In a September 24, 2015 Technical Interpretation CRA noted that where a Corporation makes an addition or leasehold improvement to a building rented from a shareholder, and the improvement vests in the owner of the building (becomes owned by the shareholder), a benefit may considered to have been conferred on the shareholder. This means that the shareholder would have to pay tax on the value of the benefit.
CRA noted that if the shareholder reimburses the Corporation for the value of the improvements as they are completed each year, or at the end of the lease term, the benefit may be reduced or eliminated, depending on the particulars. The value of the benefit is roughly the present value of the amount by which the improvement increases the value of the building to the shareholder at the time the building reverts to the shareholder.
Action Items: Exercise caution when a corporation renovates or improving a building that is owned by its shareholder.