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Tax implications for tenants

Tax implications for commercial tenants deferred or waived rent, including from bankruptcy or insolvency variations.

Last updated 26 October 2022

When there are tax implications

There may be tax implications while running your business if you:

  • received a rent waiver or deferral from your landlord
  • can’t pay the rent, including where your obligation to pay is varied or released under a
    • personal insolvency agreement
    • debt agreement under the Bankruptcy Act 1966
    • deed of company arrangement.
     

This applies to commercial tenancies and variations to rent payments made on ordinary commercial terms.

Renting business premises

If you rent premises for your business, the rent is deductible. If goods and services tax (GST) is included in the rent, you can claim GST credits unless part of the premises is for private use. The portion of rent for private use will not be:

  • deductible
  • eligible for GST credits.

If you received a rent waiver or deferral from your landlord the income tax, capital gains tax (CGT) and GST implications depend on:

  • if an existing agreement with your landlord has changed, or a new or additional agreement has been created and whether any consideration is given for this
  • how you account for GST.

There may also be income tax and GST implications if you can’t pay rent, including where your obligation to pay is varied, written-off or released under a bankruptcy or insolvency law.

If your obligation to pay is waived or released

Income and deductions for past occupancy

If rent you owe for a past period of occupancy is waived by your landlord or released including under a bankruptcy or insolvency law and you have already claimed a deduction for it:

  • You're still entitled to that deduction.
  • If you already paid the rent and it has been waived and refunded, include this amount as assessable income in your tax return.
  • If you have not paid the rent, the rent waiver will be a debt forgiveness - under these rules, the amount is not included in your assessable income but it may be offset against amounts you could otherwise claim as deductions or it may reduce the cost base of your CGT assets.

There are some additional consequences if the waiver or release of the rent you owe is under a personal insolvency agreement or debt agreement under the Bankruptcy Act 1966.

After the waiver or release of your debts (in whole or part), you will lose, and no longer be able to offset against your assessable income or capital gains any:

  • carry forward tax losses
  • net capital losses
  • carry forward deductions you may have had under the non-commercial loss rules.

The commercial debt forgiveness rules do not apply to the waiver or release of debt.

Income and deductions for 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 can only claim the rent you must pay (the reduced amount) as a deduction. If you have already accounted for the original rent liability in your accounts, you need to adjust your accounts and tax return.

GST on unpaid rent

If you account for GST on a non-cash (accruals) basis and already claimed a GST credit for rent that is later waived, you need to make an increasing adjustment to pay back the credit you claimed.

If you account for GST on a cash basis, you can only claim GST credits on the rent paid and you do not need to make any adjustments.

GST on refunded rent

If you account for GST on a cash or non-cash (accruals) basis and already claimed a GST credit for rent refunded, you need to make an increasing adjustment to pay back the credit you claimed.

Make the adjustments in your BAS in the tax period when you become aware of the waiver or receive the refund.

If you received a rent deferral

Income and deductions

When you receive a rent deferral, you are still entitled to a deduction when the obligation to pay rent is incurred. The obligation generally relates to the rental period.

Account for GST on a cash basis

You may be entitled to GST credits for the accrued, but deferred rent.

If you account for GST on a cash basis, you can only claim GST credits:

  • for the amount of rent paid
  • if you have a tax invoice from your landlord for the rent payment.

You cannot claim GST credits for the deferred rent until you pay it.

Account for GST on an accruals basis

If you account for GST on a non-cash (accruals) basis and have a tax invoice from your landlord, you can claim a GST credit for the full amount, even if you haven't paid the invoice.

When the deferral is given, you do not need to make any adjustment. However, if your landlord has changed the rental agreement, including the timing or amount of the scheduled payments, your GST credit will be based on the new agreement.

If you already claimed a GST credit for the amount deferred but it remains unpaid for more than 12 months or the landlord writes it off as a bad debt, you need to make an increasing adjustment in your BAS to pay back the credits claimed.

Make the adjustment for the tax period when you become aware your rent is overdue by 12 months or your landlord is writing off the rent as a bad debt.

Capital gains tax consequences

There are no CGT consequences if your rental agreement with your landlord is changed without payment or other consideration being given.

For example, when a landlord agrees to give you a rent concession on an existing lease, you don't pay for the reduction in the rent you have to pay under the lease.

If a new or an additional agreement is created, there may be CGT consequences.

If you become bankrupt or go into liquidation

Your deductions and entitlements to GST credits may change if you can’t pay your rent obligation and you become bankrupt or go into liquidation.

Income tax

You may still be entitled to deductions for rent incurred during your bankruptcy or liquidation if you can show it was incurred while gaining or producing assessable income.

If you become bankrupt, you lose:

  • carry forward tax losses
  • net capital losses
  • carry forward deductions you may have had under the non-commercial loss rules.

You will not be able to offset these against assessable income or capital gains you earn or make after you became bankrupt.

The commercial debt forgiveness rules do not apply to the release of your debts, including any rent you owe.

GST

No adjustment is required if you account for GST on a cash basis.

If you account for GST on a non-cash (accruals) basis and have already claimed a GST credit for unpaid rent, you need to make an increasing adjustment to pay back the credit.

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