Tremblay,
T.C.C.J.:—This
appeal
was
heard
at
Québec,
Quebec.
1.
The
point
at
issue
The
point
at
issue
is
whether
the
appellant
is
correct
(a)
in
the
computation
of
his
income
with
respect
to
the
1978
taxation
year
to
claim
the
amount
of
$20,925
as
a
loss
resulting,
according
to
the
respondent,
from
the
deduction
of
capital
cost
allowance
relating
to
the
Centre
d'achats
de
Chicoutimi;
(b)
in
the
computation
of
his
income
with
respect
to
the
1979
taxation
year
to
claim
1.
the
amount
of
$86,333
as
a
loss
resulting,
according
to
the
respondent,
from
the
deduction
of
capital
cost
allowance
on
the
Centre
d’achats
de
Chicoutimi;
2.
the
amount
of
$31,669
as
a
loss
resulting,
according
to
the
respondent,
from
the
deduction
of
capital
cost
allowance
on
the
Place
Angoulême
de
Chicoutimi;
3.
the
amount
of
$6,744
claimed
as
capital
cost
allowance
relating
to
properties
situated
in
Drummondville
and
Québec;
(c)
in
the
computation
of
his
income
with
respect
to
the
1980
taxation
year,
[sic]
the
amount
of
$242,306
as
losses
carried
forward
which
were
attributable,
according
to
the
respondent,
to
capital
cost
allowance
from
1983
relating
to
buildings
situated
in
Chicoutimi,
Québec,
Rimouski
and
Drummondville;
(d)
in
the
computation
for
the
1981
taxation
year,
to
claim
only
the
amount
of
$128,712
and
not
a
further
amount
of
$51,381,
these
two
amounts
arising
from
losses
in
1982.
The
appellant
argues
that
during
the
years
in
issue
he
availed
himself
of
the
provisions
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act"),
and
more
particularly
of
the
deduction
of
depreciation
expenses
for
his
buildings
to
a
maximum
of
the
income
from
those
buildings.
The
respondent
essentially
disallows
the
capital
cost
allowances
and
thus
the
losses,
arguing
that
in
the
case
of
rental
properties
losses
cannot
be
created
by
the
operation
of
capital
cost
allowance.
Furthermore,
according
to
the
respondent,
some
of
the
appellant's
properties
were
rental
properties
and
others
were
non-rental
properties,
such
as
income
from
the
rental
of
rooms.
The
rules
relating
to
one
cannot
be
used
to
compute
income
from
the
others,
and
vice
versa.
The
respondent
relies
particularly
on
subsections
1100(11)
to
1100(14)
of
the
Income
Tax
Regulations
(the
Regulations”).
The
appellant
argues,
on
the
one
hand,
that
the
income
from
rooms
is
income
from
rental
property,
and,
on
the
other
hand,
that
subsections
1100(11)
and
1100(14)
of
the
regulations
are
not
consistent
with
the
Act
and
are
therefore
void.
2.
The
burden
of
proof
2.01
The
burden
of
proof
is
on
the
appellant
to
show
that
the
respondent's
assessments
are
incorrect.
This
burden
of
proof
results
from
several
judicial
decisions,
including
the
judgment
by
the
Supreme
Court
of
Canada
in
Johnston
v.
M.N.R.,
[1948]
S.C.R.
486,
[1948]
C.T.C.
195,
3
D.T.C.
1182.
2.02
In
the
case
at
bar,
the
facts
assumed
by
the
respondent
are
described
in
subparagraphs
(a)
to
(gg)
of
paragraph
15
of
the
reply
to
the
notice
of
appeal,
which
read
as
follows:
15.
In
assessing
the
appellant
for
the
1978,
1979,
1980
and
1981
taxation
years,
the
respondent
Minister
of
National
Revenue
assumed
the
following
facts,
inter
alia:
(a)
The
appellant
is
a
businessman
who
has
interests
in
various
businesses
and
in
various
rental
properties;
(b)
Among
the
businesses
there
were,
during
the
1978
to
1981
taxation
years,
inclusive,
the
Motel
Universal
Rivière-du-Loup,
the
Motel
Universel
de
Drummondville
and
the
Motel
Universel
Chicoutimi;
(c)
During
the
subsequent
taxation
years,
the
appellant
acquired
interests
in
various
other
businesses,
including
the
Motel
Universal
Montréal,
the
Motel
Universal
Alma,
the
Auberge
Wandlya
de
Rimouski,
the
Auberge
Wandlyn
de
Ste-Foy
and
the
Manoir
Richelieu
de
la
Pointe-au-Pic;
(d)
Among
the
rental
properties
during
the
1978
to
1981
taxation
years
inclusive,
there
were
the
Centre
d'achats
Chicoutimi,
the
Place
Angoulême
Chicoutimi
and
rental
properties
situated
in
Québec
and
Drummondville;
(e)
During
the
subsequent
taxation
years,
the
appellant
purchased
interests
in
other
rental
properties,
including
the
Place
Jacques
Gagnon
complex
in
Alma,
the
Place
Jacques-Cartier
complex
in
Québec,
the
Séjour
in
Rimouski
and
the
Place
Sears
in
Rimouski;
(f)
In
his
tax
returns
for
the
1978,1979,
1980
and
1981
taxation
years,
the
appellant
reported
as
rental
income
his
profits
from
the
rental
properties
situated
in
Québec
and
Drummondville;
(g)
Also
in
those
tax
returns,
the
appellant
reported
as
income
from
a
business
or
as
losses
from
a
business,
as
the
case
may
be,
the
income
and
losses
associated
with
the
Motel
Universal
Rivière-du-Loup,
the
Motel
Universal
Drummondville,
the
Motel
Universal
Chicoutimi,
the
Centre
d'achats
Chicoutimi
and
the
Place
Angoulême
Chicoutimi;
(h)
In
his
tax
returns
for
the
1978
and
1979
taxation
years,
the
appellant
reported
losses
of
$48,900
(1978)
and
$122,289
(1979)
respectively,
relating
to
the
Centre
d'achats
Chicoutimi.
These
losses
of
$48,900
and
$122,289
were
themselves
determined
after
deducting
capital
cost
allowance
in
the
amounts
of
$20,000
(1978)
and
$71,431
(1979):
|
1978
|
1979
|
|
Loss
before
C.C.A.
|
$28,900
|
$50,858
|
|
C.C.A.
|
20,000
|
71,431
|
|
Loss
after
C.C.A.
|
$48,900
|
$122,289
|
(i)
The
Centre
d'achats
Chicoutimi
was
in
this
case
a
"rental
property"
used
principally
for
the
purpose
of
gaining
or
producing
gross
revenue
that
is
rent;
(j)
The
Centre
d’achats
Chicoutimi
was
held
by
a
company
formed
by
the
appellant,
his
wife
and
his
son,
and
contracted
[sic]
for
the
sole
purpose
of
that
shopping
centre;
(k)
After
audit,
the
losses
of
the
Centre
d'achats
Chicoutimi
for
the
1978
and
1979
taxation
years
amounted,
before
any
depreciation,
to
$21,000
(1978)
and
$7,179.18
(1979)
respectively;
(l)
Considering
the
shopping
centre's
losses
before
any
depreciation,
no
deduction
for
capital
cost
allowance
can
be
allowed
in
respect
of
the
Centre
d’achats
Chicoutimi
for
the
1978
and
1979
taxation
years;
(m)
In
his
tax
return
for
the
1979
taxation
year,
the
appellant
reported
a
loss
of
$44,999
with
respect
to
the
Place
Angoulême
Chicoutimi.
This
$44,999
loss
was
itself
determined
alter
deduction
of
capital
cost
allowance
in
the
amount
of
$32,
172;
|
Loss
before
C.C.A.
|
$12,827
|
|
C.C.A.
|
32,172
|
|
Loss
after
C.C.A.
|
$44,999
|
(n)
The
Place
Angoulême
Chicoutimi
was
also
a
"rental
property"
used
principally
for
the
purpose
of
gaining
or
producing
gross
revenue
that
is
rent;
(o)
The
Place
Angoulême
Chicoutimi
was
held
by
a
company
formed
by
the
appellant,
his
wife
and
his
son
and
contracted
[sic]
for
the
sole
purpose
of
this
apartment
building;
(p)
After
audit,
the
income
for
the
Place
Angoulême
Chicoutimi
for
the
1979
taxation
year
amounted,
before
any
depreciation,
to
$503;
(q)
Considering
this
income
of
$503
before
any
depreciation,
a
deduction
for
capital
cost
allowance
of
only
$503
may
be
allowed
in
respect
of
the
Place
Angoulême
Chicoutimi
for
the
1979
taxation
year,
and
deduction
of
the
balance,
$31,669,
must
be
disallowed;
(r)
In
his
tax
return
for
the
1979
taxation
year,
the
appellant
claimed
a
deduction
for
capital
cost
allowance
in
the
amount
of
$6,744
relating
to
a
rental
building
situated
in
Québec
($3,799)
and
a
rental
building
situated
in
Drummondville
($2,945);
(s)
After
audit
and
preparation
of
revised
depreciation
schedules,
no
depreciation
was
allowable
in
respect
of
the
rental
buildings
situated
in
Drummondville
and
for
the
1979
taxation
year;
(t)
For
the
purposes
of
the
computation
of
his
taxable
income
for
the
1980
taxation
year,
the
appellant
claimed
a
deduction
of
$242,306.
The
appellant
claimed
this
deduction
as
a
carry-back
of
non-capital
losses,
attributable
to
capital
cost
allowance,
arising
in
the
1983
taxation
year;
(u)
These
non-capital
losses,
attributable
to
capital
cost
allowance
and
arising
in
the
1983
taxation
year,
related
to
the
following
properties:
—
Centre
d'achats
(Chicoutimi),
—
Complexe
Place
Jacques
Gagnon
(Alma),
—
Complexe
Jacques
Cartier
(Québec),
—
Séjour
(Rimouski),
—
Place
Sears
(Rimouski),
—
other
properties
(Québec
and
Drummondville);
(v)
The
properties
referred
to
in
subparagraph
(u)
above
were
rental
properties
used
principally
for
the
purpose
of
gaining
or
producing
gross
revenue
that
is
rent;
(w)
The
net
income
which
the
appellant
earned
from
the
rental
properties
during
the
1983
taxation
year
amounted,
before
any
depreciation,
to
$432,107;
(x)
Considering
this
net
income
of
$432,107,
a
deduction
for
capital
cost
allowance
of
only
$432,107
may
be
allowed
in
respect
of
the
appellant's
rental
properties
for
the
1983
taxation
year,
and
deduction
of
the
balance
must
be
disallowed;
(y)
This
decrease
in
the
capital
cost
allowance
claimed
by
the
appellant
results
in:
(i)
disallowing
a
non-capital
loss
of
$339,071
in
the
computation
of
the
appellant's
income
for
the
1983
taxation
year,
and
(ii)
disallowing
the
deduction
of
$242,306
claimed
by
the
appellant
as
noncapital
losses
carried
back
in
the
computation
of
his
taxable
income
for
the
1980
taxation
year;
(z)
For
the
purposes
of
the
computation
of
his
taxable
income
for
the
1981
taxation
year,
the
appellant
claimed
a
deduction
of
$128,712.
