Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
HEAD OFFICE Financial Industries Division Peter Lee (613) 957-2746 We are writing in reply to your memorandum of September 21, 1987 wherein you requested our opinion on whether the lease inducement paid to the above corporation is taxable income pursuant to subsection 9(1) or 12(1)(x) of the Income Tax Act ("Act") or a non-taxable capital receipt pursuant to paragraph 9 of IT-359R2 .
Backgrounds and Facts
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Our Opinions
6. As stated during the Revenue Canada Round Table at the 1986 Canadian Tax Foundation Conference, it is the Department's opinion that the decision in the French Shoes case provides support for the position described in paragraph 9(c) of Intepretation Bulletin IT-359R2 dated December 20, 1983. It is not viewed as broadening the position to include in income every inducement received by a tenant. The position on lease inducements received before May 23, 1985 continues to be as stated in paragraph 9 of IT-359R2 .
7. Based upon the evidence provided to us by the auditor, there is very little support to say that the negotiation of leases is a regular part of XXXX s business operations. Paragraph 9. In our opinion, paragraphs 9(a) and 9(e) of IT-350R2 are applicable and therefore, the incentive fee received by XXXX is a non-taxable capital receipt.
8. The payments made to the lessor with respect to the lesse's portion of leasehold improvement costs may be considered to be a return of a portion of the incentive fee to the lessor. If so, XXXX could be disallowed as rental expenses to XXXX and the other two companies.
We hope that you will find our views as outlined above helpful.
V.A. Sider, Chief Leasing & Financing Section Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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