Government Rental Waiver Framework
To support businesses with rental costs during the Phase 2 (Heightened Alert) (“P2(HA)”) and the Stabilisation Phase, the Government will provide rental waiver of up to 3 months to qualifying Small and Medium Enterprises (“SMEs”) and specified Non-Profit Organizations (“NPOs”) tenants of Government-owned commercial properties.
How does the Rental Waiver Framework work ?
The Rental Waiver Framework complements the suite of support measures introduced by the Government to alleviate the economic impact on businesses due to the tightened safe management measures imposed during the P2(HA) periods, including the Rental Support Scheme introduced by the Ministry of Finance.
The Rental Waiver Framework will ensure the fair co-sharing of rental obligations over the P2(HA) periods between the Government, landlords and eligible tenants.
Provision of Additional Support
At the same time, all landlords/intermediary landlords are encouraged to provide rental support to their tenants/sub-tenants through this difficult time, and go beyond their minimum obligations under the frameworks (referred to as “additional support”).
For Landlords / Intermediary Landlords: Tax Deductions for Rental Waiver Obligations or Provision of Additional Support
Rental relief or additional support provided in the form of rental waiver.
Rental relief or additional support provided in the form of monetary payments
The Ministry of Finance will introduce Section 14ZF(2A) in the ITA to allow tax deduction on such monetary payments. The deduction will apply to monetary payments made during the calendar year 2021, subject to a cap. The cap will be the lower of:
(i) the contractual rental amount as stipulated in the relevant tenancy agreement; or
(ii) the actual amount of rental income receivable from the tenant/sub-tenant during the calendar year 2021, that falls within the basis period of the Year of Assessment (“YA”) 2022 or YA 2023 respectively.
Consequently, landlords/intermediary landlords will not be allowed tax deductions on any monetary payments that are over and above the contractual rental amount or the actual amount of rental income, whichever is lower.
Example 1: Provision of rental relief in the form of monetary payments
For the year 2021, Company A:
- Paid Property tax of $6,000 for the period 1 January 2021 to 31 December 2021.
- Made a monetary payment equivalent to 2 weeks’ rent (i.e. $2,500) to Company B in end May 2021;
- Had to provide rental waiver of 2 weeks to Company B under the Rental Waiver Framework. Company A uses the monetary payment made earlier to offset the rental waiver obligations for 2 weeks. After using the monetary payment to offset against its rental waiver obligation, no further rental waiver (rental for 2 weeks – rental for 2 weeks) is necessary under the Rental Waiver Framework.
Assuming Company A’s financial year end is 31 December 2021, the amount of net rental income that Company A will be subject to tax in YA 2022 will be:
$ | |
|---|---|
Gross rental income ($5,000 x 12 months) | 60,000 |
Less: Property Tax | (6,000) |
Monetary payment used to offset rental waiver | (2,500) |
Net rental income | 51,500 |
Example 2: Provision of rental relief and additional support in the form of monetary payments
$ | |
|---|---|
Gross rental income ($5,000 x 12 months) | 60,000 |
Less: Property tax | (6,000) |
Monetary payment used to offset rental waiver | (2,500) |
Additional support provided to tenant ($5,000 x 1 month) | (5,000) |
Net rental income | 46,500 |