The
appellant
claimed
this
deduction
as
a
carry-back
of
non-capital
losses
attributable
to
capital
cost
allowance
and
arising
in
the
1982
taxation
year;
(aa)
These
non-capital
losses,
attributable
to
capital
cost
allowance
and
arising
in
the
1982
taxation
year,
related
to
the
following
properties:
—
Centre
d'achats
Chicoutimi;
—
Complexe
Place
Jacques
Gagnon
(Alma);
—
Complexe
Jacques
Cartier
(Québec);
—
other
properties
(Québec
and
Drummondville);
(bb)
The
properties
referred
to
in
subparagraph
(aa)
above
were
rental
properties
used
principally
for
the
purpose
of
gaining
or
producing
gross
revenue
that
is
rent;
(cc)
The
net
income
which
the
appellant
earned
from
rental
properties
during
the
1982
taxation
year
amounted,
before
any
depreciation,
to
$348,300;
(dd)
Considering
this
net
income
of
$348,300,
a
deduction
for
capital
cost
allowance
of
only
$348,300
may
be
allowed
in
respect
of
the
appellant's
rental
properties
for
the
1982
taxation
year,
and
deduction
of
the
balance
must
be
disallowed;
(ee)
This
decrease
in
the
capital
cost
allowance
claimed
by
the
appellant
results
in:
(i)
disallowing
a
non-capital
loss
of
$83,943
in
the
computation
of
the
appellant's
income
for
the
1982
taxation
year,
and
(ii)
[sic]
the
deduction
of
$180,093
as
non-capital
losses
carried
back
in
the
computation
of
the
taxable
income
of
the
appellant
for
the
1981
taxation
year;
(ff)
The
businesses
hereinafter
listed
were
not
rental
properties
used
principally
for
the
purpose
of
gaining
or
producing
gross
revenue
that
is
rent.
These
businesses
are:
the
Motel
Universel
Rivière-du-Loup,
the
Motel
Universel
de
Drummondville,
the
Motel
Universel
Chicoutimi,
the
Motel
Universel
Montréal,
the
Motel
Universel
Alma,
the
Auberge
Wandlyn
de
Rimouski,
the
Auberge
Wandlyn
de
Ste-Foy
and
the
Manoir
Richelieu
de
la
Pointe-au-Pic;
(gg)
The
income
and
losses
from
the
businesses
listed
in
the
preceding
subparagraph
were
therefore
not
taken
into
consideration
in
applying
the
rules
relating
to
“rental
properties"
set
out
in
sections
1100(11)
to
1100(14)
of
the
Income
Tax
Regulations.
[Translation.]
3.
The
facts
3.01
The
facts
overall
were
not
disputed,
except
on
the
point
as
to
which
of
the
appellant's
properties
are
rental
properties
and
therefore
subject
to
subsections
1100(11)
to
1100(14)
of
the
regulations
and
which
are
not.
3.02
The
respondent
considers
the
appellant's
commercial
or
office
buildings
to
be
rental
property,
as
well
as
the
areas
rented
out
as
restaurants
and
bars
inside
his
hotels.
The
respondent
does
not
consider
the
income
from
the
hotel
complexes
from
the
rental
of
rooms
to
be
rental
property.
3.03
In
the
years
in
issue
the
buildings
considered
by
the
respondent
to
be
rental
properties,
that
is,
the
commercial
or
office
buildings,
were
Centre
d'achats
Chicoutimi,
Place
Angoulême
de
Chicoutimi,
the
restaurants
rented
out
in
Drummondville
and
a
lot
rented
out
in
Québec.
According
to
the
respondent,
the
non-rental
income
in
the
years
in
issue
derived
from
the
rental
of
rooms
in
the
Motel
Universel
de
Drummondville,
the
Motel
Universel
de
Rivière-du-Loup
and
the
Motel
Universel
de
Chicoutimi.
3.04
The
services
provided
with
the
appellants
hotel
and
motel
rooms
are
limited
to
room
maintenance:
making
the
beds,
changing
the
towels
and
other
services
of
this
nature.
3.05
The
appellant
Raymond
Malenfant
was
the
only
witness
heard.
During
his
testimony,
the
following
exhibits
were
filed:
A-1
The
schedule
of
buildings
owned
by
the
appellant
and
purchased
from
1974
to
1988;
1-1
Raymond
Malenfant's
tax
returns
(including
financial
statements)
from
1978
to
1983
together
with
notices
of
assessment,
notices
of
objection
and
notices
of
reassessment
for
each
of
those
years;
I-2
Colette
Malenfant's
tax
returns
(file
No.
88-2222(IT))
including
financial
statements
for
1979
to
1983,
notices
of
assessment,
notices
of
objection
and
notices
of
reassessment
for
each
of
those
years;
I-3
Advertising
material
for
the
appellant's
hotels;
I-4
Licences
to
carry
on
business
(not
filed);
I-5
The
group
combined
mercantile
policy
of
the
Gerling
Globale
insurance
company
for
the
period
from
December
31,
1983
to
December
31,
1984,
relating
to
the
appellant's
commercial
and
hotel
properties;
l-4
Lease
between
the
Société
immobilière
du
Québec
(the
lessee)
and
the
Groupe
Malenfant
(the
lessor)
for
the
rental
of
part
of
a
building
situated
in
Alma
(100
rue
St-joseph
Sud)
for
the
period
from
March
15,
1985
to
March
15,
1986;
I-7
Lease
between
Place
Sears
En
r.,
represented
by
Raymond
Malenfant
(the
lessor),
and
the
Compagnie
de
Gestion
Ciné-Vidéo
Club
Rimouski
Inc.
(the
lessee)
for
the
rental
of
1,449
square
feet
of
space
at
Place
Sears,
situated
at
140
rue
St-Barnabé
in
Rimouski,
for
the
period
from
April
1,
1985
to
March
1,
990;
l-8
Lease
between
the
building
Le
Séjour
Enr.
(the
lessor),
represented
by
Raymond
Malenfant,
and
the
Société
d'entraide
économique
de
Rimouski
(the
lessee)
for
the
rental
of
a
space
having
an
area
of
3,250
square
feet
situated
on
the
ground
floor
of
the
Le
Séjour
building,
at
320
rue
St-
Germain
Est
in
Rimouski,
for
the
period
from
August
1,
1984
to
July
31,
1987;
I-9
Contract
of
sale
between
the
Société
immobilière
5
000
Inc.
(the
vendor)
and
the
Groupe
Malenfant
(the
purchaser)
for
a
commercial
complex
known
as
the
Complexe
Jacques
Gagnon,
situated
in
Alma,
for
the
price
of
$4,750,000.
3.06
All
the
facts
with
respect
to
the
quantum
of
income
and
losses
depend
on
the
solution
to
the
following
two
problems:
1.
Are
the
provisions
of
subsections
1100(11)
to
1100(14)
of
the
Regulations
valid
or
not
valid?
2.
Is
the
income
from
the
rental
of
the
appellant's
hotel
rooms
income
from
rental
property
within
the
meaning
of
the
regulations
(subsections
1100(11)
to
1100(14))?
Depending
on
the
solution
to
these
points
of
law,
the
notices
of
reassessment
may
or
may
not
be
amended.
4,
Law—cases
at
law—analysis
4.01
Law
The
main
provisions
involved
in
this
appeal
are
sections
3,
4
and
9
and
paragraphs
18(1)(a)
and
(b),
20(1)(a)
and
221(1)(a)
of
the
Act,
and
subsections
1100(11)
and
1100(14)
of
the
Regulations.
These
provisions
read
as
follows:
18(1)
In
computing
the
income
of
a
taxpayer
from
a
business
or
property
no
deduction
shall
be
made
in
respect
of
(a)
an
outlay
or
expense
except
to
the
extent
that
it
was
made
or
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
the
business
or
property;
(b)
an
outlay,
loss
or
replacement
of
capital,
a
payment
on
account
of
capital
or
an
allowance
in
respect
of
depreciation,
obsolescence
or
depletion
as
expressly
permitted
by
this
Part;
20(1)
Notwithstanding
paragraphs
18(1)(a),
(b)
and
(h),
in
computing
a
taxpayer's
income
for
a
taxation
year
from
a
business
or
property,
there
may
be
deducted
of
the
following
amounts
as
may
reasonably
be
regarded
as
applicable
thereto:
(a)
such
part
of
the
capital
cost
to
the
taxpayer
of
property,
or
such
amount
in
respect
of
the
capital
cost
to
the
taxpayer
of
property,
if
any,
as
is
allowed
by
221(1)
The
Governor
in
Council
may
make
regulations
(a)
prescribing
anything
that,
by
this
Act,
is
to
be
prescribed
or
is
to
be
determined
or
regulated
by
regulation,
1100(11)
Notwithstanding
subsection
(1),
in
no
case
shall
the
aggregate
of
deductions,
each
of
which
is
a
deduction
in
respect
of
property
of
a
prescribed
class
owned
by
a
taxpayer
that
includes
rental
property
owned
by
him,
otherwise
allowed
to
the
taxpayer
by
virtue
of
subsection
(1)
in
computing
his
income
for
a
taxation
year,
exceed
the
amount,
if
any,
by
which
(a)
the
aggregate
of
amounts
each
of
which
is
(i)
his
income
for
the
year
from
renting
or
leasing
a
rental
property
owned
by
him,
computed
without
regard
to
paragraph
20(1)(a)
of
the
Act,
or
property
of
the
partnership,
to
the
extent
of
the
taxpayer's
share
of
such
income,
exceeds
(b)
the
aggregate
of
amounts
each
of
which
is
(i)
his
loss
for
the
year
from
renting
or
leasing
a
rental
property
owned
by
him,
computed
without
regard
to
paragraph
20(1)(a)
of
the
Act,
or
(ii)
the
loss
of
a
partnership
for
the
year
from
renting
or
leasing
a
rental
property
of
the
partnership,
to
the
extent
of
the
taxpayer's
share
of
such
loss.
1100(14)
In
this
section
and
section
1101,
“rental
property"
of
a
taxpayer
or
a
partnership
means
(a)
a
building,
other
than
property
of
Class
31
or
32
in
Schedule
II,
owned
by
the
taxpayer
or
partnership,
whether
jointly
with
another
person
or
otherwise,
or
(b)
a
leasehold
interest
in
real
property,
if
the
leasehold
interest
is
property
of
Class
3,
6
or
13
in
Schedule
II
and
is
owned
by
the
taxpayer
or
partnership,
if,
in
the
taxation
year
in
respect
of
which
the
expression
is
being
applied,
the
property
was
used
by
the
taxpayer
or
the
partnership
principally
for
the
purpose
of
gaining
or
producing
gross
revenue
that
is
rent,
but,
for
greater
certainty,
does
not
include
a
property
leased
by
the
taxpayer
or
the
partnership
to
a
lessee,
in
the
ordinary
course
of
the
taxpayer's
or
partnership’s
business
of
selling
goods
or
rendering
services,
under
an
agreement
by
which
the
lessee
undertakes
to
use
the
property
to
carry
on
the
business
of
selling,
or
promoting
the
sale
of,
the
taxpayer's
or
partnership's
goods
or
services.
