Original Research

‘n Ondersoek na die inkomstebelastinghantering van beëindigingsboetes betaalbaar deur verhuurders by die voortydige beëindiging van ‘n huurooreenkoms

Leonard Willemse, David Badenhorst
Journal of Economic and Financial Sciences | Vol 5, No 2 | a299 | DOI: https://doi.org/10.4102/jef.v5i2.299 | © 2018 Leonard Willemse, David Badenhorst | This work is licensed under CC Attribution 4.0
Submitted: 28 June 2018 | Published: 31 October 2012

About the author(s)

Leonard Willemse, Department Accountancy, University of Stellenbosch, South Africa
David Badenhorst, Tenk Loubser Inc, Stellenbosch, South Africa

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Abstract

The premature termination of lease agreements is a common occurrence in the South African and international business arena. When a lease is terminated prematurely, it is currently the practice that the person who terminates the lease agreement has to pay a termination penalty. This article investigates the income tax treatment possibilities of the penalty paid by a lessor. For purposes of this investigation the income tax treatment of lease termination penalties in Australia, Canada, the United States of America and South Africa are investigated. This is done in order to identify guidelines and principles that could possibly be used in a South African context, which may lead to the efficient and correct treatment of lease termination penalties for South African income tax purposes. The investigation concludes that the factors surrounding the lease termination transaction as well as the intention of the parties involved, will determine the appropriate income tax treatment of the penalty. The question must be asked whether or not the termination penalty was incurred as part of a ‘profit-making scheme’ and what happens after the penalty has been incurred. It is recommended that, where the penalty is deemed to be capital in nature, the merit of allowing some sort of capital allowance (similar to the one used in the United States of America) should be investigated.

Keywords

early cancellation; income tax treatment; lease termination; lease termination penalty

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