Cancel commercial lease early

Tax Topics
1

Taxpayer had to break their commercial lease early due to business closure. It was a retail store that sold taxable goods. They paid the landlord fees for early lease cancellation which was a commission and one month’s rent for the new tenant.

I reviewed Income Tax Folio S4-F2-C1, Deductibility of Fines and Penalties.

I looked at paragraph 1.1 and have determined this is a penalty Levied under private contracts.

I looked at paragraph 1.2 which states section 67.6 would not apply. This situation I believe satisfies each of the general tests outlined in paragraph 1.2 b therefore can be expensed.

I will expense these fees in the rent expense category.

Does anyone see this differently?

2

Should be common sense - this is a cost of doing business (which includes business closure). It’s not a fine levied by police or any kind of regulatory body.

That folio and ITA 67.6 exist mostly to prevent people from deducting things like when an employee gets a speeding ticket. Such fines are not tax deductible, even if the business reimbursed the employee for the cost (i.e. expensed in the bookkeeping). Even if the business “forced” the employee to do something that incurred a fine.

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