4.02
Cases
at
law
and
doctrine
Counsel
referred
to
a
substantial
case
law
and
doctrine
in
respect
of
the
two
points
in
issue,
such
as
the
following:
A.
Income
from
rooms:
income
from
rental
property
or
not?
A-1
By
counsel
for
the
appellant:
1.
Harrap's
New
Shorter
French
and
English
Dictionary;
2.
Definition
of
"loyer"
(Petit
Robert);
3.
Definition
of
"gîte"
(Petit
Robert);
4.
Words
&
Phrases
(Vol.
4);
Lord
Nelson
Hotel
Co.
Ltd.
v.
Halifax,
[1956]
1
D.L.R.
(2d)
5.
Louage
de
chose.
P.G.
Jobin;
6.
Regulation
respecting
hotel
establishments
and
restaurants
(French
and
English
versions),
(Hotels
Act,
R.S.Q.,
c.
H-3,
s.
11);
7.
Edgar
Gauthier
v.
Auberge
des
Gouveneurs,
Auberge
A.D.G.S.
et
la
Compagnie
Sherbrooke
Trust,
[1977]
C.S.
969
to
971;
8.
Centre
d'accueil
Richelieu
Inc.
v.
Crevier,
MM
J.E.
87-1170;
9.
Interpretation
Bulletins:
(a)
IT-434R,
para.
18;
(b)
IT-443,
para.
3;
(c)
IT-371,
paras.
5
and
10;
10.
Elwood
Smith
Ltd.
v.
M.N.R.,
[1981]
C.T.C.
2208,
81
D.T.C.
132;
A-2
By
counsel
for
the
respondent:
“Hotel
contract"
vs.
“lease
contract".
11.
Mazeaud
and
Mazeaud.
Leçons
de
droit
civil,
tome
3
(principaux
contrats),
5th
edition,
Paris:
Montchrestien,
1980,
pages
939-43;
12.
Juris-classeur
civil,
Arts
1602
to
1708-1762,
Paris:
Éditions
Techniques
S.
A.,
looseleaf
publication,
extract
(Bail
à
loyer);
13.
Juris-classeur
civil,
Arts
1896
to
2043,
Paris:
Éditions
Techniques
S.A.,
looseleaf
publication,
extract
(Dépôt
hôtelier);
14.
Luc
Bihl,
Drôit
des
hotels,
restaurants
et
campings,
Paris:
Librairies
Techniques,
1981,
pages
20-33
and
62-78;
15.
Materbachi
v.
Perez,
D.1954.J.311
(Cour
de
cassation);
16.
Chareyron
v.
Gautherin,
D.S.1977.J.498
(Cour
d'appel),
decision
affirmed
at
D.S.1977.J.694
(Cour
de
cassation);
17.
Jean
Carbonnier,
"Jurisprudence
en
matière
de
droit
civil
(Contrat
d'ho-
tellerie)”,
1950,
Revue
trimestrielle
de
droit
civil,
page
519;
18.
Jean
Carbonnier,
“
Jurisprudence
en
matière
de
droit
civil
(Contrat
d'hôtellerie)",
1954,
Revue
trimestrielle
de
droit
civil,
page
515;
19.
Lise
Moret,
“Le
contrat
d'hôtellerie",
1973,
Revue
trimestrielle
de
droit
civil,
page
663;
20.
Jean-Louis
Bergel,
"La
responsabilité
des
hôteliers”,
Gaz.
Pal.,
1977.1,
doctr.
page
62;
21.
André
Tune,
Le
contrat
de
garde,
Paris:
Jouve
&
Cie,
1941,
pages
94-123;
22.
P.
Masson,
Traité
pratique
des
locations
en
garni
en
général
et
partic-
ulèrement
de
la
profession
d'hôtelier
et
du
contrat
d'hôtellerie,
Paris:
A.
Morescq,
1847,
pages
1-13;
23.
Hôtel
d'Amérique
v.
Consorts
Parr,
Gaz.
Pal.,
1985.1
J.264
(Cour
de
cassation);
24.
Jean-Louis
Baudouin,
Les
obligations,
(3rd
ed.),
Cowansville:
Les
Éditions
Yvon
Blais
Inc.,
1989,
pages
52-53;
25.
Pierre-Gabriel
Jobin,
Le
louage
de
chose,
Montréal:
Les
Éditions
Yvon
Blais
Inc.,
1989,
pages
361-64;
26.
Lindsay
v.
Vallee,
[1899]
16
C.S.
160;
27.
Boileau
v.
Ross,
[1961]
C.S.
383;
28.
Reny
v.
Dame
Drolet,
[1930]
68
C.S.
100;
29.
Grande
v.
Bernier,
[1922]
60
C.S.89;
30.
Dubé
v.
Dufresne,
[1944]
C.S.
104;
31.
Château
Champlain
Ltd.
v.
Maloney,
[1949]
B.R.
649;
32.
Filteau
v.
Cardy,
[1957]
C.S.
252;
33.
Reed
v.
Canadian
Pacific
Hotels
Ltd.,
J.E.
82-1150
(S.C.);
34.
Larochelle
v.
Giroux,
J.E.
80-130
(P.C.);
35.
Civil
Code
of
Lower
Canada,
Arts
1600-1665.6,
1795-1816a
and
1980-2008;
36.
E.
J.
Amirault
and
M.
Archer,
Canada's
Hospitality
Law,
Toronto:
MacMillan,
1978,
pages
1-5
and
246-51;
37.
N.
Halt,
Legal
Aspects
of
Hotel,
Motel
and
Restaurant
Operation,
New
York:
ITT
Educational
Services
Inc.,
1971,
pages
16-17
and
28-31;
38.
Terry
W.
Marlow,
“Income
from
Rental
Real
Estate”
in
Corporate
Management
Tax
Conference,
[1977],
page
105
(extract);
39.
J.
Bernstein,
"Current
Real
Estate
Tax
Issues”
in
Tax
and
Financing
Aspects
of
Real
Estate
Investment,
Don
Mills:
CCH
Canadian
Ltd.,
1985,
page
127
(extract);
40.
J.
Bernstein,
Tax
Planning
for
Professionals
and
Executives,
Don
Mills:
CCH
Canadian
Ltd.,
1983,
pages
256-57;
41.
J.
Bernstein,"Hotels
and
Motels
as
Tax
Shelters”,
[1983]
116
CA
Magazine
72;
42.
Interpretation
Bulletin
IT-371;
Interpretation
Bulletin
IT-434R,
with
Special
Release
of
July
7,
89;
43.
Felton
v.
M.N.R.,
[1989]
C.T.C.
2329,
89
D.T.C.
233
(T.C.C.);
44.
The
Queen
v.
Thompson,
[1989]
2
C.T.C.
226,
89
D.T.C.
5439
(F.C.T.D.);
45.
Buonincontri
v.
The
Queen,
[1985]
1
C.T.C.
370,
85
D.T.C.
5277
(F.C.T.D.);
46.
Carey
v.
Deveaux,
[1920]
2
W.W.R.
832,
53
D.L.R.
267
(Sask.
C.A.);
47.
Angers
Larouche,
Les
obligations,
tome
1,
Ottawa:
University
of
Ottawa
Press,
1982,
pages
331-35;
48.
Mazeaud
and
Tunc,
Traité
théorique
et
pratique
de
la
responsabilité
délictuelle
et
contractuelle,
6th
edition,
tome
1,
Paris:
Éditions
Montchrestien,
1965,
pages
1033-65;
49.
Thérèse
Rousseau-Houle,
Les
contrats
de
construction
en
droit
public
et
privé,
Montréal:
Wilson
&
Lafleur,
1982,
pages
197-207;
"Investment
Income",
vs
"Income
from
an
active
business”
50.
Walsh
and
Micay
v.
M.N.R.,
[1966]
Ex.
C.R.
518,
[1965]
C.T.C.
478,
65
D.T.C.
5293
(Ex.
Ct);
51.
The
Queen
v.
Cadboro
Bay
Holdings
Ltd.,
[1977]
C.T.C.
186,
77
D.T.C.
5115
(F.C.T.D.);
B.
Are
the
provisions
of
subsections
1100(11)
to
1100(14)
of
the
regulations
valid
or
void?
52.
René
Dussault,
Louis
Borgeat,
Traité
de
Droit
administratif,
(2nd
ed.),
tome
I,
Les
Presses
de
l’Université
Laval
(1984)
pages
402-407,
432-37,
571;
53.
The
King
v.
Wright
et
al.,
[1927]
N.S.R.
443;
54.
Trans-Canada
Pipe
Lines
Ltd.
v.
Provincial
Treasurer
of
Saskatchewan
(1968),
67
D.L.R.
(2d)
694,
63
W.W.R.
541;
55.
J.
F.
Garner,
Administrative
Law,
London:
Butterworths,
1963;
56.
H.W.R.
Wade,
Administrative
Law,
Oxford:
Clarendon
Press,
1971;
57.
Gilles
Pépin
and
Yves
Ouellette,
Principes
de
Contentieux
Administratif,
(2nd
ed.),
1982;
58.
Attorney
General
of
Canada
v.
Silk
(1983),
145
D.L.R.
(3d)
221;
59.
Texaco
Canada
Ltd.
v.
City
of
Vanier,
[1981]
1
S.C.R.
254,
120
D.L.R.
(3d)
193;
60.
Hayward
v.
B.C.
Lower
Mainland
Dairy
Products
Board,
[1937]
2
W.W.R.
401;
61.
Shannon
v.
Lower
Mainland
Dairy
Products
Board,
[1938]
A.C.
708;
62.
P.
Garant,
Droit
administratif,
2nd
ed.,
Montréal:
Les
Éditions
Yvon
Blais
Inc.,
1985,
pages
294-95;
63.
Hodge
v.
The
Queen
(1883),
9
A.C.
117;
64.
R.
v.
Cosman's
Furniture
(1972)
Ltd.
et
al.
(1977),
73
D.L.R.
(3d)
312,
32
C.C.C.
(2d)
345;
65.
City
of
Montréal
v.
Morgan
(1919-20),
60
S.C.R.
393,
54
D.L.R.
165,
quashing
(1920)
29
K.B.
124;
66.
City
of
Westmount
v.
Dame
Lapierre,
[1955]
Que.
Q.B.
639;
67.
L.
Giroux,
Aspects
juridiques
du
règlement
de
zonage
au
Québec,
Québec:
Les
Presses
de
l’Université
Laval,
1979,
pp.
46-59;
68.
Hlushak
v.
City
of
Fort
McMurray
(1982),
136
D.L.R.
(3d)
172
(Alta.
C.A.);
69.
D.C.
Holland
and
J.P.
McGowan,
Delegated
Legislation
in
Canada,
Toronto:
Carswell,
1989,
page
196;
70.
E.A.
Driedger,
Construction
of
Statutes,
(2nd
ed.),
Toronto:
Butterworths,
1983,
pages
326-29;
71.
City
of
Toronto
v.
Virgo,
[1896]
A.C.
88;
72.
City
of
Montréal
v.
Arcade
Amusements
Inc.,
[1985]
1
S.C.R.
368,
14
D.L.R.
(4th)
161;
73.
Canada
Trust
Co.
v.
M.N.R.,
[1985]
1
C.T.C.
2367,
85
D.T.C.
322
(T.C.C.);
74.
