Under the Income Tax Act, depreciation is generally available only on assets that you own. Here’s how this rule applies to a building taken on lease:

• Operating Lease:
  If you lease a building under an operating lease, the building remains the property of the lessor.

  • Result: No depreciation can be claimed on the building itself since you do not own it.

• Finance Lease:
  In cases where the lease arrangement qualifies as a finance lease, the lessee is treated, for tax purposes, as the owner of the asset.

  • Result: You may be eligible to claim depreciation on the leased building.

• Leasehold Improvements:
  Even with an operating lease, if you incur expenses to improve the leased premises (and these improvements are capitalized as assets), you may claim depreciation on those improvements.