Rental Relief Framework

As announced in the Fortitude Budget, qualifying property owners receive support via a Government cash grant and they must in turn provide the necessary rental relief to their eligible Small and Medium Enterprises (“SMEs”) and specified Non-Profit Organisations tenant-occupiers of the prescribed properties under the Rental Relief Framework.

Under the Rental Relief Framework, which comprises the Rental Relief and the Additional Rental Relief, the applicable rent and any interest payable on the rent are waived for the applicable months, depending on the eligibility of the tenants for Rental Relief and Additional Rental Relief.

The landlords/intermediary landlords (i.e. lessors who sublet their leased properties) can offset the following against the above rental waiver obligations:

  1. Monetary payments or reduction in rent due under the leases or licensing agreements which they have extended to their tenants;

  2. Any benefit of the Property Tax Rebate (referred to as “PT Rebate benefit”) that has been passed on or is obliged to be passed on by the property owners to their tenants.

For more information on the Rental Relief Framework, please refer to Government cash grant (announced in Fortitude Budget)

For more information on the income tax treatment on the passing on of PT Rebate benefit, please refer to Passing on of Property Tax Rebate Benefit or Provision of Additional Support to Tenants.

For Landlords and Intermediary Landlords: Tax Deductions for Rental Waiver Obligations under the Rental Relief Framework

Rental relief provided in the form of rental waiver 

For landlords/intermediary landlords who have provided rental waivers for the applicable months, only the reduced amount of rental income derived will be brought to tax in the hands of the landlords/intermediary landlords. 

Rental relief provided in the form of monetary payments

For landlords/intermediary landlords who have offset any monetary payments previously provided to their tenants/sub-tenants against the rental waiver obligations, such monetary payments would ordinarily not be 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 has introduced Section 14ZF(2)(c) in the ITA to allow tax deduction on such monetary payments. The deduction applies to monetary payments that are used to offset the landlords/intermediary landlords’ rental waiver obligations under the Rental Relief Framework.

Example 1: Rental relief provided in the form of monetary payments

Property owner (Company A) rents out a qualifying commercial property (e.g. shop) to an eligible SME tenant (Company B) from 1 January 2020 to 31 December 2020 at a contractual rental amount of $5,000 per month (excluding maintenance fees and service charges). 

For the year 2020, Company A:

  • Received a 100% Property Tax Rebate of $6,000 (there is no property tax payable after the PT Rebate) for the period 1 January 2020 to 31 December 2020. Company A passes on the PT Rebate benefit of $6,000 to Company B in the form of monetary payment;

  • Provided financial assistance to Company B through a monetary payment equivalent to 0.5 month’s rent (i.e. $2,500);

  • Had to provide rental waiver of 2 months to Company B under the Rental Relief Framework (assuming that Company B does not qualify for Additional Rental Relief). Company A uses the financial assistance provided earlier to offset the rental waiver obligations for 0.5 month. After using the PT Rebate benefit that has been passed (equivalent of 1.2 months of rent) and the financial assistance to offset against its rental waiver obligations, only 0.3 month (2 - 1.2 - 0.5) of rental waiver is necessary under the Rental Relief Framework.

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 Year of Assessment (“YA”) 2021 will be:

Gross rental income
($5,000 multiply by 11.7 months*)
$58,500
Less: Property Tax
($0)
  PT Rebate benefit (passed on via monetary payment) ($6,000)
  Financial assistance through monetary payment ($2,500)
Net rental income $50,000

* After taking into account the 0.3 month rental waiver under the Rental Relief Framework.

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

Rental relief received in the form of rental waiver 

For tenants/sub-tenants who have received rental relief from their landlords/intermediary landlords in the form of rental waivers under the Rental Relief Framework, the reduced amount of rental expenses incurred by the tenants/sub-tenants will be allowed for tax deduction, if such rental expenses are incurred in the production of income and not prohibited for deduction under Section 15(1) of the ITA.

Rental relief received in the form of monetary payments

For tenants/sub-tenants who have received rental relief from their landlords/intermediary landlords in the form of monetary payments under the Rental Relief Framework, they too have benefitted from reduced rental expenses.

The Ministry of Finance has introduced Section 15A(2)(c) in the ITA to restrict the amount of allowable rental expenses, to the amount of rental expenses net of the monetary payments given by their landlords/intermediary landlords. Correspondingly, such monetary payments received by the tenants/sub-tenants will not be brought to tax.

Example 2: Rental relief received in the form of monetary payments

Continuing from Example 1 above, 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 multiply by 11.7 months*)
$58,500
Less:  PT Rebate benefit (passed on via monetary payment) ($6,000)
  Financial assistance through monetary payment ($2,500)
Net rental expenses $50,000

* After taking into account the 0.3 month rental waiver given by the property owner under the Rental Relief Framework.

Company B is effectively given 2 months of rental waiver ($10,000) by the property owner under the Rental Relief Framework (assuming that Company B does not qualify for Additional Rental Relief).