(1) Whether the proceeds of disposition for a rental building are affected by a payment by the vendor to the purchaser for the latter's assumption of the obligations with respect to a long-term lease, in the situation where a subsection 20(24) election is filed.
(2) Where an election is not filed, how should the purchaser treat the payment and the expenses with respect to the long-term lease.
(1) In the situation outlined, the so called "pre-paid rent," which covers a period of 20 years, may, in some circumstances, be considered proceeds of disposition, rather than a prepayment of rent. Assuming that the prepaid rent is for a shorter period, and also, assuming that the amount paid by the taxpayer to the purchaser for the assumption of the lease obligations is reasonable, so that the election under subsection 20(24) is applicable, the amount of proceeds would not be affected by a payment for the assumption of the obligations.
(2) The purchaser would include the payment in income pursuant to ss 9(1) or para. 12(1)(x). The costs incurred with respect to these obligations may be deductible if the taxpayer can demonstrate that they are made for the purpose of earning income from a business or property.