Self-Contained Domestic Establishment

See Also

Denis v. The Queen, 2008 DTC 2004, 2007 TCC 656

Bowman C.J. accepted the position of the taxpayers that the only portion of a (4,448 square foot), two-storey building, that had been constructed for use in a bed and breakfast operation and which had separate entrances from outside for each of the five private guest rooms which was a self-contained domestic establishment was a 504 square foot private area which the taxpayers used for sleeping and other private use and which was not available to the guests. The fact that friends and family occasionally stayed in the guest rooms and the fact that the taxpayers used the kitchen and laundry (situate outside the private area) for both business and personal use did not turn the entire house into a self-contained domestic establishment.

Sudbrack v. The Queen, 2000 DTC 2521, Docket: 98-2386-IT-G (TCC)

The taxpayer and his spouse operated a tourist guest home and used 15% of the area of the home as a private living area ("consisting of a bedroom, living area, bathroom and two bedrooms in an attic for their daughters"). In finding that this private living area was itself a self-contained domestic establishment, rather than the whole of the home constituting such an establishment, Bowman A.C.J. found (p. 2524) that the living quarters were essentially a separate apartment within the inn, and that finding was "more consonant with what subsection 18(12) is seeking to achieve".

Administrative Policy

S4-F2-C2 - Business Use of Home Expenses

Restricted access requirement

2.6 ... A residence is considered to be a self-contained domestic establishment if it is a living unit with restricted access that contains a kitchen, bathroom, and sleeping facilities. A room (or rooms) in a hotel, dormitory, boarding house or bunkhouse would not ordinarily be a self-contained domestic establishment.

Application to bed and breakfast operations

2.7 ... An owner’s living quarters in a bed and breakfast will not usually be a self-contained domestic establishment. This is because the owner does not usually have separate facilities (such as a kitchen or laundry) or living areas (such as a dining or living space) that are private (that is, restricted from guest access) and apart from the rest of the residence.

2.8 ... [T]he following income tax treatment will generally apply to a bed and breakfast operation:

  • the entire residence in which a bed and breakfast operates will be a self-contained domestic establishment within the meaning assigned by subsection 248(1);
  • the portion of the residence used in a bed and breakfast operation will be a work space within a self-contained domestic establishment to which subsection 18(12) will apply;
  • the expenses that may be deducted in a year relating to a bed and breakfast operation will be limited to the income for the year from that operation, pursuant to paragraph 18(12)(b) (discussed further in ¶2.37 - 2.39);
  • expenses not deducted in the year by reason only of paragraph 18(12)(b) will be deemed an expense from the operation in the immediately subsequent tax year, pursuant to paragraph 18(12)(c) (discussed further in ¶2.40 - 2.42).

2.9 ... Although the general treatment of bed and breakfast operations for tax purposes is outlined in ¶2.8 , the CRA recognizes an exception in situations that fall within the same fact pattern as in Sudbrack v The Queen, [2000] 4 CTC 2668, 2000 DTC 2521 where subsection 18(12) was found not to apply.

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