October 07, 2011

Ikea Limited (Appellant) v. Her Majesty the Queen (Respondent)

96 DTC 6526
Federal Court of Appeal
September 19, 1996

(Court File No. A-4-94.)

Income or capital receipt — Tenant inducement payment received by corporate taxpayer in 1986 (prior to enactment of paragraph 12(1)(x) of the Act) — Whether any portion of such payment deductible in 1986 as a reserve — Income Tax Act, R.S.C. 1985, Chapter 1 (5th Supp.), ss. 9(1), 12(1)(x) and 20(1)(n).

During its 1986 taxation year, the corporate taxpayer received a substantial tenant inducement payment, no portion of which was included in its income for tax purposes for that year. In assessing the taxpayer for 1986 the Minister included the payment in its income for that year. The taxpayer’s appeal to the Tax Court of Canada was dismissed (94 DTC 1112) and the taxpayer appealed to the Federal Court of Appeal.

Held: The taxpayer’s appeal was dismissed. The Tax Court judge found that the inducement payment in issue was income rather than a tax-free capital receipt. He also concluded that it had to be included in the taxpayer’s income in the year of receipt (i.e., 1986) and that it could not be deferred and amortized over the life of the lease. There was no basis in fact or in law for interfering with these findings. The Minister’s assessment was affirmed accordingly.