41 Victoria SENC – Court of Quebec finds that a tenant inducement payment (TIP) tied to an increase in basic rent was currently deductible to the landlord

A Quebec general partnership (“SENC”) with individual partners agreed with a prospective tenant (“Brookfield”) that it would:

• erect a new building on its lands at its own cost;
• construct the tenant improvements needed by Brookfield (amounting to $17 million) at Brookfield’s cost; and
• pay a tenant improvement allowance of $4.6 million to Brookfield upon Brookfield taking possession.

The lease agreement stated that reimbursement by Brookfield of the allowance would be accomplished by being “amortized over the [15-year] Lease Term and added to the Basic Rent, interest-free.”

Davignon JCQ rejected the ARQ's position that the allowance was a loan to Brookfield, indicating that this was inconsistent with the parties’ agreement being one of lease and with the rejection in Shell of an “economic realities” approach, and further stated:

SENC did not intend to grant Brookfield an interest-free loan, but rather to induce it to commit to a long-term lease by offering it an allowance, among other advantages also provided for in the Lease.

In finding that the allowance was currently deductible by SENC, when paid in 2015, he stated:

[T]he Canderel … rule is simple: a taxpayer may deduct a TIP [tenant inducement payment] … in full in the year of payment where the TIP generates both immediate benefits and benefits relating to future income. …

In this case, as in Canderel, the TIP generated at least one immediate benefit to SENC that materialized in the 2015 taxation year, namely the avoidance of the “hole in income” that the company would have continued to sustain had the mortgaged building remained vacant.

Neal Armstrong. Summaries of 41 Victoria SENC v. ARQ, No. 500-80-040518-202, 22 June 2026 (Court of Quebec) under s. 18(1)(a) – capital expenditure v. expense – current expense v. capital acquisition and s. 9 - timing.