Magazine article New Zealand Management

Inbox: Lease Incentives' Tax Twists

Magazine article New Zealand Management

Inbox: Lease Incentives' Tax Twists

Article excerpt

Although the commercial property market is in recovery mode, tenants still hold the balance of power when it comes to office accommodation and most are using it to secure incentives from landlords when leases are being entered into or renegotiated. However, businesses should be aware of the tax implications of different types of inducements.

PwC partner Mark Russell says the tax position of the tenant varies significantly depending on the form of the incentive. The most commonly used is a rent-free period at the beginning of the lease. Rent "holidays" have the benefit of being easy to arrange and administer and do not require an upfront cash payment by the landlord.

However, Russell says while they are the most convenient from a property owner's perspective, they are the least tax effective for a tenant. A rent holiday reduces the deductible expenses of the tenant, so in effect the value of the holiday is taxable to the tenant over the period of the holiday, which can be anything from several months to over a year depending on the length of the lease.

Cash inducements are also popular. …

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