Extensive renovations were made to a house on the edge of a New Brunswick harbour in order that it could serve as a guest house. Five bedrooms with adjoining bathrooms were installed for guests. A new kitchen was added and three dining rooms. A private living area, representing 15% of the total area, was installed for the taxpayer (Mr. Sudbrack) and his wife 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. stated (at para. 19, 21-22):
[T]he separate living quarters of the family, which are essentially a separate apartment within the inn, constitute the self-contained domestic establishment. …
Moreover, if the inn as a whole is the "work space" that work space is "the individual's principal place of business". Accordingly there is, in effect, excised from the area to which the limitation in paragraph (a) applies the 85% of the inn in which the family does not live.
The work space within the "self-contained domestic establishment" (the family apartment) would consist of the kitchen which served the dual function as the family cooking space and the restaurant cooking space and the small room where Mr. Sudbrack kept his computer, records and other equipment for the purposes of the business.
The result of this is that the disallowances…under subsection 18(12)… will need to be reduced. I do not propose to attempt this calculation, but the amounts disallowed would need to be reduced by at least 85%.