Understanding your obligations as a landlord or tenant
There may be tax implications when you give or receive rent concessions as a result of COVID-19. It’s important to understand these changes and your obligations as a landlord or tenant.
The rent concessions can be:
- A waiver – the tenant no longer needs to pay the amount of rent that is waived
- A deferral – the tenant still needs to pay the amount of rent deferred but they can pay at a later stage
Income and deductions for waived rent
- If the waived rent is related to a past period of occupancy that you have already incurred and claimed a deduction for, you’re still entitled to that deduction.
- If you have already paid the incurred rent and it has been waived and refunded to you, you will need to include this amount in your assessable income when you receive it.
- If you have not already paid the incurred rent and it has been waived, the rent waiver will be a debt forgiveness.
- When a debt you owe is forgiven, you make a gain. The amount isn’t usually included in your business’s assessable income – it is offset against amounts that could otherwise reduce your business’s taxable income.
- If the commercial debt forgiveness rules apply, you will need to make the necessary adjustments. These rules generally apply if some or all of the interest payable on the debt would have been allowed as a deduction had interest been charged.
- If the waived rent is related to a future period of occupancy, you won’t be entitled to a deduction for that amount.
- You should only account for the reduced amount of rent that the business will pay. If you have already accounted for the original rent in your accounts, you’ll need to make an adjustment in your accounts or tax return to ensure you don’t claim this amount as a tax deduction.
Goods and services tax
- If you account for GST on a non-cash (accruals) basis, and have already claimed a GST credit for rent that is later waived, you need to make an increasing adjustment to pay back the GST credit you have claimed.
- Make the adjustment in your BAS in the tax period when you become aware of the adjustment.
Capital gains tax
There are no capital gains tax (CGT) consequences if an existing agreement between a landlord and tenant is changed without payment or other consideration.
For example, when a landlord agrees to a rent concession on an existing lease and the tenant doesn’t pay money or give them anything else for the reduction in the rent they have to pay under the lease. If a new or additional agreement is created, there may be CGT consequences.
Income and deductions for a rent deferral
When you receive a rent deferral, you will still be entitled to a deduction for deferred rent when it is incurred. Rent is generally incurred in the period that the rent relates to or when it is paid.
Goods and services tax
You may be entitled to GST credits for the accrued, but deferred rent.
If you account for GST on a cash basis, you are only entitled to GST credits after you pay the rent and have a tax invoice from your landlord for the amount you’re claiming as a GST credit.
If you account for GST on a non-cash (accruals) basis and have a tax invoice from your landlord, you are entitled to a GST credit, even if you haven’t paid the invoice. However, if your landlord has changed the rental agreement, including the timing or amount of the scheduled payments, then your GST credit entitlement will be based on the new agreement.
If you account for GST on a non-cash (accruals) basis and have already claimed a GST credit for rent that you have not paid your landlord – you will need to make an increasing adjustment in your BAS to pay back the GST credit you have already claimed on the outstanding debt.
Make the adjustment for the tax period when:
- The rent has been overdue for 12 months or more