The importance of a Lease Agreement with regards to taxation.
More often when Zimra is conducting audits, they request this document where the Registered Operator does not own the place of operation. This shows that this is not a mere document in the eyes of the tax man but a source of vital information during audit.
Some of the vital informational that is found in the Lease Agreement
- Monthly rentals
- Any premium or deposit paid
- The duration of the lease
- Any obligation on improvements
Taxation of Lease premium
Today we are focusing on the lease premium
- Lease premium- also known as a deposit, this is a once off payment made by the lessee to the Lessor over and above the monthly rentals mostly at the inception of the lease.
- To the lessor it is taxable income and the whole amount is accounted for in the year of receipt
- To the lessee it is an allowable deduction under the following conditions:
- The premises should be used for the purpose of trade, apportion where there is dual use
- The premium is spread over the shorter of the lease period or ten years i.e. you cannot claim the full amount even though you paid it in full.
- If the contract is terminated prematurely, the outstanding lease premium is forfeited