RSS

Media Releases from members of Sources.
To submit a news release, use this form.


Tenant Inducements for Commercial Property

October 7, 2009

Prospective tenants of commercial property have many alternatives when choosing commercial space these days. In order to attract new tenants to available commercial space, landlords frequently provide cash payments to new tenants (for example, so many dollars per square foot leased) as an incentive for new tenants to enter the lease. Generally, these inducements allow for tenant improvements to the space. Rather than the inducement being treated as part of the tenant′s taxable income, often in such circumstances, the receipt reduces the tenant′s tax cost of leasehold improvements. For the tenant, it is the actual receipt and not, merely, the signing of the lease, which results in the inducement becoming relevant for income tax purposes.

However, there can also be tax advantages for the landlord as well. Case law indicates that specific tenant inducements are deductible as current expenses to the landlord. These are known as "running expenses".

An immediate tax write-off as a running expense appears to be available under two conditions:

1. the money is paid as an incentive to have the tenant enter the lease; and
2. the funds are directed to be paid solely for building alterations which are specific to the tenant′s needs during the lease (such as the specific partitioning of the space into those offices required by the tenant).

In many instances, the landlord retains a right, which is written into the lease, to approve the standard of such work before payment is made. This tax deduction position is bolstered if the tenant uses the funds to make alterations which would have minimal value once the tenant vacates the leased space.

If instead, the landlord made a capital expenditure such as lasting structural improvements, this tax deduction will not be available. This includes payment for an enduring capital improvement to the landlord′s building.

When structuring or negotiating tenant inducements, professional advice can be advantageous.

Gary is the Senior Partner in the Tax Group at Soberman LLP and has over 25 years experience consulting with owner-managed businesses. Gary is primarily involved with corporate strategic planning including acquisitions and reorganizations.

You can contact Gary at 416 963 7113 or gkopstick@soberman.com.


For more information contact:
Gary Kopstick
Senior Tax Partner
Soberman LLP, Chartered Accountants
Phone: 416 963 7113
Email: gkopstick@soberman.com
Website: www.soberman.com

Click here to view our Sources Listing


Topics:



    Information and Media Resources from Sources
Main News Release page Media releases from clients of the Sources media relations service.
Sources Calendar Check out newsworthy events from across Canada.
Sources Directory Search the Sources directory of experts, contacts and media spokespersons. Find how to include yourself in Sources.
Publish your news releases Sources can help you distribute your media releases
Media Names & Numbers Directory of Canada's print and broadcast media.
Parliamentary Names & Numbers Full contact information for government, political parties, lobbyists, and embassies.

Sources home page