All the condo owners in a condo complex that was used only in a high-end commercial accommodation business leased their units to a manager for a share equalling 50% of the aggregate rental income (but with the municipal taxes and condominium fees for common services continuing to be borne by the co-owners directly).
After the manager ceased operations, the syndicate of co-owners took over the operation of the condominium complex, but because there was no working capital, the syndicate retained for a period of 120 days all the revenues generated by the operation of the condominium complex. Now, the syndicate of co-owners has raised a special assessment, corresponding to the amount of the overdue rental income, to serve as working capital for the operation of the commercial accommodation business. Is this special assessment of the taxpayer (one of the co-owners, and amounting in the taxpayer’s case to $7,000) deductible in computing income?
Before addressing the deductibility issue, CRA first noted that this constituted a “compensation” (i.e., set-off) arrangement, and stated:
[T]he two taxpayers involved in the compensation are deemed to have made the payment of their respective debts, even if, in fact, no movement of funds has taken place.
In your situation, the syndicate would therefore be considered to have paid to you the amount of $7,000 in payment as your share of the rental income, which should be included in your income as such, regardless of whether or not that amount was paid to you. For your part, you would be deemed to have paid the amount of $7,000 as a special assessment.