellant has cited a decision of the Ontario Superior Court in First Place, Hamilton v Hamilton (City), [1979] OJ No 182, 9 MPLR 119, 12 RPR 121, 1 ACWS (2d) 27 (“First Place”), issued on December 6, 1979. In this case, a church organization transferred legal title to a non-profit organization, First Place, subject to certain conditions which raised a question whether the church organization, in effect, continued to hold legal title of the property in trust for First Place. The Court found that it did. In other words, First Place held beneficial title. At the time of the decision, s. 3 of the Act, as it does in the current Act, provided that certain types of property were exempt from taxation. In this case, s. 3 (12) of the Act in force at the time provided for an exemption for charitable institutions, “but only when the land is owned by the institution and occupied and used for the purposes of the institution”. At paragraph 33, the Court held that:

33. In my opinion, the words "when the land is owned by the institution" contained in s. 3(12) of The Assessment Act, refer to the beneficial ownership and, accordingly, as I have found the applicant is not the beneficial owner, this application must fail.

However, the Board observes that the Court provided no analysis in support of this conclusion.

101The Appellant also references the decision of the Supreme Court of Canada in Covert, cited earlier in this decision, pointing out that one of decisions cited in Covert interpreted “beneficial owner” as meaning “the real or true owner of the property . . . the one who can ultimately exercise the rights of ownership in the property”. However, the Appellant’s submission fails to point out the Court goes on to state that “No authority is given for this proposition. The legal basis is not clear.” (see page 816).

102The Appellant also cites an unreported decision of the Ontario Superior Court in The School of Dance v Municipal Property Assessment Corporation et al, Ottawa 02-CV-22752 (ONSC) issued on August 8, 2003 (“School of Dance”). Section 3(5) of the Assessment Act in force at the time (“former Act”) provided that land owned by a non-profit educational organization would be exempt from taxes. It was not disputed that the School of Dance was such an organization. In this case, the School of Dance held beneficial title of the subject property for one year, before legal ownership was transferred to the School of Dance. Section 17 of the former Act provides that any land held by a person as trustee “shall be assessed again the person as owner”. Although the wording of s. 17 of the current Act is not identical, it makes the same provision. In that case, the trustee did not qualify as a non-profit educational organization. Consequently, a dispute arose whether the trustee should be assessed to pay the municipal taxes, in which case the tax exemption would not apply, or the School of Dance as beneficial owner, in which case the tax exemption would apply.

103At paragraph 2 of this decision, the Court framed the issue to be decided as “…whether s. 17 and the trusteeship ousts the tax exemption provided by s. 3, or whether the two sections can coexist.” At paragraphs 10 to 13 the Court held:

10I find that the two sections can coexist. Section 17 applies to “owners”. That section has to be interpreted in a contextual manner, considering other provisions in the statute and provisions in other statutes, together with legislative history - all with a view to correctly identifying the objective of the legislature (2747-3174 Quebec Ins. v. Quebec (Regie des permits d'Alcool), [1959] S.C.R. at 685 S.C.C.). The School of Dance is an owner and is thus entitled to an exemption.

11I am of the view that in certain limited circumstances, where the owner is entitled to an exemption, the intervening factor of a trust should not invalidate that exemption. The facts support this view. The trust was a bare trust, established for a short period of time, with the clear intention to benefit the School of Dance.

12It does not seem reasonable that the legislature intended that the operation of s. 17 should oust any consideration for exemption, as was submitted by MPAC. To hold otherwise would be to completely ignore s. 3, which cannot have been the intent of the legislature.

13Section 17 can then apply, as was intended, to cases where an owner (either legal or beneficial) does not qualify for an exemption.

104The Appellant submits that this decision supports the conclusion that a reference to ownership in the current Act and General Regulation includes beneficial ownership. MPAC argues that the Court’s decision ignores the express intent of the Legislature, as set out in s. 17 of both the former Act and the current Act, that a person who holds title of land in a representative capacity is the person who is to be assessed as owner. The Board does not accept MPAC's characterization of the Court’s finding, as the Court’s decision clearly acknowledges the requirement set out in s. 17 of the Act, finding that the two sections, s. 17 and the s. 3 exemption, can co-exist.

105An issue, which is not addressed in the Court’s decision in School of Dance, is found in paragraph 12, where the Court found that the operation of s. 17 would oust any consideration for an exemption, thereby completing ignoring the s. 3 exemption provision. The Board observes that the combined application of both sections appears to be that the person who is entitled to the exemption must be the legal owner, and consequently, this would not oust any consideration for an exemption. Whether the benefit of the exemption should be extended to a beneficial owner is a policy decision. Had the Legislature intended this result, the Legislature could have expressly provided for it, but it did not do so. In this regard, the Board observes that, elsewhere in the current Act, the Legislature has made express provision for land held in trust, s. 17 being the prime example.

