CRA applies the s. 20(1)-preamble source rule, and finds that the principal residence exemption applied to a lease termination payment

A tenant had been annually renewing a lease of a personal-use condo since the time the condo was first leased in July 2013. The condo was sold in February 2019. In order to be able to move in right away, the new owner paid $15,000 to the tenant for early termination of the lease. S. 20(1)(z) provides for deductibility of the amount specified notwithstanding s. 18(1)(a). Did this mean that the $15,000 was deductible in computing the new owner’s income under s. 20(1)(z) notwithstanding that the new owner paid this amount respecting a personal-use asset?

CRA noted that s. 20(1)(z) was not stated to apply notwithstanding the income-source rule in the preamble to s. 20(1). Thus, “the amount to be deducted must be applicable wholly or in part to income from a business or property,” which an examination of the facts might not demonstrate to be the case.

CRA also considered it likely that the tenant continued to have a (single) residential leasehold interest throughout the period since July 2013, so that the $15,000 qualified for the principal residence exemption, i.e., it was consideration for the disposition of the leasehold interest (used as a principal residence) that the tenant had acquired in 2013 and held since then.

Neal Armstrong. Summaries of 11 October 2019 APFF Roundtable, Q.2 under s. 20(1)(z) and s. 40(2)(b).