Abstract
This study examines the income tax implications of refurbishment and tenant installation reimbursements
and identifies guidance and principles for the consistent treatment of VAT relating to such
reimbursements from the perspective of the lessee.
The primary objective of this study is to determine the income tax implications of a reimbursement receipt
in the hands of the lessee in cases where the lessor reimburses the lessee for the refurbishment and tenant
installations. The secondary objective of the study is to identify guidance and principles for the consistent
treatment of VAT relating to the said reimbursements. Under a normal lease agreement, the parties to the
agreement will agree beforehand who is responsible for effecting the refurbishments and tenant
installations to the leased property and who will incur the associated costs. In certain circumstances, the
lessee effects the refurbishments and tenant installations to the leased property without being required to
do so in terms of the lease agreement. Subsequently, the lessor agrees to pay the lessee a reimbursement
for the refurbishments and tenant installations effected to the leased property. It is in such circumstances
that uncertainty exists regarding the taxability of the refurbishment and tenant installation reimbursements
in the hands of the lessee. In particular, this study seeks to establish whether such receipts are of a revenue
or of a capital nature, which ultimately determines the tax implications for the lessee.
An interpretative research approach is adopted in the present research. Such an approach seeks to describe
the methods of investigation in such a way that the focus remains on the understanding of the
interpretations under examination. This approach, which is based purely on documentary data, can be
described as a doctrinal research methodology. It provides a systematic exposition of the rules governing a
particular category (in this case, the rules relating to the taxability of refurbishment and tenant installation
reimbursements), analyses the relationship between the rules and explains any areas of difficulty. The
literature review conducted in this study is based on a qualitative methodology. There are a number of
frameworks within this methodology, i.e. case studies, theory, etc., which will be discussed in more detail
in the study...
M.Com. (Taxation)