Singapore

Tax Alert – Rental Relief Framework

The COVID-19 pandemic has caused severe disruption to the global economy with its effects yet to be fully felt in various business sectors. Whilst assessing the impact, the Singapore Government has announced a series of COVID-19 relief measures over a record four Budgets, including Property Tax Rebate and Rental Relief Framework, which are aimed at cushioning the economic consequences brought about by the pandemic on individuals and businesses.

The Rental Relief Framework is designed to provide mandated equitable co-sharing of rental obligations between the Government, landlords and tenants. The principal aim is to help affected Small and Medium-sized Enterprises (“SMEs”) who need more time and support to recover from the pandemic. In the longer term, landlords stand to benefit from the recovery of SME tenants as this would ensure the continued viability of the rental and property market. The Framework also extends to cover eligible Non-Profit Organisation (“NPO”) tenants.

An Overview of the Rental Relief Framework

Eligible SMEs and NPOs who are tenant-occupiers qualify for the following benefits under the Rental Relief Framework.

Type of Relief Duration of Rental Relief *

 

Qualifying Commercial Properties
(e.g. Shops)

Other Non-residential Properties
(e.g. Industrial/ Office Properties)

Rental Relief (supported by Government assistance)

Rental Waiver

2 months
(for April to May 2020)

1 month
(for April 2020)

Additional Rental Relief (supported by landlords/ property owners)

Rental Waiver

2 months
(for June to July 2020)

1 month
(for May 2020)

Total

4 months
(for April to July 2020)

2 month
(for April to May 2020)

* May vary if tenant-occupier does not occupy the property throughout the relief period.

The rental to be waived is based on contractual rent that property owners concluded with their tenants and excludes any maintenance fees and charges for the provision of services such as cleaning and security.

Government assistance

The Government assistance to property owners is in two parts - (a) Property Tax Rebate for property tax paid for year 2020 and (b) the Government Cash Grant.

a) Property Tax Rebate (“PTR”)

Property owners of qualifying properties received PTR from IRAS calculated at either 30%, 60% or 100% of the property tax paid for year 2020, depending on the severity of COVID-19 impact on the businesses concerned.

Property owners are to fully pass on the PTR to their tenants within the following prescribed timeframe:

  • by 31 July 2020 for January to June 2020 PTR.
  • by 31 December 2020 for July to December 2020 PTR.

The PTR to tenants could be settled via a monetary payment or a reduction/offset in rental payments.

In the event of a dispute, either party may approach the Valuation Review Panel, no later than 31 December 2021, for a resolution.

b) Government Cash Grant

Government Cash Grant is disbursed by IRAS to property owners with eligible SME and NPO tenant-occupiers. Property owners are to on-pass such benefit to tenants by way of rental waivers.

Property owners are obliged to notify eligible SME and NPO tenants within 4 working days upon receipt of the Notice of Cash Grant and Rental Waiver from IRAS. Failure to do so, without reasonable excuse, is an offence under the COVID-19 (Temporary Measures)(Amendment) Act. Property owners should notify IRAS by 21 October 2020 if they have not received such Notice.

Eligibility criteria for tenant-occupiers to qualify for Relief

Property owners are tasked to ascertain if their tenant-occupiers met the following criteria to qualify for the Rental Relief and Additional Rental Relief.

Type of Relief Qualifying Tenant-Occupiers

Rental Relief

For qualifying leases or licenses as defined

  • SMEs and specified NPOs with not more than $100 million in annual revenue for financial year 2018 or a later appropriate period.

 

Additional Rental Relief

For tenant-occupiers who qualify for Rental Relief and have carried on business before 25 March 2020

  • SMEs
    • Aggregate revenue for Singapore group is not more than $100 million for financial year 2018 or a later appropriate period; and
    • Tenant-occupiers who suffered at least a 35% drop in average monthly gross income at entity level from April to May 2020, when compared to April to May 2019, or alternative periods if tenant-occupiers were not operational as of 1 April 2019.
  • NPOs

    Tenant-occupiers who suffered at least a 35% drop in average monthly gross income at entity level from April to May 2020, when compared to April to May 2019, or alternative periods if tenant-occupiers were not operational as of 1 April 2019.

