Unfortunately, the judgment does not easily specify the reasons for this finding. Two of the taxpayer`s employees testified. In essence, they testified that the term « leasing premium » had been used in bulk and that they considered the sale of the DF lease as an assignment of rights. However, the Court disposes of the evidence on the basis of the Parol rule, that is, the rule that, where a document was intended to constitute a complete monument to a legal act, the extrinsic evidence does not permit the importation of the document. On the other hand, later in the judgment, in the interpretation of the agreement, the Court repeatedly refers to the evidence of the workers. Unfortunately, it is very difficult to distill the general principles of the judgment concerning rental premiums and the sale of rights under a lease agreement. However, one thing is clear: taxpayers should exercise a high degree of caution with respect to the transfer of any form of leasing or agreement that grants leases, from a legal point of view in general, and in particular from a tax point of view. Assuming that a rent reduction is authorized by law and that the parties consent to it (or that a court decides that a reduction is necessary), the lessor « no longer receives » the full rent under the tenancy agreement. In addition, « the total amount of rent will no longer be borne by the landlord »; since the landlord is no longer entitled to full rent, but to the reduced amount. The facts are not entirely clear, but the following summary should suffice.
In 2009, the taxpayer entered into a lease agreement (DF Lease) with df (Pty) Ltd (DF) for certain lands. The initial term of the lease was 12 years, with two periods of extension. As part of the DF lease, the taxpayer has committed to build a facility on the land. DF has experienced financial difficulties. In 2010, the taxpayer entered into a lease with MN Properties (Pty) Ltd (MN), in which the taxpayer leased the same property to MN for a period of 50 years, subject to DF`s lease under the DF leasing company. The taxpayer then transferred the lease from DF to MN, and MN followed in the taxpayer`s footsteps as part of the DF lease. As part of the lease agreement with MN, MN agreed to pay the taxpayer a nominal amount per month and a percentage of its turnover. In return for the transfer, MN agreed to pay the taxpayer R125 million. The amount was referred to by the parties and in the documents as a « leasing premium. » The tax treatment of rents remains a subject of irritation.
It is common to determine whether the proceeds of the transfer of an asset are capital or revenue, the taxpayer`s intention must be taken into account.