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:
Whether lease inducements should be expensed in the year of payment or amortized over the life of the lease.
Position TAKEN:
Amortized over the life of the lease.
Reasons FOR POSITION TAKEN:
Consistent with previous position and recent jurisprudence.
March 22, 1995
TORONTO DISTRICT OFFICE HEAD OFFICE
Section 453-1-8 Income Tax Rulings and
Phillip Krakower & Martin Burns Interpretations Directorate
Large File Case Auditor/Manager Allan Nelson
(613) 957-2745
950440
Tenant Allowances/Inducements Paid by Developers
This is in reply to your memorandum to us dated February 14, 1995, and our subsequent telephone conversation (Nelson/Burns) regarding the tax treatment of lease inducement payments made by developers.
Background
Prior to 1991, the major developers, which you audit, amortized most of their tenant inducements payments over the term of their leases (the "Amortization Method"). For the 1991 and subsequent taxation years, these developers commenced deducting the full amount of these lease inducement payments all in the year of payment (the "Running Expense Method"). This change in reporting methods was prompted by recent Court decisions in cases such as Toronto College Park Ltd. v. The Queen (94 DTC 6172) and Canderel Limited v. The Queen (94 DTC 1133). In both of these cases, the Court ruled that the Running Expense Method was appropriate in the circumstances.
Audit's Query
What is the department's position concerning the current deductibility of tenant inducement payments made, in the ordinary course of a landlord's business of property rental, to non-anchor tenants?
Rulings' Position
Our position has not changed. Lease inducement payments made, in the ordinary course of a landlord's business of property rental, to non-anchor tenants, are considered to be on income account. Such lease inducement payments relating to the initial lease of space in a project or building are to be deferred and amortized to income over the term of the related lease (i.e. the Amortization Method). This position is supported by the Judgment rendered by the Federal Court of Appeal on February 13, 1995, in the case of Her Majesty the Queen v. Canderel Limited. Therein, the decision of the Tax Court of Canada was reversed and the matching principle (i.e. referred to in this memorandum as the Amortization Method) was applied, as opposed to treating the lease inducement payments as running expenses.
XXXXXXXXXX
If you have additional queries on this matter, please contact us.
Chief
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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, 1995
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, 1995
Email this Content