The IRD has recently issued new rules affecting the taxation of payments made between tenants for the transfer or assignment of a lease.
Prior to these rule changes the payment by an incoming tenant to an outgoing tenant for the benefit of the lease was typically non-taxable to the exiting tenant for income tax purposes.
This was in contradiction to the tax treatment of payments that were made for the surrender of a lease. Under existing Rules where a tenant surrenders a lease and receives consideration from the landlord for exiting the lease such consideration is taxable income in the hands of the tenant.
The new rules which apply from 1 April 2015 are intended to align both the treatment of surrender consideration and payments for assignment of a lease where certain circumstances exist:
- The person purchasing the lease is associated with the land.
- The owner of the land effectively provides the funds to the incoming tenant to enable the purchase of the lease.
- The outgoing tenant is associated with the owner of the land.
Structuring of any lease documentation is incredibly important as the implications from both a legal and tax perspective are significant.
Farry and Co. are experts in all aspects of commercial leasing and can advise you in respect to any contemplated transactions whether you are a tenant or landlord.If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:
Paul Farry
pfarry@farry.co.nz
09 379 0055 or 03 477 8870
The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain.