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.
March 31, 1993
| CALGARY DISTRICT OFFICE |
HEAD OFFICE |
| LARGE CASE FILES |
Rulings Directorate |
| |
C. Tremblay (613) 957-2744 |
Attention: A. Bhaloo, Chief
Landlord and Tenants - Rent Free Periods
XXXXXXXXXX
We are writing in response to your memorandum of March 5, 1993, seeking our views with regards to which years our rent free period position should be applied.
Our Comments:
At Question 38 at the Annual Conference of l'Association de planification fiscale et financiere of the 1990 Quèbec Conference, we stated the position that landlords should follow the accrual method for revenue recognition in respect of "rent free" periods as outlined in the CIPREC handbook.
After further consideration, it is now our view, XXXXXXXXXX that the Act does not allow for an "imputed cost" and an "imputed income" to be deferred and amortized in accordance with the commercial practice as set out by CIPREC. In fact, only public real estate companies are required to follow CIPREC for financial statement purposes.
XXXXXXXXXX
With respect to whether the tenant has incurred a rental expense during the initial "rent free" period, it is our view, that he would not have incurred any such expense; rent would only become payable once the rent free period expired. Nothing in the jurisprudence reviewed allows a notional expense to be deducted computed in accordance with GAAP. Accordingly, where the lease agreement indicates that the tenant has a "rent free" period, the tenant cannot deduct any imputed rent expense where there is no binding legal obligation to pay.
Accordingly, the treatment described above should be afforded to XXXXXXXXXX for years 1986 to 1988.
We trust our comments will be of assistance to you
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993
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