106In support of its position, MPAC cites a decision of the Ontario Divisional Court in Walton International v. Farm Property Class Tax Rate Program, 2012 ONSC 4172 (“Walton”) issued on July 23, 2012. In Walton, a stated case was put to the Court requesting the interpretation of what forms of land ownership meet the requirements of s. 8(2) of the General Regulation, which states:

(2) Land used for farming, including outbuildings is farmland for a taxation year if the following requirements are satisfied:

3. The land is owned by,

i. an individual who is a Canadian citizen or has been lawfully admitted to Canada for permanent residence,

ii. a corporation that has issued and allocated shares to which are attached more than 50 per cent of the voting rights ordinarily exercisable at meetings of the shareholders and that are owned by individuals described in subparagraph i,

iii. a partnership of which more than 50 per cent of the income or loss of the partnership is allocated to partners who are persons described in subparagraph i or ii,

iv. a non-profit corporation without share capital, including a co-operative corporation under the Co-operative Corporations Act, more than 50 per cent of whose members are individuals described in subparagraph i,

v. a trust more than 50 per cent of whose beneficiaries are individuals described in subparagraph i, or

vi. a corporation that does not issue shares and does not have members.

[Emphasis added]

(It should be noted that this is the same wording in the current version of the General Regulation.) More specifically, the Court was asked to answer the question: “Does the use of the phrase “land is owned by” in s. 8(2)(3) of O. Reg. 282/98 as it relates to real property include both beneficial and legal ownership?”

107In plainer terms, the Court stated, at paragraph 6, that: “The issue is whether lands that are beneficially, but not legally, owned by Canadians, qualify for the farm property class. The effect of such a qualification is that the land receives favourable tax treatment.” In answering this question, the Court concluded that the phrase “land owned” in s. 8(2)3 of the General Regulation “is restricted to legal ownership. It does not include both beneficial and legal ownership.” (see paragraph 81).

108In reaching its conclusion, the Divisional Court conducted a statutory analysis, which considered several interpretative tools: (i) textual analysis; (ii) legislative purpose; (iii) legislative history; (iv) legislative context; (v) the administration of the Act; and (vi) case law. It is beyond the scope of this Decision to discuss this full analysis in detail. In summary, the Court’s findings that are the most probative respecting the issue before the Board in this case, are set out in the following paragraphs:

71The guiding principle of statutory interpretation is: “[T]he words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament” (Placer Dome, at para. 21).

72In interpreting taxation statutes, courts should aim to achieve “consistency, predictability and fairness” so that taxpayers are able to manage their affairs (Canada Trustco at para. 12).

73In general, the word “owner” refers to the legal owner of the land. This meaning may, however, be extended to include beneficial owners depending on the subject matter and the context.

76Each party was able to point to cases in support of its interpretation. However, the most recent authority from the Court of Appeal, that is, Carson’s Camp, [indicates that the term “owner…has been interpreted to mean the legal owner of the land” (albeit in reference to s. 17(1) of the Act.

77In my opinion, the answer to the first question lies in a consideration of the principles discussed, above, under the heading “Legislative Context”, in particular, the presumption of consistent expression and the presumption against tautology. These presumptions are particularly important when construing a taxation statute, where there is a need for precision and clarity in order to ensure consistency, predictability and fairness.

78I do not agree with the applicants’ contention that “owner” may be given different meanings in the Act and the Regulation, depending on its context. To do so would promote uncertainty and unpredictability.

79It can be presumed that if a different term is used, such as “beneficial interest” in s. 9(2)1of the Regulation, it is because a different meaning is intended. It can be presumed that no provision, such as the inclusion of a “trust” in s. 8(2)3, is unnecessary.

As referenced by the Divisional Court in paragraph 76 above, s. 17 of the Act states:

Land assessed against owner

17 (1) Subject to section 18, land shall be assessed against the owner.

Land held by trustees, etc.

(2) Land held by a person as a trustee, guardian, executor or administrator shall be assessed against the person as owner in the same manner as if the person did not hold the land in a representative capacity, but the fact that the person is a trustee, guardian, executor or administrator shall, if known, be stated in the roll, and the person is only personally liable when and to the extent that the person has property as trustee, guardian, executor or administrator, available for payment of the taxes.

The section clearly sets out that, where the legal owner of a property holds the property in trust, i.e. the legal owner is the trustee, then land is to be assessed against the legal owner. This provision reinforces the interpretation that, in s. 17(1) of the Act, ownership refers to legal ownership. In this regard, in Walton, the Divisional Court relied on a decision of the Court of Appeal in Carsons’ Camp Ltd. v. Municipal Property Assessment Corp., 2008 ONCA 17, [2008] O.J. No. 72 (C.A.) where the Court of Appeal ruled that ownership in s. 17(1) of the Act refers only to legal ownership.

109To synthesize the Divisional Court’s findings, although the Divisional Court recognized that ownership could potentially refer to legal or beneficial ownership, or both, there is a general assumption that a reference to ownership in the Act and the General Guideline refers to legal ownership, an interpretation that achieves consistency, predictability and fairness in the municipal taxation system. Therefore, unless a specific provision of the Act provides for beneficial ownership, ownership refers to legal ownership.

110Applying this law to the Sports Club Exception provision in the General Regulation, there is nothing in the plain wording of the provisions of the eleven land categories listed in s. 3(1)(2) of the General Regulation to suggest that ownership could include beneficial ownership.

111While the Board acknowledges that the Superior Court in School of Dance found that the term ‘ownership’ could be interpreted to have a different meaning in different sections of the Act, the Divisional Court in Walton has ruled otherwise. In this regard, the Board notes that, while the Divisional Court did not refer to School of Dance, it did refer to First Place, expressly acknowledging that the Superior Court had reached a different conclusion. Therefore, it is clear that, in reaching its decision, the Divisional Court considered the prior Superior Court conclusion in First Place, which is the same conclusion made by the Superior Court in School of Dance. Walton is recent authority from the Divisional Court in which lines of authority supporting both interpretations were considered and the Divisional Court concluded that “owner” means “legal owner” for the purpose of the Act and General Regulation.

112The Board also observes that the Superior Court in both School of Dance and First Place was asked to interpret a tax exemption provision set out in the Act, not a property classification provision set out in the General Regulation. More significantly, in neither of these Superior Court decisions did the Court address the overarching requirement for consistency when interpreting the provisions of the Act. Furthermore, the decision of the Court in School of Dance, is founded on the factual context that the School of Dance did become the legal owner of the subject property, and the “bare trust” which created the School’s beneficial interest, was only a short-lived intervening factor. The Board observes that this is not the circumstance in this case, where the trust agreement provides that the Non-Profit Organizations will remain the beneficial owners.

113In conclusion, based on the above analysis, the Board finds that the decision of the Divisional Court in Walton is the leading judicial authority on the issue before the Board, and its application does not support an interpretation that the term “owned”, as used in s. 3(1)(2)(iv) of the General Regulation, includes beneficial ownership. To re-iterate, ownership of land under both the provisions of the Act and the General Regulation refers to legal ownership, absent any specific provision to the contrary.

2. If the term ‘owned’ includes beneficial ownership, has the Appellant established that a trust was created to provide the Non-Profit Organizations with beneficial ownership, and, if so, what is the date the trust was created?

114In light of the Board’s ruling that the Sports Club Exception requires legal ownership, it is unnecessary to address this question. However, as this issue was argued in detail, the Board will alternatively provide its analysis and conclusions.

115In its submissions, the Appellant has provided a good overview of the applicable legal requirements to establish an enforceable trust agreement (otherwise described as a ‘declaration of trust’). In this regard, there must be three certainties:

1. certainty of intention to create a trust;

2. certainty as to the subject matter of the trust; and

3. certainty as to the objects of the trust, i.e. the persons intended as beneficiaries of the trust

each of which must be satisfied before a trust is created (see Milne Estate (Re), 2018 ONSC 4174 and Ryan in Trust v. Kaukab, 2011 ONSC 6826 (“Ryan”) at paragraph 182.

116Pursuant to s. 9 of the Statute of Frauds, R.S.O. 1990, c. S.19, declarations of trust must be “manifested and proved by a writing by the party who is by law enabled to declare such trust… or else they are void and of no effect.” However, such written manifestation and proof may post-date the declaration of the trust. In Ryan, the Ontario Superior Court stated, at paragraph 171:

. . . As stated by Professor Waters in Waters' Law of Trusts in Canada, [30] evidence need only be in existence at the time when the action is brought. The trust does not fail for non-compliance with section 9 of the Statute of Frauds. . . .

However, in the same paragraph, the Court also indicated that a delay in producing the written declaration of a trust could support an argument that a trust did not exist.

117As an example, the Appellant cites Frydman v Pelletier, 2013 ABQB 225, a decision of the Alberta Court of King’s Bench, where an oral trust declaration was made in 1979, which was not manifested and proved in writing until 2011. In this case, the Court upheld the trust declaration.

