Are tenants leasehold improvements a taxable benefit?  

Can a landlord be taxed for improvements created by a tenant leasing their property?

 “Absolutely” says Stacey Goodwin, CPA, CA, LPA and partner at Millards Chartered Accountants. “A shareholder may have to pay tax on the value of the benefit by which the improvement increases the value of the building.”

 In a September 24, 2015 Technical Interpretation CRA noted that where a Corporation makes an addition or leasehold improvement to a building rented from a shareholder, and the improvement vests in the owner of the building, a benefit may considered to have been conferred on the shareholder. 

 “Essentially, the shareholder benefits from the value of the improvements. That value is roughly the present value of the amount by which the improvement increases the value of the building to the shareholder at the time the building reverts to the shareholder.”

 Goodwin points out that a property owner can reduce or eliminate the benefit.

 “If the shareholder reimburses the Corporation for the value of the improvements as they are completed each year, or at the end of the lease term, the benefit may be reduced or eliminated, depending on the particulars.”

 Goodwin advises shareholders to be mindful and exercise caution when a corporation renovates or improves a building that is owned by its shareholder.

 With Millards since 1991, Goodwin specializes in owner managed businesses, professional and service industries, manufacturing and distribution and farming. She also provides accounting and auditing services, corporate and personal taxes, and management and advisory services.

 If you have any questions about taxable benefits or any other accounting challenge, please contact a Millards Professional Chartered Accountants office near you.