Interactions between PTR and Rental Relief Framework

With the introduction of the Rental Relief Framework, property owners are mandatorily required to determine the total number of months (up to four) that rentals must be waived for eligible tenant-occupiers in terms of their entitlement to the Rental Relief and Additional Rental Relief. The PTR disbursed prior to 1 August 2020 plus any other monetary payments made previously may be taken into consideration in arriving at the remaining entitlement to the benefits, which will be settled via rental waivers.

The Government Assistance is calculated by reference to annual value of the properties. The benefits to be passed on by owners to tenants however are based on contractual rentals. In view of the differing bases adopted, what property owners received from IRAS and what they subsequently passed on to tenants may be different amounts. Landlords may keep any excess Cash Grant but not the PTR. On the other hand, if there is a shortfall, landlords would still have to give the full rental waiver as required by law.

Corporate income tax and Goods and Services Tax implications

Corporate income tax and Goods and Services Tax implications are summarised in the table below.

Transaction Corporate Income Tax Implications Goods and Services Tax Implications
Tax Impact to Property Owners / Master-tenants
  • PTR received from IRAS

Property tax paid (net of PTR received) allowed as deductible expense.

GST reporting is not necessary as this is considered out of scope.

  • Government Cash Grant received from IRAS

Whether the amount received is taxable or not is yet to be confirmed by IRAS.

GST reporting is not necessary as this is considered out of scope.

  • PTR on-passed to tenants and other additional support provided by landlord
  • PTR and additional support given to tenants via rental waver (i.e. reduced rental), only the reduced rental will be brought to tax. 
  • Any additional monetary payment made to tenants will be tax deductible*.

    *The relevant legislation to be enacted.

Boxes 1 and 6 of GST return(s) will be based on net monthly rental and GST receivable (after deducting the PTR).

(Note: If full rental waiver is given to tide tenants through the COVID-19 pandemic so that they could continue with their tenancies, the deeming of output tax is not required)

  • Rental Relief given to tenants

Rental income (net of rental waiver given) will be brought to tax.

After factoring the Rental Relief given, Boxes 1 and 6 of GST return(s) will be based on the net amount (including maintenance and services fees) and GST receivable from tenants.

(Note: If full rental waiver is given to tide tenants through the COVID-19 pandemic so that they could continue with their tenancies, the deeming of output tax is not required)

Tax Impact to Tenants and Sub-tenants
  • PTR and other additional support received from landlord
  • PTR and additional support received via rental waiver (i.e. reduced rental), only the reduced rental expenses incurred will be tax deductible. 
  • PTR and additional support received in the form of monetary payments will not be taxed*.

    Rental expense, net of such non-taxable receipts, is tax deductible.

    *The relevant legislation to be enacted.

Boxes 5 and 7 of GST return(s) will be based on net monthly rental and GST payable (after deducting the PTR)

  • Rental Relief received from landlord

Rental expense incurred (net of rental waiver received) will be tax deductible.

After factoring the Rental Relief received, Boxes 5 and 7 of GST return(s) will be based on the net amount (including maintenance and services fees) and GST payable to landlord.

This brief has been prepared for general information only. It is not intended to be relied upon as accounting and/or tax advice. Please feel free to reach out to our team for further clarifications and advice.

 

For further information or assistance, please contact:

Koh Puay Hoon, Partner & Head of Tax
T +65 6594 7820
[email protected]

Cindy Lim, Tax Partner
T +65 6594 7852
[email protected]

William Chua, Tax Partner
T +65 6594 7860
[email protected]

Joanna Yap, Tax Partner
T +65 6594 7859
[email protected]

Richard Ong, Partner & Head of GST Services
T +65 6594 7821
[email protected]

Hsu Chong Hoe, Tax Director
T +65 6594 7861
[email protected]