1993 Internal T.I. 9337077 F - Treatment of Lease Payments

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.

RULINGS DIRECTORATE CORRESPONDENCE SUMMARY

PRINCIPAL ISSUES:

Treatment of lease charges

POSITION TAKEN:

general response

REASONS FOR POSITION TAKEN:

not enough details

LEGAL:

FINANCE OPINION:

N/A

JURISPRUDENCE:

RCT PUBLICATIONS:

HAA NUMBER:

Put in XXXXXXXXXX corporate file

January 13, 1994

Windsor District Office Head Office

Large Case Program Rulings DirectorateGary Henrich (613) 957-8953

Large Case Auditor

XXXXXXXXXX

This is in reply to your memorandum of December 9, 1993, in which you requested our views concerning certain income tax implications relating to a sale-leaseback transaction entered into by the above noted taxpayer with XXXXXXXXXX

The proper determination of the income tax implications relating to a sale lease-back transaction depends on an analysis of all the facts, documentation and other information pertaining to the particular situation. Based on our discussions, all the information necessary to make such a determination with respect toXXXXXXXXXX is not presently available. However, we will provide you with some general comments on some of the areas identified in your memorandum.

Guarantee Fee

It is our view that where an amount is paid by a taxpayer to guarantee the residual value of an asset, the payment would not be deductible because it is on account of capital; nor would the taxpayer be entitled to add the amount to the cost or capital cost of the asset. Whether the amount would qualify as an eligible capital expenditure remains a question of fact.Business Income

Where the renting or leasing of property forms part or all of the taxpayer's business, any amount received by him as consideration for granting a lease would be included in his income pursuant to section 9 of the Act. However, if the renting or leasing of property does not form part or all of the taxpayer's business, the taxpayer may still be required to include the amount in his income under section 9, depending on the particular fact situation. Alternatively, the amount may be required to be included in the taxpayer's income pursuant to paragraph 12(1)(x) of the Act.

Financing Expenses 20(1)(e) and 18(9)

Where financing expenses are incurred for services rendered in the course of borrowing money as described in paragraph 20(1)(e), the deduction is based on the lesser of the amounts determined under subparagraphs 20(1)(e)(iii) and (iv). However, where such services have not been fully rendered, the application of subsection 18(9) will result in a lesser amount for the purpose of paragraph 20(1)(e).

We trust our comments will be of assistance to you.

for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch