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.
Principal Issues:
Treatment of prepaid rent
Position TAKEN:
Routine
Reasons FOR POSITION TAKEN:
5-940257
XXXXXXXXXX R. Gagnon
Attention: XXXXXXXXXX
April 20, 1994
Dear Sirs:
Re: Prepaid Rent
This is in reply to your letter of January 28, 1994 wherein you requested our interpretation on the treatment of prepaid rent pursuant to the Income Tax Act ("Act") for lessors and lessees.
Written confirmation of the tax implications inherent in particular transactions are given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request. Where the particular transactions are completed, the enquiry should be addressed to the relevant District Office. However, we can offer you the following general comments which may be of assistance to you.
All references to statute are to the Income Tax Act S.C. 1970-71-72,c.63 as amended consolidated to June 10, 1993.
Where a lessor receives a prepayment of rent for the use of chattels which represents income from a business, he must include the full amount of the prepayment in computing his income for the year of receipt by virtue of paragraph 12(1)(a) of the Act and a reasonable reserve will be allowed under subparagraph 20(1)(m)(iii). The Department's view of what constitutes a reasonable reserve is set out in paragraph 8 of Interpretation Bulletin IT-154R.
Prepaid rent is deductible in computing the income of a taxpayer subject to the provisions of subsection 18(9) of the Act. Subsection 18(9) of the Act provides that the portion of prepaid rent that relates to a period after the end of the year in which the rent is prepaid shall be deductible in computing the income for the subsequent year to which such portion can reasonably be considered to relate.
The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
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