IT-359R2 "Premiums and Other Amounts with Respect to Leases " 20 December 1983

1. A premium or other amount received by a landlord or tenant, as the case may be, as consideration for granting or extending a lease or sublease, permitting a sublease, or cancelling a lease or sublease is business income to the recipient if renting property forms part or all of a business being carried on.

4. Amounts a landlord receives from a tenant for cancelling a lease or sublease always constitute income to the landlord.

7. Subject to 1 above, a premium or other amount received by a tenant as consideration for

• (a) assigning a lease,
• (b) granting or extending a sublease, or
• (c) in the case of an amount received from a landlord, permitting the cancellation of a lease

is a capital rather than an income receipt to the recipient. The tenant is considered to have relinquished a right or rights in respect of a leasehold interest, and thus such an amount represents proceeds of disposition of part or all of the leasehold interest.

15. An amount a tenant pays to cancel a lease or sublease is deductible by the tenant in computing income from a business or property provided the rent is so deductible.

An amount paid to obtain or extend a lease generally is made on capital account. In the case of a landlord, an amount paid to obtain cancellation of a lease generally is on income account.

Whether lease cancellation payment recieved as part of rental business

1. A premium or other amount received by a landlord or tenant, as the case may be, as consideration for granting or extending a lease or sublease, permitting a sublease, or cancelling a lease or sublease is business income to the recipient if renting property forms part or all of a business being carried on.