R.
Huot,
Cours
d'lmpot,
(14th
ed.),
Québec:
Éditions
Thourene
Ltd,
1989;
75.
A.R.A.
Scace
and
D.S.
Ewens,
The
Income
Tax
Law
of
Canada,
(5th
ed.),
Toronto:
Carswell,
1983,
pages
122-23;
76.
Burrard
Yarrows
Corp.
v.
The
Queen,
[1986]
2
C.T.C.
313,
86
D.T.C.
6459
(F.C.T.D.);
[1988]
2
C.T.C.
90,
88
D.T.C.
6352
(F.C.A.);
77.
Midwest
Hotel
Co.
v.
M.N.R.,
[1972]
C.T.C.
534,
72
D.T.C.
6440
(S.C.C.).
4.03
First
point
in
issue
Are
subsections
11,
12,
13
and
14
of
section
1100
of
the
Regulations
valid
or
not
valid?
A—The
appellants
argument
4.03.1
The
nub
of
the
appellants
argument
is
that
by
paragraph
20(1)(a)
of
the
Act,
Parliament
gave
the
Governor
in
Council
the
authority
to
legislate
in
respect
of
depreciation.
The
Governor
in
Council
did
so
by,
inter
alia,
adopting
subsections
1100(1)
et
seq.
of
the
regulations.
However,
the
intention
and
the
desired
result
of
adopting
subsections
1100(11)
to
(14)
were
not
to
prescribe
a
rule
for
depreciation
but
to
establish
a
scheme
for
taxation
in
a
particular
sector
of
commercial
activity,
which
scheme
was
not
only
new
but
was
completely
different,
and
specifically
more
onerous
in
tax
terms
than
the
scheme
applicable
to
all
other
spheres
of
activity,
this
being
done
entirely
without
the
authorization
of
the
Parliament
of
Canada.
4.03.2
According
to
the
appellant,
when,
by
adopting
subsections
11,
12,
13
and
14
of
section
1100
of
the
regulations,
the
Governor
in
Council
made
the
depreciation
already
allowed
By
subsection
1100(1)
dependent
on
the
income
produced
by
the
building
in
issue,
and
even
further,
made
the
depreciation
of
a
building
in
some
instances
dependent
on
the
income
generated
by
another
completely
different
building
in
another
prescribed
class,
because
it
was
worth
more
than
$50,000,
the
Governor
in
Council
exceeded
the
authority
conferred
to
him
by
the
legislator.
According
to
the
appellant,
it
is
for
the
legislator
to
enact
tax
legislation
with
respect
to
restricting
losses
in
a
particular
sector
of
activity.
4.03.3
According
to
the
appellant,
in
subsection
1100(f)
of
the
regulations
the
Governor
in
Council
is
no
longer
regulating
with
respect
to
depreciation,
but
rather
establishing
limits
on
the
deduction
of
losses
arising
from
a
particular
rental
activity,
contrary
to
the
rules
of
the
computation
of
income
and
losses
set
out
in
sections
3
and
9.
In
section
3,
the
legislator
provided
for
the
computation
of
net
income
from
various
sources,
from
an
office,
employment,
business
and
property
3(1)(a),
from
taxable
net
capital
gain
3(1)(b),
from
the
aggregate
of
the
two
preceding
amounts
less
certain
statutory
deductions
3(1)(c),
and
then
provided
in
paragraph
3(1)(c)
that
the
aggregate
of
all
income
((a)
+
(b)
+
[sic]
(c))
shall
be
reduced
by
the
total
losses
from
an
office,
employment,
business
or
property,
and
so
on,
the
balance
representing
the
taxpayer's
net
income.
In
section
9,
the
legislator
provided
that
income
from
a
business
or
property
is
a
taxpayer's
profit
therefrom
(9(1))
and
the
loss
from
a
business
or
property
is
the
loss
computed
in
the
same
way
as
income,
mutatis
mutandis,
that
is,
essentially
by
following
accounting
principles,
subtracting
the
related
expenses
from
gross
revenue.
Depreciation
is
considered
according
to
accounting
principles
to
be
a
current
expense:
depreciation
existed
long
before
the
form
in
which
it
was
set
out
in
the
Act
where
it
took
the
name
"capital
cost
allowance”.
Consequently,
according
to
the
appellant,
by
limiting
losses
by
not
applying
depreciation
to
certain
property,
the
Governor
in
Council
is
going
against
what
was
established
by
the
legislator
in
the
above
sections
especially
by
preventing,
first,
the
normal
computation
of
losses
from
a
given
source,
and
second,
the
application
of
such
loss
against
income
from
another
source.
Thus,
the
appellant
concludes,
the
meaning
and
effect
of
the
section
of
the
regulations
in
issue
is
contrary
to
the
entire
system
of
regulation
governing
capital
cost
allowance.
He
then
referred
to
Midwest
Hotel
Co.
(4.02(77),
a
1972
decision
of
the
Supreme
Court,
which
makes
this
element
a
fundamental
criterion
to
be
applied
in
a
case
of
this
nature.
4.03.4
Moreover,
according
to
the
appellant,
the
proof
that
subsection
1100(11)
is
not
a
rule
of
depreciation
is
that
the
restrictions
do
not
apply
to
real
estate
corporations
by
virtue
of
the
exception
in
subsection
1100(12)
of
the
regulations.
That
means
that
the
amount
of
depreciation
for
two
identical
buildings,
having
the
same
capital
cost
and
income,
could
be
different,
depending
on
the
identity
of
the
owner,
that
is,
if
one
is
an
individual
involved
in
real
estate
and
the
other
is
a
corporation
in
the
same
field.
B—The
respondent's
argument
4.03.5
The
respondent's
first
argument
is
that
under
paragraph
18(1)(b)
of
the
Act,
depreciation
is
not
a
deductible
item,
"except
as
expressly
permitted
by
this
Part”,
that
is,
by
Part
I
of
the
Act.
In
paragraph
20(1)(a),
which
is
also
in
Part
I
of
the
Act,
the
legislator
permits
the
deduction
of
only
such
part
of
the
capital
cost"as
is
allowed
by
regulation".
According
to
the
respondent,
it
appears
obvious
that
Parliament
is
relying
on
the
regulatory
authority,
the
Governor
in
Council,
to
establish
a
complete
code
of
the
deductions
which
may
be
made
in
respect
of
capital
cost
allowance
for
certain
property
and
refuse
them
for
other
property.
The
respondent
cited
City
of
Montréal
v.
Morgan
at
page
400
(4.02(65))
:
But
every
power
to
regulate
necessarily
implies
power
to
restrain
the
doing
of
that
which
is
contrary
to
the
regulation
authorised,
and
in
that
sense
and
to
that
extent
involves
the
power
to
prohibit.
4.03.6
Moreover,
recalling
the
principle
admitted
by
the
appellant
during
the
oral
argument,
that
"Parliament
may
delegate
any
power,
even
the
power
to
raise
taxes"
[Translation],
the
respondent
submits
that
the
legislator,
in
paragraphs
20(1)(a)
and
221(1)(a)
of
the
Act,
very
certainly
conferred
on
the
Governor
in
Council
the
power
to
adopt
regulations
restricting
capital
cost
allowance.
According
to
the
respondent,
paragraph
20(1)(a)
of
the
Act
is
clear,
only
such
part
of
the
capital
cost
of
property
"as
is
allowed
by
regulation”
may
be
deducted,
and
paragraph
221(1)(a)
authorizes
the
Governor
in
Council
to
make
regulations
"prescribing
anything
that,
by
this
Act,
is
to
be
prescribed
or
is
to
be
determined
or
regulated
by
regulation”.
4.03.7
According
to
the
respondent,
what
we
have
here
is
not
an
absolute
prohibition,
but
rather
restrictions
on
certain
property.
On
this
point,
he
referred
at
length
to
passages
from
R.
Huot,
Cours
d'impot
(4.02(74)),
and
from
Scace
and
Ewens,
Income
Tax
Law
of
Canada
(4.02(75)).
Counsel
for
the
respondent
continued
as
follows:
There
can
be
no
doubt
as
to
the
real
effect
of
subsections
1100(11)
to
1100(14)
of
the
regulations.
Clearly,
these
sections
do
not
impose
an
absolute
prohibition:
they
merely
establish
a
restriction.
First,
the
scope
of
these
provisions
is
limited
to
rental
property".
Second,
the
taxpayer
retains
the
absolute
right
to
deduct
capital
cost
allowance
so
long
as
the
deductions
claimed
do
not
result
in
losses.
Third,
these
provisions
do
not
apply
to
a
corporation
whose
principal
business
is
leasing,
development
or
sale,
or
a
combination
of
these
activities,
or
to
a
partnership
each
member
of
which
is
a
corporation
of
this
type.
Finally,
these
sections
also
do
not
apply
to
property
in
class
31
or
32,
with
respect
to
which
there
are
grandfather
clauses.
In
this
context,
the
appellants
have
not
established
that
subsections
1100(11)
to
1100(14)
of
the
regulations
are
prohibitive
in
nature.
As
Professor
Garant
noted,
referring
to
the
power
to
"regulate"
(Droit
administratif,
page
310
(4.02(62)).
What
is
not
permitted
is
the
complete
prohibition
of
a
thing
or
activity
which
is
the
subject
of
the
regulatory
power.
Nothing
of
this
sort
is
found
here.
The
appellants
will
perhaps
object
that
subsections
1100(11)
to
1100(14)
of
the
regulations
are
prohibitive,
in
that
their
result
is
to
prohibit
the
deduction
of
capital
cost
allowance
in
the
case
of
rental
property
which
already
generates
losses
or
nil
profits
overall.
The
response
to
this
objection
is
obvious.
To
use
the
words
of
Professor
Garant,
it
is
a
normal
[Translation]
by-product”
of
the
regulatory
activity
that
practices
or
acts
which
derogate
from
the
regulations
be
implicitly
prohibited.
[Droit
administratif,
page
311,
4.02(62)]
[Translation.]
4.03.8
The
respondent
refers
to
an
argument
made
by
the
appellant
to
the
effect
that
subsections
1100(11)
to
1100(14)
of
the
Regulations
require
that
income
from
rental
property
be
taken
into
consideration
and
that
accordingly
the
deduction
of
capital
cost
allowance
is
subject
to
external
factors
which
have
nothing
to
do
with
the
principles
of
depreciation
of
the
cost
of
a
property.
He
replied
as
follows:
With
respect,
generally
accepted
accounting
principles
governing
depreciation
are
in
no
way
applicable
here,
because
there
are
specific
enactments
the
effect
of
which
is
to
overrule
such
principles.
Moreover,
the
fact
that
subsections
1100(11)
to
1100(14)
of
the
regulations
require
that
the
income
from
rental
property
be
taken
into
consideration
is
in
no
way
inconsistent
with
the
delegation
of
powers
provided
in
paragraphs
20(1)(a)
and
221(1)(a)
of
the
Act.
Under
paragraph
20(1)(a)
of
the
Act,
only
such
part
of
the
capital
cost
of
a
property
“as
is
allowed
by
regulation"
may
be
deducted.
[Translation.]
4.03.9
Finally,
counsel
for
the
respondent
referred
to
the
decision
of
the
Supreme
Court
of
Canada
in
Midwest
Hotel
Co.
