H&R REAL ESTATE INVESTMENT TRUST  H&R FINANCE TRUST  Notes to Combined Financial Statements   (In thousands of dollars, except unit and per unit amounts)  Years ended December 31, 2010 and 2009  1.  Significant accounting policies (continued): Buildings are depreciated on a straight-line basis over their useful lives for a period of approximately 40 years. Building  improvements are amortized over their useful lives, which typically vary between 5 and 20 years. Improvements that do  not meet the capitalization criteria are expensed in full in the period incurred. Paving and equipment are depreciated on  a straight-line basis over their useful lives which is typically 10 years. Intangibles resulting from in-place leases are  amortized over the related lease terms.  Upon acquisition of income properties, the REIT allocates the purchase price to the fair value of assets and liabilities  including land, building and intangibles such as above- and below-market leases, in-place operating leases and  customer relationship value.  Finance Trust qualifies as a mutual fund trust that is not a specified investment flow-through trust under the Income Tax  Act (Canada). In accordance with the terms of Finance Trust’s Declaration of Trust, all of the net income for tax  purposes will be paid or payable to unitholders in the taxation year so that no income tax is payable by Finance Trust. For financial statement reporting purposes, the tax deductibility of Finance Trust's distributions is treated as an  exemption from taxation as Finance Trust distributed and is committed to continue distributing all of its taxable income to  its unitholders.  Income taxes are accounted for using the asset and liability method, whereby future income tax assets and liabilities are  determined based on differences between the carrying amounts of these balances and their corresponding tax basis. Income taxes are computed using substantively enacted corporate income tax rates for the years in which tax and  accounting basis differences are expected to reverse (note 23).  Pursuant to the terms of the REIT’s Declaration of Trust, the trustees of the REIT intend to distribute all taxable income  to unitholders of the REIT and deduct such distributions and designations for Canadian income tax purposes. Rental revenue from all leases is recognized on a straight-line basis over the term of the related lease. The difference  between the rental revenue recognized and the amounts contractually due under the lease agreements is recorded in  accrued rent receivable. The REIT retains substantially all of the benefits and risks of ownership of its income properties and therefore, accounts  for its leases with tenants as operating leases. Rentals from income properties include all amounts from tenants,  including recovery of operating costs.  Leasing costs, such as commissions and tenant improvements, are deferred and amortized on a straight-line basis over  the terms of the related leases. (d) Leasing expenses:  (e) Revenue recognition:  (f) Income taxes:  8 