+ Lease Incentives

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What is the situation when a landlord allows a rent free period or a rent discount in respect of a new lease? For the landlord, there is no GST consequence providing the reduction in rent is merely part of the negotiation of the original terms of the lease and as for tax generally, the landlord receives no deduction for the rent he has given away for free.

For the tenant, there is no GST consequence providing the reduction in rent is merely part of the negotiation of the original terms of the lease and as for tax generally, the benefit of the rent free period or rent discount is not assessable to the tenant.

But there are other arrangements including (i) cash payment lease incentives paid by the landlord to the tenant who can use the cash in any manner they wish, or (ii) circumstances where the landlord allows a rent free period or a rent discount in respect of an existing lease, or (iii) where the landlord provides a fit-out of the leased premises to the tenant, but the landlord owns the fit-out, or (iv) where there is a cash contribution to the fit-out of the leased premises provided by the landlord to the tenant who undertakes the fit-out as principal and the tenant owns the fit-out, and (v) where there is a fit-out of the leased premises which is undertaken by the landlord who then transfers ownership of the fit-out to the tenant.

Finally, (vi), there can be free plant and equipment provided to the tenant or the provision of holiday packages from the landlord to the tenant disguised as rent incentives.

It is wise to be fully aware of the GST and tax consequences before entering into such arrangements!

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