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.
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:
It is also prudent to consider:
Read an April 2020 report [PDF 137 KB] prepared by the KPMG member firm in South Africa
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