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  • Tax obligations for tenants

    If you rent a commercial property as your business premises, the rent is deductible –unless part of the premises is for private use. In this case, the portion of rent that is for private use will not be:

    • deductible
    • eligible for GST credits.

    Your business's income tax, GST and capital gains tax (CGT) obligations may change if you have received a rent concession from your landlord due to COVID-19. This may include waiving or deferring your rent payments.

    It's important to understand these changes and your obligations.

    The income you must declare, deductions you can claim and your GST and CGT obligations will depend on:

    • the type of rent concession you have received from your landlord
    • if an existing agreement with your landlord has changed, or a new or additional agreement is created.

    On this page:

    If you have received a rent waiver

    Income and deductions

    Past occupancy

    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.

    See also:

    Future occupancy

    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.

    GST

    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.

    See also:

    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.

    See also:

    If you have received a rent deferral

    Income and deductions

    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.

    GST

    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:

    • you become aware your landlord is writing off the rent as a bad debt
    • the rent has been overdue for 12 months or more.

    See also:

    Last modified: 21 Jun 2021QC 66002