AASB 16 Guidance
The Australian Accounting Standards Board (AASB) develops, issues and maintains Australian Accounting Standards, including Interpretations. AASB 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. The guidance below is for general information only. Please refer to the AASB 16 Leases standard for definitive accounting treatments.
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When did the AASB 16 change apply?
The change applied to annual reporting periods beginning on or after 1 January 2019. For not-for-profit entities, AASB 16 Leases is effective for annual reporting periods beginning on or after 1 January 2020.
How should the income and expenses questions be answered?
Your answers should be consistent with the Australian Accounting Standards.
AASB 16 Leases does not affect the reporting of income for businesses/organisations. Operating lease income received should be included in Rent, leasing and hiring income. For lessors of finance leases, the capital repayment is not reported on the Economic Activity Survey and the interest component is reported as Interest Income.
In accordance with the Standard, if the business/organisation pays rental payments for an operating lease, the business/organisation will now account for the payment under different expense items: an interest component, a depreciation component and potentially also an operating expense component.
How should I report my operating lease expenses?
The operating lease expenses that are subject to the Standard should be reported as follows:
- Interest component – include in Total interest expenses and Interest expenses in respect of operating leases;
- Depreciation component – include in Total depreciation and amortisation and Depreciation and amortisation in respect of operating leases;
- Operating expenses (for variable lease payments not included in the measurement of the lease liability, or service components previously embedded in the lease) – include in Rent, leasing and hiring expenses.
How should I report my right-of-use assets which were previously off-balance sheet?
Assets related to operating leases should not be reported as capital expenditure for the lessee. This includes assets created by AASB 16 for pre-existing operating leases, and assets recognised due to the commencement of new operating leases, re-measurement of an existing operating lease, or lease modifications. The value of the underlying asset is collected through the lessor. Assets acquired through finance leases during the period should continue to be reported as Additions in the Capital expenditure and disposal of assets section against the appropriate asset.
Where do I report outgoings related to my leases?
Any outgoings related to leases, such as a fire service levy or utilities charges, should be included in Rent, leasing and hiring expenses.
Is labour hire included in rent, leasing and hiring expenses?
No, labour hire is included in other questions and reported as follows:
- Payments made to another (related or unrelated) business/organisations for the supply of staff on a fee or contract basis, where the staff entitlements are paid by the business/organisations supplying the employees, should be recorded in the Labour Costs question Payments to other businesses/organisations (e.g. employment agencies) for staff.
- Payment to another businesses/organisations for recruitment services (i.e. advertising vacancies, conducting interviews) on behalf of the your business/organisation should also be included in Payments to other businesses/organisations (e.g. employment agencies) for staff.
- Any costs incurred by the business/organisation in the conduct of its own recruitment processes (e.g. payment directly to newspapers for running job vacancy advertisements) should be reported in Other operating expenses.
How do I report embedded leases?
Embedded leases are leases embedded in other contracts which are not primarily for the purposes of leasing. The AASB 16 standard generally requires embedded leases to be separated from the non-lease component and the lease component is then reported as per the Standard.
How should I report a lease with less than twelve months left on the contract?
Any operating lease that has a term of less than twelve months is exempt from the Standard. Any lease payments in respect of these leases should be recorded in Rent, leasing and hiring expenses.
Leases which are not in scope of AASB 16 Leases (the Standard) include:
- Leases to explore or use minerals, oil, natural gas and similar non-regenerative resources;
- Leases of biological assets within the scope of AASB 141 Agriculture held by a lessee;
- Service concession agreements within the scope of Interpretation 12 Service Concession Arrangements;
- Licences of intellectual property granted by a lessor within scope of AASB 15 Revenue from Contracts with Customers;
- Rights held by a lessee under licensing arrangements within the scope of AASB 138 Intangible Assets for such items as motion picture film, video recordings, plays, manuscripts, patents and copyrights;
- The business/organisation may elect not to apply the requirements of AASB 16 to short term leases which is a lease that, at the commencement date, has a lease term of 12 months or less. A lease that contains a purchase option cannot be classified as a short-term lease;
- Low value leases: While the AASB does not specify a threshold for low value leases but generally this refers to leases of assets with a value of less than $5,000 USD. This is based on the value of the asset when it is new, regardless of the age of the asset being leased. For example, low value assets include tablets, personal computers, small items of office furniture, telephones and any similar assets. The expenses associated with low value leases should be reported as Rent, leasing and hiring expenses.
Lessee: A lessee for the purpose of this survey is a business/organisation that obtains the right to use an underlying asset for a period of time in exchange for consideration.
Lessor: An entity that provides the right to use an underlying asset for a period of time in exchange for consideration.
Underlying asset: An asset that is the subject of a lease, for which the right to use that asset has been provided by a lessor to a lessee.
Operating lease: An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset.
Finance lease: A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an underlying asset.