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 inducement payments on re-leasing of space
Position:
Amortization required over the term of the lease
Reasons:
New position for re-leases - 1995 CTF
960041
XXXXXXXXXX C. Tremblay
Attention: XXXXXXXXXX
January 11, 1996
Dear Sirs:
Re: Lease inducement payments
This is to clarify our letter of December 5, 1995 since it has been brought to our attention that it did not fully explain our views.
With respect to the current deductibility of lease inducement payments relating to the re-leasing of space in a project or building, our position up to November 30, 1995 was, as stated at the 1985 Canadian Tax Foundation, that the payment was to be deducted in accordance with accepted commercial practice as used in computing income for financial statement purposes. Thus, for income tax purposes, the taxpayer could follow the same method as used in preparing the financial statements.
In view of the comments of the Court in the Canderel decision that these types of payments are "clearly expenses related to particular items of income" and that "the amortization method is the only method acceptable for income tax purposes", the Department has concluded that there is no compelling reason to distinguish the treatment of costs related to an initial lease from those related to the re-leasing of space. Consequently, the Department considers that costs related to the re-leasing of space should be amortized over the term of the related lease regardless of the method used by the taxpayer in preparing financial statements.
Accordingly, all lease inducement payments must be amortized over the term of the related lease for tax purposes other than payments incurred or agreed to in writing prior to November 1995, with respect to a re-leasing of space if such payment was deducted by the payor as an expense for financial statements purposes in accordance with accepted commercial practice.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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