118The Board now turns to the application of these legal principles in this case. In the Overview of this Decision, the Board has already indicated that the Appellant had the intention to create a trust. However, the evidence is clear that the motivation to create the trust, and, therefore, the Appellant’s intention, was to obtain the benefit of the Sports Club Exception. The evidence is clear that the Appellant wished to structure the subject matter of the trust so that the Sports Club Exemption would apply. The Appellant’s witnesses indicated that the first two written trust agreements were structured based on information provided to the Appellant by MPAC staff, but no written evidence of such advice was adduced in evidence, nor did the Appellant’s witnesses identify the specific information that MPAC was alleged to have provided. For this reason, the Board finds that the evidence does not establish that MPAC guided the Appellant’s decision regarding the subject matter of the trust. The Appellant’s witnesses did confirm that the written trust agreements were prepared by their solicitor, and that they relied on his advice regarding the sufficiency of the structure of the subject matter set out in the written trust agreement to satisfy the Sports Club Exception.

119On the evidence, the Board accepts that the Appellant has established the first certainty of intention to create a trust, and the third certainty as to the objects of the trust, namely, to create a beneficial trust for the Non-Profit Organizations. The issue in this case turns on the second certainty - the subject matter of the trust.

120For the following reasons, the Board finds that, until the third trust agreement was executed, the Appellant has not established the second certainty as to the subject matter of the trust, namely, whether the declaration of trust made in 2012 was in respect of the corporate shares, or the Subject Property itself.

121While the law is clear that a written manifestation and proof may post-date an oral declaration of trust, the purpose of the requirement for such written proof must be considered. In this case, the Appellant’s argument is, effectively, that the oral trust declaration was made in 2012, and the fact that the Appellant entered into three trust agreements over a span of three years in order to prove the trust declaration, is not a probative consideration. While this may be true as between the Appellant and the Non-Profit Organizations (who were ostensibly simply revising the trust agreement so that they could qualify for the Sports Club Exception), it ignores the fact that the purpose of the written proof of a trust agreement is also to provide certainty for third parties as well as the parties to the trust declaration itself, as the establishment of a trust has legal ramifications for persons other than the legal and beneficial owners. The circumstances in this proceeding are a case in point. MPAC classification of the Subject Property is directly affected by the written trust agreement.

122In this regard, the Board observes that the decisions cited by the Appellant did not address the rather unique circumstance in this case where the written declaration of the trust changed over time. When viewed from the perspective of a third person, this demonstrates that the Appellant had a changing intention regarding the subject matter of the trust, which clearly constitutes uncertainty.

123As noted above, all three certainties must be met in order to establish a trust declaration. The first two trust agreements cannot be ignored. They established that the subject matter of the trust was the beneficial ownership of the corporate shares. Even if the Appellant, after executing the first two agreements, decided that they needed to be changed, the first two trust agreements remained in force until they were revoked by the third trust agreement. Hence, the uncertainty regarding the structure of the subject matter of the trust continued until the execution of the third trust agreement. For this reason, the Board finds that the Appellant has not established that the three certainties were satisfied until the execution of the third amending trust agreement on March 7, 2018.

124Based on the above analysis and findings, the trust declaration only came into existence on March 7, 2018. Therefore, if the Sports Club Exemption ownership criteria were to include beneficial ownership, then, the Sports Club Exemption could only apply on and after March 7, 2018.

125However, the Board raises a further concern not raised by the parties or addressed in the evidence. In order to qualify for the Sports Club Exception, the property owner must be a non-profit recreational sports club. The third amending trust agreement gives each of the Non-Profit Organizations beneficial ownership of a percentage interest in the entire Subject Property, which, as described earlier, includes commercial operations (the 8,000 square foot fitness club, a restaurant and a sporting goods store). These operations appear to be for-profit commercial businesses. No evidence was adduced to indicate whether these commercial businesses are conducted by the Appellant or by lease-hold tenants. In any event, it is unclear the extent to which each Non-Profit Organization’s beneficial ownership interest in these for-profit commercial operations would impact their status as “a non-profit recreational sports club” as this term is used in Sports Club Exemption in the General Regulation. Therefore, in this Decision, the Board can only raise the question whether the Non-Profit Organizations could only satisfy the Sport Club Exception criteria in respect of the areas of the Sports Complex that are not occupied by commercial business operations. If so, this would require apportionment of the Subject Property between the Residential and Commercial Property Classes.

ORDER

126The Board orders that the correct current values of the Subject Property for the 2013 to 2022 taxation years under appeal, which are not subject to reduction pursuant to s. 44(3)(b) of the Act are as shown in the following table:

TAXATION YEARS

LAND

BUILDING

CURRENT VALUE

2013, effective November 1, 2013

not under appeal

$11,597,000

2014

not under appeal

$11,597,000

2015, 2016

[5.71 acres x $266,000 (rounded)]

$1,518,000

$11,597,000

$13,115,000

2017 to 2022

$2,398,000

$12,070,000

$14,468,000

127The correct classification of the Subject Property is in the Commercial Property Class commencing on November 1, 2013 for the 2013 taxation year, and for all subsequent taxation years from 2014 to 2022.