1991 Ministerial Correspondence 911324 F - Taxation of Prepaid Rent Paid to Non-Residents

By services, 18 January, 2022
Official title
Taxation of Prepaid Rent Paid to Non-Residents
Language
French
CRA tags
212(1)(d), 216
Document number
Citation name
911324
Severed letter type
Ministerial Correspondence
d7 import status
Drupal 7 entity type
Node
Drupal 7 entity ID
631519
Extra import data
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Main text
  911324
  24(1)  
   
  G. Arsenault
  (613) 957-2126

Dear Sirs:

Re: Taxation of Prepaid Rent Paid to Non-Residents

This is in reply to your letter dated May 9, 1991 concerning the taxation of prepaid rent paid to a non-resident person.

Hypothetical Situation

We have considered the matters raised by you in the context of the following hypothetical fact situation:

1.     A Canadian real estate rental property is acquired by a trust. The trust and all of the beneficiaries thereof are non-residents.

2.     The trust enters into a lease of the Canadian real estate property with a Canadian resident lessee for a term of three years.

3.     Under the lease the rent for the entire three year term is paid by one lump sum payment at the commencement of the lease term.

4.     The trust does not carry on business and, more particularly, the income of the trust in respect of the Canadian real estate rental property is property income, not income from a business.

Our Views

A.     If the trust does not elect to be taxed under section 216, the entire lump sum payment of rent referred to in paragraph 3 above will be subject to tax pursuant to paragraph 212(1)(d) of the Act at the rate of 25% of the gross amount thereof.

B.     IT-261R does not purport to apply for purposes of section 216 of the Act and, more specifically, paragraph 10 of IT-261R is not applicable in respect of section 216.

C.     If the trust elects to be taxed pursuant to subsection 216(1) in respect of the rent referred to in paragraph 3 above, the entire amount of such rent payment is included in and is part of the trust's income from real property in Canada under paragraph 216(l)(b) and must therefore be taken into account in determining the tax that pursuant to section 216 the trust is liable to pay under Part 1 for the taxation year during which such rent was paid.  In effect, a reserve for "prepaid" rent cannot be claimed for purposes of taxation pursuant to section 216.

Yours truly,

For DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental     Affairs Branch