Lessor of a commercial space paid a lease inducement ($16,950 cash payment) to lessee - taxpayer in this situation.
Lessor gave the lessee a set amount per sqft for leasehold improvements made to the space - $16,950.00.
GST/HST memorandum 19.4.1 (Commercial Real Property - Sales and Rentals)
Bolded the paragraphs I felt are applicable
36. Sometimes lease inducements are used for leases of taxable commercial property. The GST/HST consequences vary according to the circumstances of the lease inducement. Examples of the most commonly used lease inducements-rent-free period, reduction of rent, cash payment and leasehold improvements-are discussed below. Note that all examples assume an arm’s length relationship between the landlord and lessee.
44. Frequently, leasehold improvements are used as lease inducements. The GST/HST treatment of leasehold improvements depends on the nature of the transaction. Two of the most common situations are:
** the landlord pays for the improvements, or*
** the landlord provides cash inducements for the lessee to carry out the improvements.*
46. If the landlord provides a cash inducement for the lessee to carry out improvements, the lessee is considered to have made a taxable supply of the construction inputs (i.e., construction services and building materials) used to improve the leased property to the landlord for which the payment is consideration. The lessee, if a GST/HST registrant, must charge and collect GST/HST on the payment received from the landlord. The landlord, if a GST/HST registrant, may claim an ITC with respect to the GST/HST paid or payable on the cash inducement to the lessee. Moreover, the lessee could claim ITCs with respect to the GST/HST paid or payable on purchases used to improve the property.
So does this mean the lessee (taxpayer) books the $16,950.00 as a sale with HST on the books?
DT Cash $16,950
CT Sales $15,000
CT HST $1,950.00
Also, would anyone like to add anything to this?