(4.02(77)).
The
Court
was
asked
to
decide
whether
subsection
1101(1)
of
the
regulations
was
ultra
vires.
Under
the
Regulations,
separate
classes
were
prescribed
for
property
acquired
by
separate
businesses.
In
that
case,
in
1963
Midwest
Hotel
Co.
Ltd.
had
sold
property
in
classes
3
and
8
which
it
had
used
in
a
hotel
business.
During
the
same
year,
Midwest
Hotel
Co.
Ltd.
purchased
other
property
in
classes
3
and
8,
this
time
in
the
course
of
a
different
business.
Because
the
sale
of
class
3
and
8
assets
previously
used
in
its
hotel
business
resulted
in
a
recapture
of
depreciation
amounting
to
$306,237,
Midwest
Hotel
Co.
Ltd.
wished
to
avail
itself
of
subsection
20(2)
of
the
Income
Tax
Act.
Subsection
20(2)
operated
to
prevent
immediate
taxation
of
a
recapture
where
other
property
of
the
same
class
of
depreciation
as
the
property
sold
was
acquired
during
the
year.
Unfortunately
for
Midwest
Hotel
Co.
Ltd.,
this
subsection
20(2)
could
not
apply
insofar
as,
by
operation
of
subsection
1101(1)
of
the
regulations,
the
property
sold
and
the
property
subsequently
purchased
came
within
separate
classes.
Midwest
Hotel
Co.
Ltd.
then
argued
before
the
courts
that
subsection
1101(1)
of
the
regulations
was
ultra
vires.
Rejecting
the
arguments
of
Midwest
Hotel
Co.
Ltd.,
four
of
the
five
judges
of
the
Supreme
Court
who
had
heard
the
case
found
that
subsection
1101(1)
of
the
Regulations
was
valid.
Mr.
Justice
Judson,
speaking
for
the
majority,
wrote
the
following,
at
pages
6441-42:
The
fallacy
in
the
taxpayer's
argument
is
that
by
paragraph
11(1)(a)
of
the
Act,
it
may
deduct,
in
computing
its
income,
only
such
part
of
its
capital
cost
"as
is
allowed
by
regulation”.
This
is
an
exception
to
the
general
rule
of
disallowance
of
capital
cost
contained
in
paragraphs
12(1)(a)
and
(b)
of
the
Act.
Regulation
1101(1)
is
just
as
much
a
part
of
the
definition
of
classes
as
is
regulation
1100.
What
would
be
the
property
of
the
same
class,
if
regulation
1100
alone
were
considered,
becomes
property
of
a
separate
class,
if
the
case
falls
within
regulation
1101(1).
This
regulation
is
stated
in
plain
terms:
There
can
be
no
doubt
about
the
meaning
and
effect
of
this
regulation.
It
is
part
and
parcel
of
the
whole
system
of
regulation
for
the
prescribing
of
classes
of
assets
for
the
purpose
of
the
capital
cost
allowance
which
may
be
claimed
under
the
provisions
of
the
Act.
The
clear
and
unambiguous
words
of
the
section
are
that
"a
separate
class
is
hereby
prescribed”
for
properties
used
in
different
businesses
or
acquired
for
income
purposes.
Such
a
classification
is
to
be
applied
for
all
purposes.
It
is
not
one
which
comes
into
play
only
when
there
is
a
possibility
of
avoiding
recapture
under
section
20
of
the
Act.
Subsection
1101(1)
applies
in
every
case
where
a
taxpayer
carries
on
more
than
one
business
or
where
a
taxpayer,
in
addition
to
business
assets,
owns
nonbusiness
assets
in
respect
of
which
he
is
entitled
to
claim
capital
cost
allowance.
It
applies
with
respect
to
the
computation
of
the
capital
cost
allowance,
the
recapture
of
capital
cost,
and
the
deduction
of
terminal
losses.
There
is,
therefore,
in
my
opinion,
no
question
of
conflict
between
the
Act
and
the
regulations
and
therefore
no
question
of
invalidity.
The
decision
in
Midwest
Hotel
Co.
dealt
only
with
subsection
1101(1)
of
the
regulations,
which
provided
for
separate
classes
of
depreciation,
particularly
when
the
issue
involved
property
aired
in
the
course
of
different
businesses.
The
decision
in
Midwest
Hotel
Co.
did
not
in
any
way
deal
with
subsections
1100(11)
to
1100(14)
of
the
regulations
which,
as
we
know,
were
not
adopted
until
1972.
4.03.10
The
Court
agrees
with
the
respondent's
arguments.
We
would
add
that
even
though
the
legislator
has
provided,
in
sections
3
and
9,
for
the
method
to
be
used
in
determining
income
and
losses
according
to
general
accounting
principles,
there
is
nothing
to
prevent
the
legislator
from
giving
the
Governor
in
Council
powers
to
regulate
in
respect
of
capital
cost
allowance,
even
though
capital
cost
allowance
influences
the
state
of
income
and
the
expenses
and
does
so
differently
for
different
property.
Moreover,
it
should
be
recalled
that
depreciation
which
is
unused
because
of
the
effect
of
subsection
1100(11)
of
the
regulations
can
still
be
used
in
computing
the
terminal
loss
on
disposition
of
the
property
when
it
is
sold
at
a
price
which
is
lower
than
the
undepreciated
capital
cost,
under
subsection
20(16)
of
the
Act.
Finally,
the
Act
also
has
as
its
objective
to
direct
the
economy.
In
1972,
in
adopting
subsections
1100(11)
to
1100(14)
of
the
Regulations,
the
Governor
in
Council
wished
to
restrict
depreciation
claimed
in
respect
of
rental
property
and
thus
to
check
the
construction
of
apartment
buildings.
In
1974,
and
then
in
1980,
this
time
with
the
aim
of
promoting
the
construction
of
residential
apartment
buildings,
the
Governor
in
Council
created
the
classes
of
property
known
as
31
and
32.
In
Stubart
Investment
Ltd.
v.
The
Queen,
[1984]
1
S.C.R.
536,
[1984]
C.T.C.
294,
84
D.T.C.
6305
Mr.
Justice
Estey
stated,
at
pages
575-76:
Income
tax
legislation,
such
as
the
federal
Act
in
our
country,
is
no
longer
a
simple
device
to
raise
revenue
to
meet
the
cost
of
governing
the
community.
Income
taxation
is
also
employed
by
government
to
attain
selected
economic
policy
objectives.
Thus,
the
statute
is
a
mix
of
fiscal
and
economic
policy.
The
economic
policy
element
of
the
Act
sometimes
takes
the
form
of
an
inducement
to
the
taxpayer
to
undertake
or
redirect
a
specific
activity.
By
taking
this
course,
the
Governor
in
Council
acted,
in
my
view,
in
accordance
with
the
powers
delegated
by
paragraphs
20(1)(a)
and
221(1)(a).
5.
Is
the
income
from
hotel
rooms
income
from
rental
property
as
the
appellant
argues
or
income
from
services
as
the
respondent
argues?
5.01
What
interest
do
these
arguments
by
the
parties
hold?
First,
the
evidence
is
to
the
effect
that
the
income
from
hotel
rooms
amounts
to
80
per
cent
of
the
appellant's
income
from
each
hotel
he
owns.
Second,
a
rental
property
is
a
building
used
principally
for
the
purpose
of
gaining
or
producing
gross
revenue
that
is
rent
(1100(14)).
If
the
respondent's
argument
is
correct,
that
is,
the
income
from
hotel
rooms
is
income
from
services,
the
Court
must
then
find
that
"principally"
the
income
from
each
hotel
(the
hotel
being
a
building)
and
from
all
the
hotels
or
motels
described
in
paragraphs
15(b)
and
15(c)
of
the
reply
to
the
notice
of
appeal
(2.02)
is
not
rental
income
and
therefore
is
not
subject
to
the
restrictions
set
out
in
subsections
1100(11)
to
1100(14)
of
the
regulations,
but
is
subject
only
to
the
provisions
of
subsection
1100(1).
On
the
other
hand,
the
resulting
losses
cannot
be
applied
against
the
income
from
the
appellant's
rental
properties.
On
the
other
hand,
if
the
hotels
generate
principally
rental
income
as
the
appellant
argues,
the
resulting
losses
may
be
applied
against
the
income
from
the
appellant's
other
rental
properties,
and
vice
versa.
5.02
The
problem
involves
the
income
from
the
rooms:
the
income
from
the
restaurant
and
bar
premises
does
not
create
a
problem.
It
is
income
from
a
rental
property,
but
it
amounts
to
only
20
per
cent
of
the
total
income
from
the
appellant's
hotels
and
motels.
5.02.1
While,
under
subsection
1100(14),
rental
property
is
a
building
used
principally
for
the
purpose
of
gaining
gross
revenue
that
is
rent,
on
the
other
hand,
subsection
1100(11)
provides
that
rent
is
“le
revenu
tiré
de
la
location,
à
bail
ou
non
d'un
bien
locatif
possédé
par
lui”.
The
English
version
should
also
be
quoted:
"income
.
.
.
from
renting
or
leasing
a
rental
property
owned
by
him”.
5.03
The
appellant's
argument
5.03.1
Relying
on
the
fact
that"
to
lease”
amounts
to
a
long-term
rental
and
"to
rent"
is
a
short-term
rental,
the
appellant
argues
that
on
its
face
the
rental
of
rooms
is
a
short-term
rental
and
so
it
is
a
question
of
rent
[‘
loyer"],
as
with
the
rental
of
the
restaurant
and
bar
premises
[to
lease].
The
French
version
reads
“bail”
[lease].
According
to
the
Larousse
dictionary,
this
word
means"contract
by
which
the
enjoyment
of
a
moveable
or
immoveable
property
is
assigned
for
a
fixed
price
and
time”
[Translation].
5.03.2
The
appellant
referred
to
the
translation
of
the
word
rent”
in
Harrap's
dictionary
(4.02.(1)),
where
we
find
"loyer".
Le
Petit
Robert
defines
the
word
"loyer"
as,
the
first
meaning,
"prix
d'un
gîte"
f
price
of
a
lodging"]
(4.02(2)):
“lieu
où
l'on
trouve
à
se
loger,
où
l’on
peut
coucher"
["place
where
one
lodges,
where
one
may
rest"]
(4.02(3)).
In
Nelson
(4.02(4))
the
Supreme
Court
held
that
the
words
"renting
rooms
for
living
purposes"
in
the
charter
of
the
city
of
Halifax
described
"the
business
of
a
hotel”.
5.03.3
The
appellant
referred
to
Article
1600
of
the
Civil
Code,
which
defines
the
lease
of
things
as
"a
contract
by
which
the
lessor
binds
himself
towards
the
lessee
to
grant
him
the
enjoyment
of
a
thing
during
a
certain
time,
for
a
consideration,
the
rent.”
The
appellant
then
refers
to
the
Regulation
respecting
hotel
establishments
and
restaurants,
under
the
Hotels
Act
(R.S.Q.,
v.
H-3,
section
11).
A
“customer”
is
defined
in
section
2(b)(ii)
as
follows:
A
person
who:
i.
rents
a
bedroom
for
the
purpose
of
lodging
in
the
establishment
and
also
includes
the
person(s)
accompanying
him;
Sections
132
and
133
of
the
regulation
provides:
132.
