Karen Sharlow

The appellant received a tenant inducement payment (TIP) of $2,650,000 for entering into a commercial lease.

The appellant treated the TIP as a capital receipt for tax purposes and did not include it in its income for the year of receipt.

The Minister reassessed the appellant, requiring the entire TIP to be included in income for that year.

The Supreme Court of Canada held that the TIP was on revenue account, as it was inextricably linked to ordinary business operations and could not be linked to a capital purpose.

Furthermore, applying the realization principle, the Court held that the TIP was taxable entirely in the year it was received, as the taxpayer's right to the payment became absolute at that time without restriction.

The Supreme Court of Canada allowed the appeal from the Federal Court of Appeal, agreeing with the dissenting judge and the Tax Court.

The Court held that the property in question retained its character as inventory in the hands of the appellant company after being acquired from a subsidiary.