HomeHome SearchSearch MenuMenu Our productsOur products

Did you know: You could make a capital loss when you terminate a lease agreement?

by , 18 September 2014
Before you enter into a lease agreement for your office space, you must consider the tax implications. If you don't, it could have a significant effect on the tax cost of your business operations later on.

The reason for this is your premise may cost you in some way or another.

Even if you terminate your lease, it can have Capital Gains Tax (CGT) implications. If you don't know what these are, read on to find out...

 

Here are the CGT implications if you terminate your lease agreement

 
The best way to explain your CGT liability in this situation is to give you a practical example, so let's look at what happened to Mr Smith.
 
Mr Smith's the owner of a fast food business, and he carries on its trade as a sole proprietor. On 1 March 2009, he entered into a five year lease for the rental of business premises. Mr Smith improved the premises after getting permission from the landlord. 
 
He spends R200 000 on improvements in year one of his lease.
 
When Mr Smith terminated the lease at the end of the five year, however, there was a Capital Gains Tax implication.
 
Here's why…
 
*********** Advertisement ************
 
You have one Capital Gains Tax lifeline
 
It'll give you secrets most businesses will never know and help you avoid paying crippling taxes every single year.
 
 
***********************************
 

This is the CGT implication in Mr Smith's situation

 
Because Mr Smith doesn't own the premises, he doesn't make any profit from it. This means he makes a capital loss of R200 000 which is the money he spent improving the premises. Unfortunately, he can't offset that capital loss against taxable income.
 
He also can't deduct the cost of the improvements for income tax purposes because the improvements don't qualify for a deduction. He can't claim a wear and tear allowance either since he's not the owner.
 
So be warned: If you improve your rented business premises, you could make a capital loss when you terminate the contract. 

PS. Here are three instances where you don't have to pay Capital Gains Tax... And eight other ways to LEGALLY beat the taxman!

 
 


Related articles




Related articles



Related Products



Comments
0 comments


Recommended for You 

  Quick Tax Solutions for Busy Taxpayers – 35 tax answers at a glance



Here are all the most interesting, thought-provoking and common tax questions
asked by our subscribers over the last tax year – everything from A to Z!

To download Quick Tax Solutions for Busy Taxpayers – 35 tax answers at a glance click here now >>>
  Employees always sick? How to stop it today



Make sure you develop a leave policy to regulate sick leave in your company.

BONUS! You'll find an example of the leave policy and procedure in this report.

To download Employees always sick? How to stop it today click here now >>>
  Absenteeism: Little known ways to reduce absenteeism



This FREE e-report will tell you how you can reduce absenteeism in your workplace while avoiding the CCMA and without infringing your employees' labour rights.

To download Absenteeism: Little known ways to reduce absenteeism click here now >>>
  7 Health & safety strategies to save you thousands



Don't let a health and safety incident cost you one more cent. Implement these seven
strategies in your company today.

To download 7 Health & safety strategies to save you thousands click here now >>>