Canada Landlord Reimbursement for Leasehold Improvements - Tax

Sep 24, 2023
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We had an electrician do some electrical upgrades to a unit we are leasing. The landlord agreed to reimburse us for part of the cost. The landlord is paying for the 200amp service upgrade and we are paying for the electrical wiring we require for our specific use.

We received the invoice from the electrician, the payment (SubTotal + HST) was recorded in the Repairs and Maintenance account. This gives us an input tax credit.

We then created an Invoice (again SubTotal + HST) allocated to the Repairs and Maintenance account and sent it to the landlord.

Now I’m not sure if I did this right.

Conceptually it seems correct that we can claim the input tax credit on the expense, and by invoicing the landlord it reduces our input tax credit and he gets to claim the HST on his portion of the expense for the reimbursement.

After sending the invoice I realised that when we file our HST return to the CRA they’re looking for sales and HST collected on sales. I'm not sure if it would be correct to include the invoice to the landlord since we didn’t sell him anything, the transaction was not allocated to a Sales account. But, if I do not include the invoice to the landlord it would result in an incorrect input tax credit that is too high since we would be claiming the landlords portion.

Or, am I missing something? Can I include this reimbursement invoice on the HST return? My apologies, I haven't completed a return yet. Our first return will be coming up shortly.

How do I handle this situation correctly?

Also, I just want to confirm that it is correct to allocate this to the Repairs and Maintenance account. I didn't think it should be depreciated by us (the tenant) for the following reasons:
a. Class 13 states "other than improvements or alterations that are included as part of the building or structure"
b. Class 1 states "A building may belong to Class 1, 3, or 6"... "You also include in these classes the parts that make up the building, such as: electrical wiring, lighting fixtures" etc

I understand that to mean electrical is part of the building or structure, therefore the landlord must depreciate the electrical and not the tenant.

Thank you in advance!

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