Words and Phrases - "rent"
CI Burland Properties Limited v MNR, 68 DTC 5220 (SCC)
Municipal taxes which, under the terms of the real property lease between the non-resident taxpayer and a resident tenant, the tenant agreed to pay were found to be payments similar to rent made for the use in Canada of property and, therefore, were subject to withholding tax under s. 106(1)(d) of the pre-1972 Act, which applied to a "rent, royalty or a similar payment, including, but not so as to restrict the generality of the foregoing, any such payment ... for the use in Canada of property".
Extendicare International Inc. v. Minister of Revenue, 2000 CanLII 5653 (Ont CA)
The appellant, which had been leasing computer equipment, notified the lessor that it would no longer be making the agreed monthly payments nor using the equipment. Following negotiations, the lessor agreed to release the appellant from any further obligation to make monthly lease payments upon payment of a fixed amount of compensation. At issue was whether such payments were subject to Ontario retail sales tax, which turned on whether such payments were for the consumption or use of the equipment.
In finding that no retail sales tax was applicable, Macpherson J.A. stated (at para. 57):
The appellant defaulted under the lease. After the appellant breached and repudiated the lease, C Ltd. could have terminated it immediately and repossessed the leased computer equipment. In addition, or in the alternative, it could have commenced an action against the appellant for damages. The appellant and C Ltd. entered into negotiations against the backdrop of those two options, not against a backdrop of the continuation of the operation of the lease. The compensation payments constituted settlement payments, not payments made under the lease. The effect of s. 2(1) and (6) of the Retail Sales Tax Act is that sales tax must be paid only with respect to each rental payment while the lease is still in operation. Sales tax was not payable on the compensation payments.
29 July 2019 External T.I. 2018-0784701E5 - Rent from real/immovable properties - furnishings
All of the rent generated from a rental unit that was fully-furnished with “furnishings typically … found in a residence” would qualify as “rent from real or immovable properties.”
Felton v. MNR, 89 DTC 233, [1989] 1 CTC 2329 (TCC)
Since at common law "rent" connates only a payment arising out of a landlord-tenant relationship, home office expenses of the taxpayer (i.e., a pro rata portion of mortgage interest, municipal taxes, insurance premiums and utilities) were not deductible. [C.R.: 248(1) - "former business property"]
Shaw v. The Queen, 89 DTC 5194, [1989] 1 CTC 386 (FCTD), aff'd 93 DTC 5213 (FCA)
The taxpayer and her husband had operated a service station in partnership and then transferred pursuant to s. 85(2) the assets of the business other than the land (which was leased under a head lease to BP Oil Ltd., which subleased the land back to the taxpayer) to a corporation owned by them. It was found that on the same incorporation transactions she had assigned to the corporation her right to receive gallonage and other rental payments from BP under the head lease as well as assigning the head lease and sublease (considered as an integrated whole). S.56(4) did not apply because there was no diversion by the taxpayer to the corporation of income to which she otherwise would have been beneficially entitled. Instead, the corporation was beneficially entitled to the BP gallonage payments as the party who had earned the income represented thereby.
In addition, the exclusion for property transfers (namely, the assignment of the rents payable and the lease) applied.
McNair J stated:
Rent is the recompense payable by the tenant to the landlord for the possession and use of the demised premises. A covenant to pay rent runs with the land, the benefit of which passes to the assignee of the lessee. …
[T]he oral sublease between the plaintiffs and [the corporation] eliminates any element of doubt that the net effect of the whole transaction was to transfer the head lease and the gallonage payment rentals to the corporation, notwithstanding that there was not express formal assignment of the head lease itself.
Buonincontri v. The Queen, 85 DTC 5277, [1985] 1 CTC 370 (FCTD)
It was held that an 11 suite apartment building had been purchased by a tailor for the purpose of retaining it and renting it, and was accordingly a rental property given the ordinary meaning of the word "rent". In addition, the rental income earned was property income rather than business income. The building accordingly was not a former business property.
MNR v. Paris Canada Films Ltd., 62 DTC 1338, [1962] CTC 538 (Ex Ct)
Dumoulin J. stated (p. 1341):
"I incline to believe that a lump-sum payment for rights irrevocably ceded, tantamount to an assignment in perpetuity ... can hardly be reconciled with the customarily accepted notion attaching to 'rent or royalties', id est: limit of time, retention of a 'jus in re' by the lessor, and periodical rentals by the lessee, either for fixed sums or an apportionment of receipts."
He also noted that the use of the word "rental" in the agreement, although not conclusive, afforded "some indication" that the payments were in the nature of rent.
United Geophysical Co. of Canada v. MNR, 61 DTC 1099, [1961] CTC 134 (Ex Ct)
In finding that payments made by the taxpayer to its U.S. parent for the use by it of equipment in its Canadian business represented "rent, royalty or a similar payment" under s. 106(1)(d) of the pre-1972 Act, Thurlow J. stated (at p. 1105):
"... In its ordinary usage, as opposed to its technical legal meaning, the word 'rent', besides referring to returns of that nature from real property, is broad enough to include a payment for the hire of personal property ... . The subsection ... include[s] a fixed amount paid as rental for the use of personal property for a certain time."
Transocean Offshore Ltd. v. Canada, 2005 DTC 5201, 2005 FCA 104
Lump-sum damages received by the non-resident taxpayer from Canadian residents for the repudiation, prior to the slated operational commencement date, of a bare-boat charter of a drilling rig owned by its parent, were found to be payments received in lieu of the payment of rent, so that it was not entitled to a refund of Part XIII tax withheld. After noting (at para. 45) that "rent is defined as an amount paid as compensation for the use or occupation of property, or for the right to use or occupy property", and that the references to payments made "on account of" such compensation or "in satisfaction of" such compensation would "appear to cover virtually all situations in which a payment is made to discharge, in full or in part, an obligation to pay compensation to a non-resident for the past or current use, in Canada, of property", Sharlow J.A. went on to state (at paras. 47-48):
The ordinary meaning of the phrase 'in lieu of', according to a number of dictionaries, is 'instead of' or 'in place of' ... . It seems axiomatic that an amount that is paid instead of a payment of a particular legal character, or in the place of such a payment, does not have the same legal character ... "If the phrase 'in lieu of rent' is interpreted to include only payments made as compensation for the past or current use of property, which essentially the position of counsel for Transocean, it would add nothing to paragraph 212(1)(d) ... .
Puder v. MNR, 63 DTC 1282 (Ex Ct) imposed "an unjustifiably narrow meaning on the phrase 'in lieu of'" as it failed to recognize that "a thing may take the place of another thing if it...performs a function that is not exactly the same but is a reasonable substitute" (para. 60).
IT-303 "Know-How and Similar Payments to Non-Residents"
Meaning of royalty
7. The Department considers that the words "rent" and "royalty" are used in a broad sense and are not necessarily restricted to periodic payments, but may in certain circumstances include single or lump-sum payments. In general, a rent or royalty represents a payment made to the owner of property for the right to use such property for a given period of time. In most circumstances where a rent or royalty is paid, the owner of the property used by the person paying the rent or royalty retains ownership. However, where property in Canada is sold and payment is dependent upon the use of or production from the property, this payment will be subject to tax under subparagraph 212(1)(d)(v), unless the property is agricultural land.