Beaubier,
T.C.J.:
—This
appeal
was
heard
in
Saskatoon,
Saskatchewan,
on
October
3,
1990.
The
appellant,
which
operates
a
hotel
in
the
small
village
of
Paddockwood,
approximately
50
kilometres
northwest
of
Prince
Albert,
appeals
the
disallowance
of
the
deductions
of
living
quarter
expenses
in
the
hotel
and
groceries
for
the
two
shareholders
of
the
appellant
for
the
1984
and
1985
fiscal
years.
These
people
are
the
effective
owner-operators
of
the
hotel.
Upon
reassessment,
the
individual
operators
in
question
accepted
the
taxation
of
the
value
of
these
benefits
to
them
personally.
The
reassessments
by
the
Minister
are
pursuant
to
paragraph
18(1)(a)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
on
the
basis
that
they
were
not
incurred
for
the
purpose
of
gaining
or
producing
income.
The
fact
is
that
the
two
shareholders
reside
in
the
hotel
and
it
is
operated
for
365
days
per
year
for
the
purposes
of
providing
rooms
and
serving
as
an
innkeeper.
It
also
sells
and
serves
alcoholic
beverages.
For
the
services
in
question,
the
two
shareholders
are
the
persons
who
provide
24-hour
services
in
what
is
obviously
a
family-operated
marginal
enterprise.
Because
the
appeal
is
based
on
a
retroactive
request
for
a
deduction
(which
in
essence
had
already
been
taken
by
the
appellant
simply
charging
the
disbursement
out
as
deductible
expenses),
the
Minister
relies
on
Taylor
v.
M.N.R.,
[1987]
2
C.T.C.
2178;
87
D.T.C.
475
to
argue
that
formality
of
documentation
and
proper
deduction
must
be
strictly
followed
in
order
to
obtain
the
deduction
in
question.
The
Court
finds
that
the
amounts
assessed
are
properly
deductible
for
the
purposes
of
paragraph
18(1)(a)
of
the
Act.
In
a
marginal
enterprise,
which
many
family
operations
are,
the
costs
of
properly
paid
labour
for
the
provision
of
services
such
as
the
operation
of
a
hotel
or
a
similar
365-day
enterprise
are,
practically
speaking,
prohibitive.
The
costs
in
question
enable
such
an
enterprise
to
function
economically
and
legally
and
are
properly
deductible.
Simultaneously,
it
must
be
recognized
that
these
costs
are
benefits
to
the
persons
for
whom
they
are
expended.
The
cases
where
formality
of
records
has
been
dealt
with
by
the
Court
are,
so
far
as
can
be
determined,
cases
involving
alleged
leases
or
loans
or
others
in
which
one
would
ordinarily
expect
documentation
among
people
dealing
in
normal
commercial
transactions.
By
the
same
token,
the
provision
of
food
and
accommodation
to
an
employee
or
two
in
a
very
small
business
is
not
a
benefit
concerning
which
one
would
ordinarily
expect
to
see
a
written
agreement
between
the
parties
except
in
the
union
contract.
The
appeal
is
therefore
allowed,
with
costs,
and
the
matter
referred
back
to
the
Minister
for
reconsideration
and
reassessment.
Appeal
allowed.
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