Amendments to peppercorn and other below market lease amendments for the public sector

The Australian Accounting Standards Board (AASB) issued AASB 2019-8 Amendments to Australian Accounting Standards – Class of Right-of-Use Assets arising under Concessionary Leases in late December 2019.
This Standard makes amendments to AASB 16 Leases and AASB 1049 Whole of Government and General Government Sector Financial Reporting and will therefore impact how public sector entities account for concessionary leases.  Concessionary leases in this context are leases that have significantly below-market terms and conditions, including peppercorn leases, and are principally to enable the entity to further its objectives. 
These amendments resulted from feedback the AASB received; ‘that public sector entities would need to revalue their right-of-use assets under concessionary leases (and other leases) at fair value at subsequent measurement to satisfy the requirements of AASB 1049 to elect accounting treatments in Accounting Standards that align with the principles in the ABS GFS Manual‘.
The main amendments:
  • specify that right-of-use assets arising under concessionary leases (for not-for-profit public sector entities) can be treated as a separate class of right-of-use assets to right-of-use assets arising under other leases for the purposes of AASB 16; and
  • provide an option for the Whole of Government and General Government Sector to measure right-of-use assets arising under concessionary leases at cost or at fair value in subsequent measurements.
This Standard applies to annual periods beginning on or after 1 January 2019, with earlier application permitted, provided that AASB 1058 Income of Not-for-Profit Entities is also applied at the same time.
For more information visit the AASB website or contact us to discuss.