Dic Bird

Dic Bird carries on a manufacturing business as a sole trader. He had to expand the production capacity of his business. After all options were investigated, his financial advisor advised him to lease the adjacent plot and to conclude a lease agreement with his neighbour. In terms of a lease between Dic Bird (the lessee) and the owner-lessor (a taxpayer), a plot of land was leased by him for 20 years from 1 April 2019. Dic Bird is a VAT vendor and you may assume that all amounts exclude VAT where applicable. The lease agreement provides for:

• a rental of R2 000 a month, payable from completion date;
• a lease premium of R96 000 to be paid on 1 April 2016; and
• an industrial building to be erected on it at a cost of R1 920 000.

The industrial building was duly erected at a cost of R2 400 000. It was completed on 31 August 2019 and brought into use on the same date.

You are required to calculate the amounts to be deducted, arising from the above lease agreement, in calculating Dic Birds 2020 taxable income.