Does a tax advantage exist when paying upfront for leasehold improvement?
Probably, adding the costs to your monthly lease payments is the better choice. By doing so, you obtain a full tax write-off of the improvements by the end of the lease. However, you should crunch out the numbers to determine which payment method is best for you. ADDING THE COSTS TO YOUR MONTHLY LEASE PAYMENTS For tax purposes, the higher monthly lease payment is fully deductible, as long as you dont split it into two amounts: one for the regular rent, and the other for the improvements. In the past, based on economic substance, Canada Revenue Agency (CRA) might have considered part of the monthly rent as a depreciable asset. However, a Supreme Court case, Shell Canada Limited vs. The Queen, indicated that it was inappropriate for CRA to change a legal rental arrangement. PAYING UP FRONT FOR IMPROVEMENTS When you pay up front for improvements, you acquire a depreciable asset, the cost of which you can write-off over a period of time. Tax rules call it capital cost allowance (CCA); acco
