Is a lease cancellation payment to a rental tenant a deductible current expense?

Generally, yes. A payment made to a tenant to get vacant possession of a rental unit, essentially paying them to leave before their lease would otherwise end, is normally treated as a current expense, deductible in the year it's paid, rather than a capital cost that has to be added to the property and depreciated over time.

This kind of payment is treated as part of the ordinary cost of managing and operating a rental property, similar to other landlord-tenant costs like legal fees related to a lease, rather than something that creates a lasting asset or improvement to the property itself. Landlords sometimes assume a payment this large must be capital simply because of the dollar amount involved, but the size of a payment isn't what determines its tax character - what matters is what the payment is actually for, and getting vacant possession from an existing tenant is generally an operating cost of the rental business rather than an acquisition or improvement of the property. Keeping clear documentation of the payment and the reason for it, such as a written agreement with the departing tenant, supports treating it as a current expense if CRA asks about it later.