However, when a lessor sells its rights to a lease agreement to another person, any consideration for the acquisition of that right is generally not a rental premium, as it is not paid for the right to use or occupy real estate. Unfortunately, the judgment does not easily specify the reasons for this finding. Two of the taxpayer`s employees testified. In essence, they testified that the term “leasing premium” had been used in bulk and that they considered the sale of the DF lease as an assignment of rights. However, the Court disposes of the evidence on the basis of the Parol rule, that is, the rule that, where a document was intended to constitute a complete monument to a legal act, the extrinsic evidence does not permit the importation of the document. On the other hand, later in the judgment, in the interpretation of the agreement, the Court repeatedly refers to the evidence of the workers. As a result, the lessor is not required to pay income tax on the total amount of rent specified in the tenancy agreement. If the lessor is a provisional subject, the reduced rent is also the only party for which the lessor must pay provisional taxes. However, the Court considered the agreement to be a formal and content lease and, as such, it was a rental bonus. The definition of “gross income” in s1 of Act 58 of 1962 relating to income tax explicitly includes “an amount collected or incurred by a person other than the premium or consideration in the form of a premium… use or acquisition of land or buildings.” In the event that the tenant operates a transaction from the leased premises, the tenant would also not be allowed to claim the total amount of rent (shown in the tenancy agreement) as a deduction from income tax.
Instead, the reduced rent would be the deduction to which the tenant would be entitled. In 2010, the taxpayer entered into a lease with MN Properties (Pty) Ltd (MN), in which the taxpayer leased the same property to MN for a period of 50 years, subject to DF`s lease under the DF leasing company. The taxpayer then transferred the lease from DF to MN, and MN followed in the taxpayer`s footsteps as part of the DF lease. As part of the lease agreement with MN, MN agreed to pay the taxpayer a nominal amount per month and a percentage of its turnover. In return for the transfer, MN agreed to pay the taxpayer R125 million. The amount was referred to by the parties and in the documents as a “leasing premium.” The tax treatment of rents remains a subject of irritation. Unfortunately, it is very difficult to distill the general principles of the judgment concerning rental premiums and the sale of rights under a lease agreement. However, one thing is clear: taxpayers should exercise a high degree of caution with respect to the transfer of any form of leasing or agreement that grants leases, from a legal point of view in general, and in particular from a tax point of view.
It is common to determine whether the proceeds of the transfer of an asset are capital or revenue, the taxpayer`s intention must be taken into account. It is appropriate to consider whether the intention of the insured was to transfer the asset into a profit-sharing system or whether the taxpayer was considering retaining and divesting the asset as a long-term investment.