Where
an
operator
demands
payment
of
the
price
of
the
rental
fora
bedroom
upon
registration,
he
must
allow
the
customer
to
see
the
room,
and
should
the
customer
refuse
to
occupy
the
bedroom
or
any
other
room
that
may
be
offered
to
him,
the
operator
must
thereupon
refund
the
full
amount
already
charged
and
paid.
133.
The
maximum
duration
of
the
rental
day
of
a
bedroom
is
24
consecutive
hours,
but
the
operator
may
fix
the
time
of
departure
as
he
chooses,
provided
it
is
not
earlier
than
12
h.
Counsel
for
the
appellant
emphasized
the
italicized
words.
5.03.4
Finally,
referring
to
various
interpretation
bulletins
issued
by
the
respondent,
the
appellant
quoted:
Whether
the
renting
of
real
property
by
an
individual
is
a
business
or
not,
the
depreciable
property
(ie.
a
building
other
than
a
building
of
Class
31
or
32)
is
considered
a
“rental
property”
for
purposes
of
capital
cost
allowance.
(IT-434R,
paragraph
18)
In
the
Department's
view
a
person
who
operates
a
hotel
is
in
the
business
of
providing
services
and
not
in
the
rentals
business.
Thus
a
corporation
in
that
business
does
not
qualify
under
regulation
1100(12)
no
matter
that
it
is
its
principal
business.
(IT-377
[sic],
paragraph
10)
5.03.5
The
appellant
admits
that
while
some
hotels
offer,
in
addition
to
the
rental
of
the
room,
various
services
such
as
a
swimming
pool,
exercise
room,
tennis
and
horseback
riding,
this
is
not
the
case
for
the
appellant's
hotels
and
motels.
He
earns
no
income
from
meals,
drinks,
and
so
on,
except
through
the
rent
paid
by
a
tenant
who
operates
these
businesses.
The
appellant
rents
out
space
in
the
building
for
the
restaurant,
the
bar,
the
smoke
shop
and
the
rooms.
His
income
consists
solely
in
rent.
5.03.6
The
appellant
argues
that
while
there
are
some
services,
such
as
room
cleaning,
soap
and
so
on,
these
are
incidental.
In
Centre
d'accueil
Richelieu
Inc.
(4.02(8)),
the
Québec
Court
of
Appeal
cited
Bernard
v.
Residence
St-
Laurent
Inc.,
[1976]
C.A.
384,
in
which
it
was
held
"that
a
lease
does
not
cease
to
be
a
lease
because
it
is
accompanied
by
incidental
services
when
its
principal
object
remains
lodging”
[translation].
According
to
the
appellant,
the
fundamental
problem
is
whether,
first,
this
is
rent.
“Whether
it
is
for
a
day
or
for
a
month
or
a
year
is
not
the
question”,
said
counsel.
[Translation.]
If
it
were
something
else
I
would
understand,
but
the
principle
remains,
if
it
is
a
rental,
whether
more
or
fewer
services
are
provided
does
not
change
it.
If
the
majority—if
it
is
"principally"
to
gain
income
from
services,
if
services
are
provided,
at
that
point
my
argument
would
not
stand,
but
it
is
clear
that
a
customer
who
goes
to
Mr.
Malenfant's
hotels,
the
main
thing
he
is
concerned
with
is
to
have
a
space
that
is
exclusively
his,
that
is
what
he
wants.
Moreover,
along
the
same
line,
what
does
a
person
who
goes
into
his
office
building
want?
He
wants
a
space;
a
person
who
goes
into
his
shopping
centre
wants
a
space;
the
restaurateur
who
wants
to
operate
a
restaurant
in
one
of
Mr.
Malenfant's
hotels,
he
doesn't
want
machinery,
equipment,
he
wants
a
space
to
operate.
Mr.
Malenfant
and
the
members
of
his
family
are
renters
of
space,
of
real
estate
space.
(S.N.,
pages
28
and
29).
[Translation.]
In
the
appellant's
hotels
and
motels
the
services
included
in
the
price
of
the
room
consist
primarily
in
making
up
the
room:
each
day
the
bed
is
made,
the
towels
changed,
and
so
on
(3.04).
There
is
also
the
use
of
the
television,
which
may
be
considered
to
be
a
service.
The
appellant
does
not
believe
that
we
may
consider
the
bed
and
other
basic
furniture
which
are
part
of
the
room
to
be
a
service.
To
summarize,
the
services
provided
in
the
appellant's
hotels
are
incidental.
The
price
paid
for
the
room
is
not
principally
for
the
services
received.
5.03.7
Moreover,
according
to
the
appellant,
the
beds,
the
sheets
and
so
on,
and
other
furniture
found
in
the
room
are
used
in
the
operation
of
the
hotel,
they
are
immoveable
by
destination
forming
an
integral
part
of
the
hotel
where
it
is
found”
[translation]
(Edgar
Gauthier
v.
Auberge
des
Gouveneurs
(4.02(7)).
At
page
769
[sic],
Judge
Thomas
Toth,
quoting
Judge
Salvas
in
Frechette
v.
Rheaume,
[1965]
C.S.
498,
499).
Thus,
according
to
the
appellant,
when
one
rents
a
room
including
all
the
furniture
“forming
an
integral
part
of
the
hotel”,
one
is
renting
immoveable
property.
It
is
a
rental
property
which
provides
rental
income.
5.04
The
respondent's
argument
5.04.1
The
respondent
based
his
argument
that
the
hotel
contract
is
a
contract
for
services
on
texts
in
both
the
Québec
and
French
doctrine
and
the
American
and
Canadian
common
law.
He
also
argues
that
this
is
a
recognized
tax
doctrine.
5.04.2
Québec
doctrine
and
case
law
5.04.2(1)
Jean-Louis
Baudouin
(4.02(24))
classifies
hotel
contracts
under
sui
generis
contracts.
Pierre-Gabriel
Jobin
says
that
a
hotel-keeper
[translation]
enjoys
a
privilege
not
as
a
lessor
but
as
a
creditor
with
a
right
of
retention”
(4.02(25)).
The
respondent
referred
to
the
following
cases:
Lindsay
v.
Vallee
(4.02(26)),
Boileau
v.
Ross
(4.02(27)),
Reny
v.
Dame
Drolet
(4.02(28)),
Grande
v.
Bernier
(4.02(29)),
Dubé
v.
Dufresne
(4.02(30))
and
Reed
v.
Canadian
Pacific
Hotels
Ltd.
(4.02(33)),
which
clearly
distinguish
a
hotel-keeper
from
a
lessor
on
a
number
of
points:
privilege
of
the
lessor,
exceptional
liability
of
the
hotelkeeper
as
a
depositary
(Civil
Code,
Article
1814),
the
hotel-keeper’s
contractual
obligation
of
security,
and
so
on.
To
confirm
the
extent
to
which
the
hotel-keeper's
contract
is
distinct
from
the
hotel
[sic]
contract,
counsel
for
the
respondent
recalls
that
the
lessor's
claim
under
paragraph
2005(8)
of
the
Civil
Code
ranks
lower
than
the
claim
of
a
creditor
who
has
a
right
of
pledge
or
of
retention,
such
as
a
hotel-keeper
(Civil
Code,
articles
1994
and
2001).
5.04.2(2)
Counsel
for
the
respondent
cites
Article
1650.1
of
the
Civil
Code,
which
has
been
in
effect
since
1979:
For
the
purposes
of
articles
1650
to
1665.6,
a
room
is
a
dwelling,
unless
it
is
situated
in
an
establishment
for
which
a
permit
has
been
issued
under
the
Hotels
Act.
.
.or
the
Act
respecting
health
services
and
social
services.
.
.
That
is,
according
to
counsel,
that
[translation]
"the
provisions
relating
specifically
to
the
lease
of
a
dwelling,
a
room
is
a
dwelling,
unless
it
is
situated
in
an
establishment
for
which
a
permit
has
been
issued
under
the
Hotels
Act.
Thus,
if
a
person
wishes
to
complain
about
his
or
her
hotel
room,
the
complaint
is
definitely
not
made
to
the
Regie
du
logement”,
he
concluded.
5.04.3
French
doctrine
and
case
law
After
stating
at
page
21
that
[translation]
“the
hotel-keeper
is
a
professional
businessperson
who
rents
rooms
to
customers
for
a
fee,
for
a
relatively
long
period
of
time”,
Luc
Bihl
(4.02(14))
continues,
at
pages
62
and
63:
A
hotel-keeper
is
bound
to
his
customers
by
a
specific
contract.
.
..
In
reality,
a
hotel
contract
will
vary
depending
on
the
category
of
the
establishment,
ranging
from
simply
making
a
room
available,
in
the
most
modest
hotels,
to
a
great
variety
of
services
in
luxury
hotels
which
go
so
far
as
to
offer
sports
facilities
(for
example,
pools,
medical
(hydrotherapy,
for
example)
or
the
most
wide-ranging
services.
It
is
this
variety
itself
which
makes
any
legal
definition
of
a
hotel
contract
difficult.
To
some
authors,
the
significance
of
the
related
services
makes
it
primarily
a
contract
of
service
and
for
service.
To
others,
the
essence
of
it
being
the
room,
it
is
essentially
a
rental
contract.
Mr.
Rodière
wrote
that
a
hotel
contract
is
the
juxtaposition
of
a
number
of
different
contracts:
contract
for
the
lease
of
things
plus
contract
of
deposit,
plus
contract
of
loan
of
manpower,
plus
contract
for
service
and
even
contract
of
mandate.
What
is
certain
is
that
a
hotel
contract
is
indeed
a
complex
contract
which
cannot
be
reduced
to
a
simple
contract
of
rental,
because
even
in
the
most
modest
establishments
the
rental
of
the
room
will
always
be
accompanied
by
certain
services
not
normally
found
in
a
contract
of
rental:
deposit
of
the
traveller’s
effects
and
breakfast
service,
for
example.
It
is
this
collection
of
related
service
which,
in
the
case
law,
distinguish
the
hotel
contract
from
other
contracts,
inter
alia
from
the
contract
of
rental.
This
is
the
position
adopted
by
the
Cour
de
cassation:
Whereas
the
nature
of
the
hotel
contract
may
be
distinguished
from
that
of
the
contract
of
rental
of
furnished
lodgings,
not
by
the
terms
of
the
agreement,
but
by
the
provision
of
secondary
supplies
that
are
not
normally
found
in
leases
for
the
rental
of
furnished
lodgings.
Accordingly,
the
hotel
contract
may
be
defined
as
being
the
agreement
between
a
businessperson,
the
hotel-keeper,
and
aconsumer,
the
traveller,
under
the
terms
of
which
this
businessperson
makes
available
to
the
traveller,
for
a
certain
time
and
for
consideration,
a
furnished
room,
the
opportunity
to
deposit
his
or
her
effects
there,
and
a
number
of
related
services,
inter
alia
restaurant
services.
[Translation;
Emphasis
added.]
5.04.4
Common
law
doctrine
5.04.4(1)
Counsel
for
the
respondent
argues
that
at
common
law
the
relationship
between
a
hotel-keeper
and
his
customer
is
seen
as
a
relationship
between
innkeeper
and
guest
and
not
as
a
landlord-tenant
relationship.
