What is a Tenant Inducement? Tax and Accounting Implications

Tenant inducements are something that can seem like an easy choice. If you’re offered a tenant inducement or considering offering them to find more business, it can seem like an easy giveaway, but that’s not always the case. Tenant inducements can impact your annual taxation and have many implications regarding bookkeeping and your business’ accounting needs. Read our blog on what a tenant inducement is, how they work for tenants as well as landlords and property managers, and why you should always talk to a professional accountant first! 

What is a tenant inducement? 

A tenant inducement is an incentive given by landlords as a means to attract new tenants or encourage existing tenants to renew their leases. Landlords, or someone acting on behalf of the landlord, use tenant inducements to maintain and increase their tenant numbers. There are many kinds of tenant inducements that can range from rent abatements to having the landlord pay a prospective tenant’s penalties for breaking an existing lease, or signing bonuses and tenant compensation for improvements to the space. 

As a tenant, how does a tenant inducement impact taxes and financials?

As a tenant, you will need to agree to the terms of the tenant inducement and ensure that what your landlord is offering is worthwhile to sign a new lease. Whether you’re a commercial tenant or a personal tenant, tenant inducements are treated as a form of income. If you receive a financial inducement, be sure to keep accurate records of all transactions and claim the inducement on your taxes. If the tenant inducement is more incentive based, rather than cash based, talk to an accountant about how that might impact your taxes. When it comes to incentives, the tax implications are varied based on what kind of incentives you receive and whether or not they need to be claimed as a form of income. 

As a landlord, how does a tenant inducement impact taxes and financials?

As a landlord, any tenant inducement can be treated as a business expense and as such as a deduction. Make sure to track all tenant inducements through your current bookkeeping processes. Typically, providing a tenant inducement should lower your taxes if correctly claimed as an expense, However, depending on certain circumstances, a tenant inducement may be capitalized. Before offering tenant inducements, talk to your accountant about the full tax implications to ensure that these inducements will be worthwhile. 

Are tenant inducements viewed as a payment?

In short, yes, tenant inducements are often viewed as a payment/income by the CRA. As a tenant, you will need to claim the inducement whether you’re a commercial or personal tenant. Commercial tenants will need to claim tenant inducements differently, as rather than being added to your income, it would be added to your business’ gross earnings. Before accepting a tenant inducement, it’s a wise choice to speak with an accountant. A qualified CPA accountant will review your financial statements and the proposed tenant inducement to give you a clear idea of if the tenant inducement would be a good financial choice.

Gallo LLP Chartered Professional Accountants have plenty of experience working with commercial and personal tenants as well as landlords and property managers. If you’re considering offering a tenant inducement to drum up business, or accepting a tenant inducement, give Gallo LLP a call first! One of our experienced accountants will provide clear financial advice that will help you make the best decision.


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