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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
931408
XXXXXXXXXX C. Tremblay
(613) 957-2744
Attention: XXXXXXXXXX
May 26, 1993
Dear Sirs:
Re: Lease Inducement Payments
This is in reply to your letter of May 14, 1993, concerning our position on lease inducement payments made by taxpayers whose ordinary business involved the rental of real property to a non-anchor tenant.
Our position is as stated in response to Question 49 of the 1985 Revenue Canada Round Table at the Canadian Tax Conference and is as follows:
A payment made by a landlord to induce a taxpayer to enter into a lease of property of that landlord (a "lease inducement payment") is to be accorded the undernoted treatment in the situations indicated.
CAPITAL EXPENDITURES A lease inducement payment made in circumstances outside the ordinary course of a payor's business operations is considered to be a non-deductible capital expenditure when it can be established that it yields a benefit of an enduring nature to the landlord.
ELIGIBLE CAPITAL EXPENDITURE
A lease inducement payment made in the ordinary course of a payor's business of property rental to obtain the lead or anchor tenant(s) for a project is considered to be an eligible capital expenditure where such payment yields a benefit of an enduring nature to the landlord. A lead or anchor tenant is so characterized on the basis of such factors as square footage leased, duration of lease and financial and/or marketing importance to the project.
CURRENT EXPENDITURE
A lease inducement payment made in the ordinary course of a landlord's business of property rental to a non-anchor tenant is considered to be on income account. Such a payment is to be deducted in accordance the accepted commercial practice as used in computing income for financial statement purposes provided that practice is not inconsistent with that which is legally permissable. Specifically, lease inducement payments relating to the initial lease of space in a project or building are to be deferred and amortized to income over the term of the related lease. Payments made to facilitate the releasing of that space, whether to the same tenant or a new tenant may be either deducted in the year in which the expense is incurred or deferred and amortized to income over the term of the related lease.
The position reflects the Department's views where the terms of the lease including any renewals are reasonable in the circumstances.
We trust our comments will be of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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