He
cites
Amirault
and
Archer,
authors
of
Canada's
Hospitality
Law
(4.02(36)),
where
the
following
appears
at
page
1:
At
common
law,
hotels,
including
motor
hotels,
are
considered
to
be
descendants
of
the
traditional
inn—a
building
in
which
travellers,
or
transients,
could
expect
to
receive
temporary
accommodation,
as
well
as
food,
drink,
and
entertainment.
The
legal
rights
and
obligations
of
an
innkeeper
have
been
discussed
and
defined
by
common
law
judges
over
the
centuries.
One
of
the
first
reported
cases
was
that
of
Calye,
77
Eng.
Rep.
520,
where
it
was
held
that
an
innkeeper
(a)
must
receive
a
guest
and
give
him
lodging
and
assistance;
(b)
must
keep
the
guest
and
his
goods
safe;
and
(c)
has
a
right
of
lien
for
his
proper
charges
on
the
guest's
effects.
An
innkeeper
has
also
been
defined
as:
(1)
A
person
who
offers
to
and
in
fact
must
accept
(2)
at
set
rates
(3)
at
all
hours,
etc.
Further
on,
at
page
3
of
the
same
text
(4.02(36)),
the
authors
argue
that
a
motel
which
does
not
serve
food
is
not
"an
inn".
From
the
legal
point
of
view,
a
motel
may
or
may
not
be
considered
to
be
an
inn
required
by
common
law
to
accept
any
qualified
applicant
as
a
guest.
Thus,
in
the
case
of
King
v.
Barclay
and
Barclay's
Motel,
the
motel
was
held
not
to
be
an
inn
because
it
did
not
serve
food,
despite
the
fact
that
the
hotel
displayed
a
notice
under
the
Innkeepers’
Act.
Usually,
a
statutory
distinction
is
made
between
a
motel
and
a
hotel
in
matters
of
zoning,
liquor
licensing,
building
codes,
and
fire
regulations.
Counsel
noted,
[Translation]
“In
this
case,
it
was
not
the
appellant,
but
a
tenant,
who
provided
the
meals.”
Moreover,
at
page
246,
under
the
heading
“
Leases”,
the
author
[sic]
makes
the
following
distinctions,
which
counsel
for
the
respondent
emphasized:
The
owner
of
land
and
buildings
suitable
for
a
hotel,
motel,
or
restaurant
may,
instead
of
occupying
them
himself,
lease
(or
rent)
them
to
another
person.
(The
terms
landlord
and
lessor
are
used
to
describe
the
owner
of
the
real
property
and
the
terms
tenant
and
lessee
to
describe
the
person
who
rents
it).
By
such
an
arrangement,
the
legal
interest
in
the
land
is
divided
between
the
lessee,
who
gets
a
leasehold
interest
for
the
period
of
time
specified,
and
the
lessor,
who
has
a
reversionary
interest—that
is,
the
right
to
regain
possession
of
his
property
on
expiry
of
the
lease.
The
term
lease,
as
well
as
describing
an
interest
inland,
is
used
to
describe
the
tenancy
agreement
that
the
landlord
and
tenant
enter
into.
This
is
a
contract
whereby
the
owner
of
the
real
property
gives
a
person
the
right
to
use
it
for
a
given
period
of
time
in
exchange
for
a
fee,
called
rent.
5.04.4(2)
Counsel
for
the
respondent
also
refers
to
N.
Kalt
(4.02(37)),
where
the
following
appears
at
page
16,
under
the
heading
"Who
is
a
guest?”:
A
guest
is
a
transient
person
who
obtains
accommodations
in
a
hotel.
The
key
to
the
definition
is
the
word
"transient",
and
many
decisions,
involving
a
variety
of
claims,
have
determined
the
exact
nature
of
the
relationship.
The
following
appears
at
page
17,
under
the
heading
"Creation
of
the
hotelguest
relationship":
In
examining
the
transient
character
of
a
guest
in
the
preceding
section,
we
have
noted
that
his
stay
must
be
a
short,
temporary
one
and
that
he
must
come
for
a
legal
purpose.
Since
a
single
hotel
may
offer
a
variety
of
accommodations,
not
all
hotel
guests
can
be
considered
transient.
The
importance
of
making
this
distinction
lies
in
that
fact
that,
unless
the
guest
can
prove
that
he
was
a
transient,
he
cannot
be
afforded
the
protection
of
the
laws
governing
the
hotel-guest
relationship.
A
person
walking
into
a
hotel
to
make
a
purchase
in
the
hotel
drug
store
does
not
acquire
the
status
of
a
guest
by
that
act,
nor
does
a
person
dining
in
the
hotel
restaurant
acquire
that
status,
although
there
are
some
decisions
to
the
contrary.
At
page
28,
the
author
poses
the
question
"Who
is
a
tenant?”,
and
makes
an
initial
distinction:
An
entirely
different
relationship
exists
if
the
relationship
is
that
of
landlordtenant.
The
hotel-guest
relationship
rules
do
not
apply
and
the
landlord
is
free
to
choose
whomever
he
wishes
as
his
tenant,
within
the
confines
of
the
civil
rights
laws.
In
the
case
of
a
tenant,
he
has
absolute
legal
possession
of
his
premises,
even
against
the
landlord.
The
guest
only
has
the
right
of
access
to
his
room,
without
legal
possession.
At
page
29,
he
makes
a
second
distinction:
The
landlord
may
not
exercise
a
lien
against
tenant
property
for
non-payment
of
rent,
whereas
a
hotel
may
hold
guest
property
for
non-payment.
Finally,
he
makes
a
third
distinction
at
pages
29
and
30:
Where
a
tenant
stays
beyond
the
termination
of
his
lease
(barring
rent
control
regulations),
and
the
landlord
does
not
wish
to
renew
with
the
tenant,
his
only
remedy,
if
the
tenant
refuses
to
move,
is
a
dispossess
proceeding.
If
a
guest
stays
beyond
the
time
a
room
was
reserved
(usually
this
is
welcomed
if
the
hotel
is
not
too
busy),
and
the
hotel
is
full,
with
new
guests
arriving,
the
hotel
has
the
right
to
lock
the
guest
out
of
his
room
without
resorting
to
legal
proceedings.
He
then
makes
the
following
comment:
Hotels
many
times
occupy
a
dual
relationship
with
people.
The
hotel
may
have
long-term
residents
with
leases,
and
it
may
cater
to
a
transient
business
as
well.
There
are
sound
financial
reasons
for
this
dual
status,
and
it
is
perfectly
legal.
Long-term
residents
carry
a
good
part
of
the
fixed
financial
obligations
of
the
hotel.
Hence
many
hotels
encourage
this
type
of
business.
5.04.5
Fiscal
doctrine
5.04.5(1)
In
discussing
fiscal
doctrine,
counsel
for
the
respondent
refers
first
to
a
passage
from
a
speech
entitled
“Income
from
rental
real
estate"
given
by
Terry
W.
Marlow.
It
is
reproduced
in
Corporate
Management
Tax
Conference
1977
(4.02(38)).
The
following
appears
at
page
115,
under
the
heading
"Non-Rental
Real
Estate”:
Some
real
estate
is
not
considered
to
produce
rents.
Such
a
property
would
not,
by
definition,
be
a
“rental
property”
and
would
thus
not
be
subject
to
the
restrictions
on
capital
cost
allowance
claims.
An
example
would
be
a
hotel
where
the
investor
operates
the
business.
The
room
charge
is
not
considered
to
be
rent,
since
much
more
is
involved
than
simple
use
of
rental
property.
5.04.5(2)
Next,
referring
to
a
speech
by
J.
Bernstein,
“Current
Real
Estate
Issues”
(4.02(39)),
counsel
for
the
respondent
quotes
the
following
passage
from
pages
142
and
143,
in
which
the
author
comments
on
Interpretation
Bulletin
IT-371:
Revenue
Canada
confirms
that
a
person
who
operates
a
hotel
is
in
the
business
of
providing
services
and
is
not
in
the
rental
business.
An
individual,
partnership
or
corporation
in
the
hotel
business
would
not
be
subject
to
the
rental
property
restriction
in
respect
of
the
hotel
property.
Several
hotels
and
motels
have
been
syndicated
as
tax
shelters.
Similarly,
nursing
homes,
restaurants
and
recreational
clubs
have
been
structured
as
businesses
with
the
result
that
the
rental
property
restriction
does
not
apply.
Such
investments
permit
investors
to
claim
capital
cost
allowance
against
their
income
from
all
sources.
[Emphasis
added.]
5.04.5(3)
Counsel
for
the
respondent
quotes
from
a
speech
given
by
the
same
author,
J.
Bernstein:
"Tax
Planning
for
Professionals
and
Executives"
(4.02(40)).
The
following
passage
appears
at
page
256,
under
the
heading
“Hotel
and
Motel
Syndications":
A
limited
partnership
may
be
formed
to
develop,
construct
and
operate
a
hotel
or
motel.
The
investors
would
be
limited
partners.
Under
provincial
law,
the
liability
of
a
limited
partner
is
restricted
to
the
capital
which
he
has
contributed
or
committed
himself
to
contribute
and
his
share
of
undrawn
profits.
The
general
partner
may
be
a
corporation
owned
by
the
promoter.
The
limited
partnership
would
enter
into
an
agreement
with
the
developer
for
the
construction
and
finishing
of
the
hotel
or
motel.
A
second
agreement
would
be
entered
into
with
the
operator
to
govern
the
management
of
the
hotel
or
motel.
The
partnership
may
deduct
capital
cost
allowance.
As
a
general
rule,
where
a
rental
or
leasing
property
is
acquired,
capital
cost
allowance
is
restricted
to
the
net
rental
or
leasing
income
earned
in
a
year.
This
restriction
does
not
apply
where
business
income,
rather
than
rental
or
leasing
income,
is
earned.
A
hotel
or
a
motel
is
a
business
of
providing
services
and
thus
the
rental
property
and
the
leasing
property
restrictions
do
not
apply.
The
limited
partnership
may
claim
maximum
capital
cost
allowance
in
the
year
regardless
of
the
quantum
of
income,
losses
may
be
allocated
to
and
be
deducted
by
a
limited
partner
to
the
extent
of
the
aggregate
of
his
capital
contribution,
capital
commitment
and
share
of
undrawn
profits.
[Emphasis
added.]
5.04.5(4)
Finally,
counsel
for
the
respondent
notes
that
the
position
taken
by
the
respondent
in
this
case
concerning
hotels
and
motels
is
consistent
with
his
Interpretation
Bulletin
IT-371,
paragraph
10,
cited
above
(5.03.4):
In
the
Department's
view
a
person
who
operates
a
hotel
is
in
the
business
of
providing
services
and
not
in
the
rentals
business.
Thus
a
corporation
in
that
business
does
not
qualify
under
regulation
1100(12)
no
matter
that
it
is
its
principal
business.
5.04.5(5)
Counsel
for
the
respondent
also
quoted
paragraph
7
of
IT-434R
of
April
30,
1982:
The
operation
of
a
rooming
or
lodging
house
that
does
no
more
than
rent
rooms
is
likely
to
be
a
rental
business
because
of
the
supplying
of
cleaning
and
maid
services,
linens,
washroom
supplies
and
so
on.
