The National Taxation Bureau of Kaohsiung, Ministry of Finance stated that recently, many businesses have closed their operations due to the COVID-19 pandemic, resulting in early termination of the lease contract. The landlord shall file the penalty collected or deducted from the security deposit due to the tenant’s failure to complete the lease period specified in the lease agreement as other income. Taxpayers are reminded not to omit this other income or misfile it as rental income.

The Bureau explained that the calculation of property rental income is based on the balance of the annual rental income after deducting necessary expenses. The penalty collected from the lessee is not the consideration for the lease of the property, but it is the payment made by the lessee due to the failure to complete the contract, which is of the nature of other income. Thus, the necessary expenses incurred by the lessor arising from the payment of the penalty can still be deducted, such as the cost of sending legal attest letters, litigation costs, etc.

The Bureau further reminded that the security deposit not refunded due to the tenant’s early termination of the contract is the landlord’s rental income if it is used to cover the rent owed by the tenant. If there are no rent arrears, the unrefunded security deposit is the penalty. Taxpayers are requested to correctly file penalty income and its necessary expenses to avoid punishment arising from omitted income.

Contact: Mrs. Yan, the Revenue Officer of Second Legal Affairs Division

Tel: 07-7256600 ext. 8742