Passing on of Property Tax Rebate Benefit or Provision of Additional Support to Tenants

Property Owners’ Obligation to Pass the Property Tax Rebate on to Their Tenants

As part of the Resilience Budget announced on 26 March 2020, owners of qualifying non-residential properties (“qualifying properties”) are granted a property tax rebate of up to 100% on their property tax payable from 1 January 2020 to 31 December 2020.

Owners of qualifying properties are required to unconditionally and fully pass on to their tenants the property tax rebate that is attributable to the rented property based on the period it was rented out (referred to as “PT rebate benefit”). These owners can either reduce or offset current or future rentals or make monetary payments to their tenants, within the prescribed timeframe. The PT rebate benefit for January 2020 to June 2020 is to be passed on by 31 July 2020, and the PT rebate benefit for July 2020 to December 2020 is to be passed on by 31 December 2020.

The above represents the minimum that is required of property owners to pass on the PT rebate benefit to their tenants. Property owners and master-tenants are urged to support their tenants and sub-tenants through this difficult time, and go beyond what is legislated as the minimum obligations (referred to as “additional support”). 

For more information on the property tax rebate and the passing on of the PT rebate benefit to the tenants, please refer to Property Owner’s Obligation to Pass the Property Tax Rebate on to Tenants.

For Property Owners and Master-Tenants: Tax Deductions for Passing on of PT Rebate Benefit or Provision of Additional Support

PT rebate benefit passed on or additional support provided in the form of reduced rent or rent offset

For property owners/master-tenants who have passed on the PT rebate benefit or provided additional support to their tenants/sub-tenants in the form of reduced rent or rent offset, only the reduced rental income derived will be brought to tax in the hands of the property owners/master-tenants. 

PT rebate benefit passed on or additional support provided in the form of monetary payments

For property owners/master-tenants who have passed on the PT rebate benefit or provided additional support to their tenants/sub-tenants in the form of monetary payments, such monetary payments are currently not deductible under Section 14(1) of the Income Tax Act (ITA) as they are not regarded as expenses incurred in the production of the rental income.

The Ministry of Finance intends to introduce a specific provision in the ITA to allow tax deductions on such monetary payments. The deduction will apply to monetary payments made during the calendar year 2020, 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 calendar year 2020, that falls within the basis period of the Year of Assessment (YA) 2021 or YA 2022 respectively. Consequently, property owners/master-tenants 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. 

Property owner (Company A) has a tenancy agreement with its tenant (Company B) from 1 January 2020 to 31 December 2020 at a contractual rental amount of $5,000 per month.

The revised property tax payable on the property for the period 1 January 2020 to 31 December 2020 is $4,200 (after a 30% property tax rebate) with tax savings of $1,800. The tax savings of $1,800 is passed on to Company B in the form of a monetary payment.

Assuming Company A’s financial year end is 31 December 2020, the amount of net rental income that Company A will be subject to tax in YA 2021 will be:

Gross rental income ($5,000 x 12 months)

$60,000

Less: Property Tax ($4,200)

Less: PT rebate benefit passed on to tenant

($1,800)

Net rental income

$54,000

Continuing from Example 1, in addition to the PT rebate benefit of $1,800, Company A also provided additional support to Company B through a monetary payment equivalent to 10% of the contractual rental amount for 2020.

The amount of net rental income that Company A will be subject to tax in YA 2021 will be:

Gross rental income ($5,000 x 12 months)

$60,000

Less: Property Tax ($4,200)

Less: PT rebate benefit passed on to tenant

($1,800)

Additional support provided to tenant (10% x $5,000 x 12 months)

($6,000) 

Net rental income

$48,000

For Tenants and Sub-Tenants: Tax Deductions for Rental Expenses Incurred

PT rebate benefit or additional support received in the form of reduced rent or rent offset

For tenants/sub-tenants who have received the PT rebate benefit or additional support from their property owners/master-tenants in the form of rental reduction or rent offsets, the reduced rental expenses incurred by the tenants/sub-tenants will be allowed as tax deductions, if such rental expenses are incurred in the production of income and not prohibited for deduction under Section 15(1) of the ITA.

PT rebate benefit or additional support received in the form of monetary payments

For tenants/sub-tenants who have received the PT rebate benefit or additional support from their property owners/master-tenants in the form of monetary payments, they have benefitted from reduced rental expenses indirectly. 

The Ministry of Finance intends to introduce a specific provision in the ITA to restrict the amount of allowable rental expenses, to the amount of rental expenses net of the PT rebate benefit or additional support the tenants/sub-tenants received from the property owners/master-tenants in the form of monetary payments. Correspondingly, such monetary payments received by the tenants/sub-tenants will not be brought to tax.

Tenant (Company B) has a tenancy agreement with its property owner (Company A) from 1 January 2020 to 31 December 2020 at a contractual rental amount of $5,000 per month. Company B received PT rebate benefit of $1,800 from Company A in the form of a monetary payment.

Assuming Company B’s financial year end is 31 December 2020, the amount of net rental expense that Company B can claim as tax deductions in YA 2021 will be:

Gross rental expenses ($5,000 x 12 months)

$60,000

Less: PT rebate benefit received from property owner

($1,800)

Net rental expenses

$58,200

Continuing from Example 3, in addition to the PT rebate benefit of $1,800, Company B also received additional support from Company A in the form of a monetary payment equivalent to 10% of the contractual rental amount for the year 2020.

The amount of rental expenses that Company B can claim as tax deductions in YA 2021 will be:

Gross rental expenses ($5,000 x 12 months)

$60,000

Less: PT rebate benefit received from property owner ($1,800)

Less: Additional support received from property owner (10% x $5,000 x 12 months)

($6,000)

Net rental expenses

$52,200