The
operation
of
a
trailer
court
or
campground
where
all
services
are
provided,
e.g.,
laundromat,
cafeteria,
swim-
ming
pool,
showers,
playgrounds,
etc.,
and
the
operation
of
a
hotel,
motel
or
boarding
house
of
any
size
would
be
a
business,
but
not
a
rental
business
due
to
the
magnitude
of
services
provided.
This
paragraph
of
IT-434R
was
revised
on
July
7,
1989.
It
reads
as
follows:
The
operator
of
a
rooming
or
lodging
house,
hotel
or
motel
would
normally
be
considered
to
be
carrying
on
a
business
where,
in
addition
to
the
basic
services
that
relate
to
the
operation
and
maintenance
of
the
property
as
described
in
5,
extra
services
such
as
the
supply
of
cleaning
and
maid
services,
linens,
washroom
supplies,
dining
facilities,
etc.,
are
provided
for
the
convenience
and
comfort
of
guests.
The
operator
of
a
trailer
court
or
campground
where
services
such
as
laundromat,
cafeteria,
swimming
pool,
washrooms,
showers,
playground,
etc.,
are
provided
would
also
be
considered
to
be
carrying
on
a
business.
See,
however,
the
comments
in
18
below
regarding
the
restrictions
on
the
deduction
of
capital
cost
allowance
pursuant
to
subsection
1100(11)
or
(15)
of
the
regulations.
As
counsel
for
the
respondent
noted,
this
amendment
related
rather
to
classification
as
a
business
and
not
classification
as
rent.
On
this
point,
we
might
quote
paragraph
18
of
IT-434R,
as
amended
on
July
7,1989:
Paragraph
18
is
revised
to
read
as
follows:
"Whether
the
renting
of
real
property
by
an
individual
is
a
business
or
not,
the
depreciable
property
may
be
considered
to
be
a
"rental
property”
or
a
"leasing
property"
for
the
purposes
of
the
capital
cost
allowance
restrictions
contained
in
subsection
1100(11)
or
1100(15)
of
the
regulations.
.
.”
5.04.6(1)
Canadian
case
law
Counsel
for
the
respondent
referred
at
length
to
Felton
(4.02(43)),
Thompson
(4.02(44))
and
Buonincontri
(4.02(45)).
It
is
clearly
held
in
those
judgments
that
the
concept
of
rent
necessarily
results
in
a
landlord-tenant
relationship.
According
to
counsel,
this
relationship
does
not
exist
in
the
case
at
bar.
5.04.6(2)
In
Carey
(4.02(46)),
it
was
decided
that
the
fact
that
the
restaurant
inside
the
hotel
was
rented
to
a
third
person
did
not
prevent
the
owner
of
the
hotel
from
being
“an
innkeeper".
On
the
other
hand,
in
the
reasons
of
a
judgment,
the
judge
states:
"The
defendant
reduced
the
rent
of
his
room.”
We
know
that
in
all
the
appellant's
hotels
the
restaurant
is
rented
to
third
persons;
similarly,
snow
removal
in
the
parking
lots
is
contracted
to
a
third
person.
5.04.7
The
respondent
raises
the
issue
that
the
definition
of
the
word
loyer"
in
Le
Petit
Robert,
quoted
by
the
appellant
(5.03.2),
as
being
"the
price
of
a
lodging”,
refers
to
the
origin
of
the
word
around
1300:
locarium:"
prix
de
gîte"
[price
of
lodging],
the
Latin
root
of
which
is"I
oca
re".
The
first
meaning
given
in
this
dictionary
is,
in
law,
Prix
de
louage
de
chose"
[price
of
the
lease
of
a
thing].
5.05
Analysis
and
decision
5.05.1
The
Court
notes
that
all
the
authorities
cited
which
hold
that
a
hotel
business
is
a
service
business
rely
on
the
fact
that
there
are
services
attached
to
the
rental
of
a
room:
inter
alia,
Amirault
and
Archer
(5.04.4(1))
and
Kalt
(5.04.4(2)),
but
particularly
Luc
Bihl
(5.04.3),
who
should
be
quoted
again
at
some
length:
In
reality,
a
hotel
contract
will
vary
depending
on
the
category
of
the
establishment,
ranging
from
simply
making
a
room
available,
in
the
most
modest
hotels,
to
a
great
variety
of
services
in
luxury
hotels
which
go
so
far
as
to
offer
sports
facilities
(for
example,
pools,
medical
(hydrotherapy,
for
example)
or
the
most
wide-ranging
services.
It
is
this
variety
itself
which
makes
any
legal
definition
of
a
hotel
contract
difficult.
To
some
authors,
the
significance
of
the
related
services
makes
it
primarily
a
contract
of
service
and
for
service.
To
others,
the
essence
of
it
being
the
room,
it
is
essentially
a
rental
contract.
Mr.
Rodiere
wrote
that
a
hotel
contract
is
the
juxtaposition
of
a
number
of
different
contracts:
contract
for
the
lease
of
things
plus
contract
of
deposit,
plus
contract
of
loan
of
manpower,
plus
contract
for
service
and
even
contract
of
mandate.
[Emphasis
added.]
5.05.2
In
my
view,
this
quotation
expresses
the
essence
of
the
opinion
in
the
doctrine
and
is
consistent
with
the
Québec
case
law
cited
by
the
respondent,
which
indicates
that
a
hotel
contract
is
made
up
of
several
elements
(5.04.2(1));
as
we
may
read
in
the
Gazette
du
Palais
of
February,
1977,
referred
to
by
the
respondent
(4.02(23))
and
not
cited
above:
[Translation]
“Is
there
really
a
specific
and
homogeneous
hotel
contract,
or
is
it
merely
a
heterogeneous
conglomerate
of
disparate
obligations?”
[Translation]
To
ask
the
question
is
to
answer
it.
5.05.3
In
this
appeal,
were
the
rooms
in
the
appellants
hotels
and
motels
used
principally
for
the
purpose
of
gaining
gross
revenue
that
is
rent
or
that
is
income
from
services
within
the
meaning
of
subsection
1100(11)
of
the
regulations?
The
balance
of
the
evidence
is
that
the
income
is
derived
principally
from
the
rental
of
rooms
and
not
from
services
(3.04).
I
am
of
the
opinion
that
the
services
to
be
considered
in
a
case
of
this
nature
are
those
included
in
the
price
of
the
room:
the
services
for
which
the
customer
must
pay
a
supplement
cannot
be
considered
as
part
of
the
rent
for
the
room.
Even
though
the
cost
of
meals
taken
in
a
hotel,
the
cost
of
cleaning
or
pressing,
the
cost
of
massages,
the
cost
of
parking,
the
cost
of
sports
facilities,
and
so
on,
are
paid
at
the
same
cash
and
at
the
same
time
as
the
rent
for
the
room,
they
are
not
part
of
the
rent.
Each
customer
is
free
to
use
or
not
to
use
the
services.
In
short,
it
is
only
when
the
services
included
in
the
rent
for
the
room
are
significant
in
number
and
type
that
we
may
say
that
the
income
is
derived
principally
from
services.
This
is
not
the
case
here.
5.05.4
The
respondent's
policy
was
established
primarily
on
the
basis
that
given
that
there
are
often
services
included
in
the
price
of
the
room,
the
income
from
hotels
should
not
be
considered
to
be
rental
revenue,
but
rather
income
from
services.
Bulletin
IT-371,
paragraph
10,
cited
above,
is
clear.
The
passages
from
the
speeches
given
by
T.W.
Marlow
(5.04.5(1))
and
M.J.
Bernstein
(5.04.5(2)
and
(3))
merely
indicate
unconditional
acceptance
of
the
respondent's
policy,
repeating
simply
that
"a
hotel
is
a
business
of
providing
services.
.
.”
without
making
any
further
distinction
or
critical
comment.
There
are
many
hotels
across
Canada
which
offer
no
services.
I
would
recall
the
words
of
Luc
Bihl,
which
also
apply
to
Canada
(5.04.3):
[Translation]
"To
others,
the
essence
of
it
being
the
room,
it
is
essentially
a
rental
contract."
Moreover,
there
has
certainly
been
some
change
in
the
way
the
respondent
has
understood
the
facts,
since
in
1985
the
legislator
decided
to
treat
income
from
hotels
as
income
from
rental
property
(paragraphs
1100(14.1)
and
(14.2)
of
the
regulations).
Interpretation
Bulletin
IT-195R4,
paragraph
6,
explains
this
new
policy:
The
coming-into-force
provisions
with
respect
to
subsection
1100(14.1)
are
very
extensive,
with
variations
that
depend
upon
the
nature
of
the
property
acquired
and
the
timing
of
the
acquisition.
Reference
should
be
made
to
these
provisions
for
more
precise
details.
Thus,
unless
one
of
the
exceptions
set
out
in
the
coming-
into-force
provisions
or
7
below
applies,
gross
revenue
that
is
rent
will
include
revenue
derived
from
a
property
such
as
a
hotel,
motel
or
nursing
home
operation,
where
it
is
established
that
such
revenue
is
ancillary
to
the
use
or
occupation
of
the
property.
On
the
other
hand,
if
the
services
offered
(for
example,
medical
care
in
a
nursing
home)
are
such
that
they
go
beyond
being
merely
ancillary
to
the
use
and
occupation
of
the
property,
gross
revenue
derived
from
such
services
is
not
considered
to
be
rent
derived
from
the
property.
[Emphasis
added.]
5.05.5
To
summarize
all
of
my
thinking
in
few
words,
I
refer
to
the
decision
of
the
Court
of
Appeal,
cited
above
(5.03.6):
“a
lease
does
not
cease
to
be
a
lease
because
it
is
accompanied
by
incidental
services
when
its
principal
object
remains
lodging”.
5.05.6
The
appeal
is
therefore
allowed
on
this
point,
the
issue
of
rental
property,
and
dismissed
as
to
the
argument
that
subsections
1100(11)
to
1100(14)
of
the
Regulations
are
illegal.
6.
Conclusion
The
appeal
from
the
assessments
made
under
the
Income
Tax
Act
for
the
1978
to
1981
taxation
years
is
allowed
with
costs
and
the
assessments
are
referred
back
to
the
respondent
for
reconsideration
on
the
basis
that
the
provisions
1100(11)
to
1100(14)
of
the
regulations
are
intra
vires
and
that
the
income
from
hotels
and
motels
is
principally
rent.
Appeal
allowed
in
part.
In
the
case
of
Colette
Malenfant
(88-2222),
the
problems
with
capital
cost
allowance
are
of
the
same
nature
as
in
the
case
of
her
spouse
Raymond
Malenfant
(88-2221),
and
concern
the
same
buildings
since
the
appellant
and
her
spouse
are
co-owners.
However,
the
amounts
at
issue
are
different:
|
in
1979:
|
$17,266
+
$6,750
|
=
$24,016
|
|
in
1980:
|
$31,669
+
$154,415
|
$186,084
|
|
in
1981:
|
$38,450
|
|
The
reasons
and
findings
set
forth
in
the
case
(88-2221)
apply
mutatis
mutandis
to
the
present
appeal.
Appeal
allowed
in
part.
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