5-903052
Dear Sirs:
Re: Deductibility of rent during a rent-free period
We are writing in reply to your October 23, 1990 letter concerning the income tax consequences of a lease inducement received by a tenant in the form of a rent free period.
24(1)
As your request relates to a completed transaction, we cannot comment on it specifically. The district offices of Revenue Canada, Taxation (RCT) have full responsibility for queries concerning completed transactions. You may wish to contact the responsible district office to discuss the appropriate reporting or tax purposes of the transaction which concerns you.
The basic position of RCT is that the deduction of expenses in the calculation of income from a business for tax purposes should be determined pursuant to section 9 unless a specific provision of the Act requires otherwise. In general, paragraph 18(l)(a) would prohibit the deduction of rent during a rent-free period, since no rental expense would be incurred during a period when there is no legal obligation to pay rent. If it was established in a particular case that rental expense in respect of a period after the rent free period was incurred in the earlier period, subsection 18(9) would prohibit the deduction of the amount, as it would be in respect of a period after the end of the taxation year in which the rent-free period occurs.
Our comments are provided in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2.
Yours truly,
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch