Leasehold responsibilities

Certain lease agreements regarding land and property stipulate that the lessee, as part of his/her obligation under the agreement, is expected to make improvements to the leased asset.

This doesn’t appear to be very beneficial for the lessee, as the asset that is improved on his/her expense, does not belong to them. Thus, the Income Tax Act No. 58 of 1962 provides for specific provisions relating to leasehold improvements.

Lessee – section 11(g):

The lessee is entitled to a deduction for the cost of the improvements in terms of section 11(g), calculated as follows:

An annual deduction is spread over the period of the initial lease or 25 years (whichever is shorter), commencing once the improvements are completed, provided that the land or buildings are occupied by the lessee in the production of income. The deduction may be reduced for a partial year and a deduction may not be claimed in respect of improvements if the amount does not constitute income in the hands of the lessor.

In the case where a lease agreement is terminated, the lessee may deduct the balance of cost improvements not previously deducted.

If the lessee spends more than the contract amount, the surplus amount is considered a voluntary spent and will not be included in the section 11(g) deduction.

Lessor – section 1, paragraph (h):

The lessor must include an amount in his/her gross income in the year that the right accrues to him/her, in terms of the agreement in respect of the right of use or occupation of land and building where the lessee is legally obliged in terms of the lease to make improvements to land or buildings.

There must be an obligation to make improvements and if no amount is stipulated in the lease, the Commissioner may decide on a fair and reasonable value of the improvements. Although the Act requires the amount to be included in the gross income when the lease is entered, it is the practice of SARS to only include it in the year in which the improvements are completed.

The lessor can apply for relief in terms of section 11(h).

Lessor – section 11(h):

The lessor may deduct from the lease premiums or improvements amounts that the Commissioner considers reasonable.

If the lessor has the right to have improvements made to its property but will only have the use of the improvements after the lease has expired, an allowance may be granted by the Commissioner equal to the difference between the amount of the improvements included in the gross income and the amount of those improvements discounted at 6% over the period of the lease, excluding any renewal periods.

Note that the period of the lease over which the amount is discounted must be the same as the period over which the lessee’s deduction is spread.

If any amount is taxed in the lessor’s hands as a leasehold improvement, the amount (net of section 11(h) deduction) is added to the base cost of the asset in the hands of the lessor.




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IC Marais

Professional experience:

IC Marais is a certified CA (SA) with public sector and private sector technical knowledge based on 5 years’ Public Sector accounting, auditing and financial management experience and 5 years audit, tax and accounting experience. Detailed knowledge of private and public sector accounting and auditing standards (GRAP, IPSAS, IFRS, IAS, ISA) and public sector financial legislation (MFMA, etc.)

He enjoys the outdoors, hunting and fishing.


Professional experience:

In 1995, Schalk started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and then Mazars Moores Rowland in 2007) in Bloemfontein. In 1998, Schalk was appointed as manager at Moores Rowland, where he became a partner in 2003. Schalk received his Postgraduate Certificate in Advanced Taxation in 2006 and in 2009 he received his Certificate in the Administration of Estates.


Professional experience:

Cedric started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and Mazars Moores Rowland in 2007), Bloemfontein, in 1986. After completion of his articles, he joined the Special Investigations Division of the Department of Finance (SA Revenue Services) as a senior inspector from 1990 to 1991.


Professional experience:

Lucha started her career as a tax inspector at the Inland Revenue Department of New Zealand. After this she worked in commerce in Canada, Mexico and the United States.

On her return to South Africa, she completed her CA training contract with us and has been with Newtons ever since. She became a Partner in 2012.

Apart from her CA(SA) qualification she also holds a postgraduate certificate in Advanced Taxation (2005) and has the overall responsibility for training as our Training Officer.