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Regarding the classification of income when receiving a license fee
Payments of a certain amount to evict a current tenant are a common occurrence in real estate transactions. These payments are typically referred to as "eviction fees" and are often paid as moving expenses, compensation for business losses, or settlement payments. However, for the recipient of these eviction fees, determining how they are classified as income can be a crucial issue. Depending on the specific facts, eviction fees can be classified as miscellaneous income, business income, or other income.
Criteria for distinguishing between miscellaneous income and business income
Whether the recipient of the transfer fee is taxed as miscellaneous income or business income depends on the nature of the transaction and the reason for payment. According to relevant regulations, compensation paid by a building purchaser to an existing tenant pursuant to an agreement to compensate for operating losses during the remaining lease term is considered business income. Conversely, consideration for the transfer of goodwill held by a tenant, such as legal privileges, geographic location, business connections, credit, or reputation, or a temporary settlement payment made by a building purchaser to ensure the prompt and smooth delivery of the building, is interpreted as being taxable as miscellaneous income. This distinction in income is confirmed in numerous precedents, and specific examples are as follows:
When viewing the cost of brightness as other income
According to relevant precedents, money paid in exchange for cooperating with a landlord to expedite and smooth the project was deemed a key money payment and taxed as miscellaneous income. Furthermore, there was a case where money received from a landlord was deemed not for facility costs but as a key money payment without legal obligation for the purpose of expediting the delivery of a leased property, and was therefore taxed as miscellaneous income. In another precedent, when a specific amount of damages resulting from an eviction could not be calculated or evidence provided, the payment was deemed a temporary key money payment and taxed as miscellaneous income. Meanwhile, if the settlement amount is deemed a key money payment and taxed as miscellaneous income, necessary expenses are not deducted, and the payer is liable for withholding tax.
When viewing the cost of brightness as business income
On the other hand, other case law has ruled that if the cost of clearing corresponds to compensation for asset loss, business compensation, business suspension/closure compensation, or relocation compensation, it is considered business income because it is intended to compensate for losses incurred in connection with the relevant business. Furthermore, business income refers to income generated regularly and repeatedly in connection with the business operated by a business operator, and some cases have held that business compensation received due to business closure is considered compensation for income that could have been earned in the future converted to present value and is therefore taxed as business income.
As described above, the classification of the payment fee as miscellaneous income or business income may vary depending on the circumstances of payment and the specific facts. Therefore, it is necessary to review the taxable income at the time of receipt. This may vary depending on the terms of the agreement, the purpose of payment, etc., so it is necessary to comprehensively consider the nature of the transaction to determine the taxable type.
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