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South Africa: Tax implications of rent relief provided by landlords (COVID-19)

South Africa: Tax implications of rent relief

Rental expenses are one of the most significant monthly fixed expenses and cash outflows for taxpayers, and it is anticipated that one of the industries that will be particularly affected by the “lockdown” in response to the coronavirus (COVID-19) pandemic is the property industry.


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Because the nationwide lockdown prevents tenants from earning income, or when income is significantly curtailed or tenants cannot carry on their trade, these tenants may not be in a position to meet their monthly rental obligations. In order to aid tenants, landlords may provide relief by waiving outstanding lease payments, reducing monthly rental installments for a period of time, postponing payment of lease installments until a future date or even re-negotiating the terms of lease agreements in totality. Landlords may even agree with their tenants to receive rental income in a form other than cash.

Tax implications for landlords

Negotiations to change the payment terms of lease agreements will look different for each landlord. The tax implications of any relief provided to tenants will depend on the specific agreement, or the specific circumstances and must therefore be considered on a case-by-case basis. The formal agreement reached and the proposed changes to the agreement need to be carefully reviewed to determine the true intention, and practical implications, of the amended terms for both the landlord and tenant.

The income tax implications for landlords in situations when tenants cannot pay or from amended lease payment terms include:

  • Provision for doubtful debts and bad debts written off: A deduction in terms of bad debts may be available to landlords on rental income that is considered gross income, which becomes irrecoverable. A tax allowance in respect of a portion of the landlord’s debts receivable that is regarded as doubtful in terms of recovery currently is between 25% and 40% but may be as high as 85% in certain circumstances.
  • Waiver of or postponement of payment of rental income: When the payment of rent is postponed by a landlord, it is important to determine whether the unconditional right to receive such rental income by the landlord remains intact. Any scenario when the rental income still accrues to the landlord may give rise to cash flow constraints if the rental income is not received before the tax liability on the rental income becomes payable or in circumstances when the accrual and postponement does not take place in the same tax year of assessment. In addition, any waiver needs to be evaluated from both a tax deduction and capital gains tax perspective.

Other considerations

It is also prudent to consider:

  • Any value added tax (VAT) implications
  • Whether there are any aspects to consider from a corporate law perspective
  • The timing of any amendments to agreements
  • Determine the timing of receipt/accrual of rental income appropriately so that provisional tax payments are not underestimated

Read an April 2020 report [PDF 137 KB] prepared by the KPMG member firm in South Africa

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