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: Are monthly lease payment for 3 furnaces deductible as business expenses?
Position: Question of fact as to whether lease is a lease or a purchase
Reasons: Rental expenses if lease Agreement is an ordinary lease and furnaces are used for the purpose of earning rental income
January 20, 1999
Re: Leasing fees as Business Expenses:
This is in reply to your letter of November 6, 1998, wherein you seek our assistance on behalf of a constituent. You state that the individual concerned is leasing 3 furnaces in 3 rental units that he owns with the option of buying them. He wishes to know whether the monthly fees are deductible as business expenses.
The situation that is described involves a series of actual completed transactions involving a specific taxpayer. We caution that this Department cannot disclose any specific information to you about a specific taxpayer unless there is written consent from that taxpayer. Although we are unable to provide any opinion in respect of the transactions described in your letter, we have set out some general comments that may be of some assistance.
Generally, the periodical rental payments stipulated in the lease agreement for the use or right to use the leased property will be considered a deduction in computing a taxpayer’s income to the extent that they are incurred for the purpose of earning income from a business or property.
Generally, we will rely on the assumption that the form of a particular lease agreement reflects the true relationship between the parties so that the lease will be treated as a lease for the purpose of the Act. However, if it is established that the form of the agreement does not reflect the true legal relationship existing between the parties involved, the form of the agreement may be ignored. In such circumstances, the lease agreement will be treated as a sale agreement with the result that the transaction will be treated as an acquisition and disposition of property. We refer you to Interpretation Bulletin, IT 233R, Lease-Option Agreements, Sale-leaseback Agreements and Income Tax Technical News No. 5 which are included for your review.
We trust our comments are of assistance to you
J. F. Oulton, CA
Business and Publications Division
Income Tax Rulings and
Policy and Legislation Branch
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1999
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1999