I am about to rent out one of my houses which happens to have a guest house on the property. The future tenant has requested to sign two different lease agreements, one for the guest house, and the other for the main house. Splitting the total rent by half for each, so he is able to write off the guest house to his business.
Is this legal or any tax implications on my end? I live in Canada but can't seem to find anything on this.
Any help would be greatly appreciated.
I don't think this would be a problem from a tax perspective.
From other/legal perspectives, there could be some differences. For example, what if he wants to continue one lease and not the other? What if you need to evict the tenant, you now need to evict on both leases. Also, does the zoning allow you to rent to two parties? Does the zoning allow you to rent the guest house separately to business purposes?
I understand why the tenant is asking for this, but realistically, there should be no issue with the tenant signing one lease and then allocating half of that cost as a business expense for tax purposes. It's harder for the CRA to challenge with separate leases, but really doesn't seem necessary.
This isn't legal or tax advice, just my $0.02.
Thank's Luc, appreciate your input! I'm going to call the zoning office and see if this is even legal..
As Luc mentioned, I would go with a single lease as well and let the tenant apportion an amount to their business.
If he wants to sign one lease as his residence and the other for his business office, you might find yourself in a situation where you should be charging HST on the "commercial" lease.
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