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When you own a business, there may come a time when you require an office space to facilitate and grow your operation. While it’s awesome to work from the comfort of your home, it can feel even more amazing to have a customized, professional space to call your own.
The process of finding a new office space can be an exciting, yet daunting, experience, especially when you factor in leasehold improvements. Leasehold improvements are what make the space uniquely yours, for example, paint colour, furnishings, or specialized equipment. To learn more about leasehold improvements, their pros and cons, and what to consider when proceeding with leasehold improvements, continue reading below.
When a business leases an office or facility, they will likely want to customize the area for their unique needs. These customizations are better known as leasehold improvements. Leasehold improvements can be a small as changing the lighting or as large as installing specialized equipment. Below are several examples of leasehold improvements particular companies might want.
Keep in mind that leasehold improvements are not the same as building improvements. A building improvement is something that generally benefits everyone occupying the building or shared rented space. A leasehold improvement is something that only benefits the tenant of a particular space.
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Leasehold improvements are helpful for many aspects of a business, but they also have some drawbacks. Let’s explore the affiliated pros and cons further below.
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As with every major financial decision, its best to consider your current financial position, budget and goals before finalizing anything. It can help to write down all of your needs and goals, plus the affiliated cost, to paint a picture of the situation. Once you visualize and conceptualize what’s going on, it can be easier to make a final decision. Whether or not leasehold improvements are a good idea for you depends on your situation entirely. Remember, what’s best for your business might not be best for another!
If you’re in the process of obtaining a lease, you likely have lots of questions, as you should. To answer all your leasehold improvement questions, below is a list of frequently asked questions along with their responses.
The answer to this question is not black and white, unfortunately. When you’re getting ready to sign a lease, negotiating who pays for leasehold improvements is one topic you’ll cover with the landlord. Often, landlords will provide a ‘leasehold improvement allowance’ for their tenants which is merely a set amount they agree to pay for. If the improvements you want cost more than the allowance, you will be responsible for those extra costs.
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In the eyes of the Canadian Revenue Agency (CRA), leasehold improvements are seen as an asset. The majority of assets are eligible for a corresponding expense known as depreciation or capital cost allowance (CCA). The good thing about depreciation is that it’s deductible for tax purposes. The more depreciation you deduct, the lower your taxes will be. Be sure to keep detailed records and receipts of all leasehold improvements you incur for tax purposes. When it comes to filing taxes, use your records to calculate CCA.
Keep in mind that the CRA has special rules surrounding depreciation and CCA. For more information, visit this website and this website.
Naturally, the more alterations a space needs, the more you will spend on leasehold improvements. To keep your leasehold improvement costs low, try to find a space that requires as little changes as possible. Start by looking for spaces that were used for a similar purpose as your own. Also, do your best to steer clear of new builds because they can require basic work, such as electrical wiring, plumbing and drywalling before you even consider furniture, lighting and painting costs among others.
Finally, remember that leasehold improvements can’t usually be taken with you unless it’s something movable like furniture. Even if you have a big budget for your space, it’s wise to keep costs low and preserve your cash for other things since the costs can’t ever be taken back.
Leasehold improvements can better the quality of your business and create a space that’s best for you, but it comes with a price and usually, none of the improvements can be taken with you. Before making any final choices, be sure to consider your needs, goals, and budget. If you’re interested in learning more about your business financing options, including financing to help with leasehold improvements, Loans Canada can help.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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