6 December 1995 External T.I. 9510665 - LEASE INDUCEMENT 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.

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:

Lease Inducememt Payments - Renewal of Lease

Position:

Required to be amortized over the term of the related lease

Reasons:

Review Committee Referral - Based upon the Canderel decision (below)

		951066
XXXXXXXXXX		J.P. Dunn

Attention: XXXXXXXXXX

December 6, 1995

Dear Sirs:

Re: Lease Inducement Payments

We are writing in response to your correspondence of April 12, 1995 wherein you had requested clarification of the Department's view with respect to lease inducement payments and certain other leasing costs in light of the recent decision of the Federal Court of Appeal in Her Majesty the Queen v. Canderel Limited.

As noted in your letter, the Court, in delivering its judgment, upheld the view of the Department that the lease inducement payments made by the landlord to the tenant in that particular case were to be deferred and amortized over the initial term of the lease. We note further that the parties to this case agreed that the expenditures in question had been incurred for the purpose of gaining or producing income from a business and were not considered to be expenditures on account of capital.

With respect to inducement payments made to facilitate the re-leasing of the property subject to the lease, whether to the same or to a new tenant, the Department, as stated at the 1985 Corporate Management Tax Conference of the Canadian Tax Foundation, considered that such amounts may either be deducted in the year in which the expense is incurred or deferred and amortized to income over the term of the related lease. In view of the comments of the Court in Canderel, the Department has reconsidered this position and is now of the view such payments should be accorded the same treatment for income tax purposes as payments made in respect of the initial leasing of the property; i.e. that those payments should be deferred and amortized over the lease period to which they relate. As this requirement reflects a modification to the Department's previous position, the policy revision will be applicable with respect to lease inducement payments incurred after November 1995.

Similarly, with respect to costs such as commissions or legal fees incurred by a landlord in the course of leasing property, it is the view of the Department that such costs are to be deferred and amortized to income over the term of the related lease.

While we trust that our comments are of assistance to you, we would advise that they do not constitute an advance income tax ruling and are, accordingly, not binding upon the Department with respect to any particular transaction.

Yours truly,

Section Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch