Leases – Workshop on Tax and Accounting issues on 18 January

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The new Inland Revenue Act, with the introduction of new tax rules, has brought about a paradigm shift in the tax implications and financial costs associated with the leases. 

The new Act also sets out rules pertaining to characterisation of leases and the tax implications vary according to the characterisation. Though the characterisation of leases under the new Inland Revenue Act share certain similarities with the classification of leases under the SLFRS 16, the two sets of classification rules are not identical. The users must take cognisance of these differences since these differences lead to material financial and tax implications to an organisation.  

Principal Suresh R. I. Perera – Tax and Regulatory
Director Hasna Hassan – Tax and Advisory
Partner Mohamed Shameel – Accounting Advisory

The SLFRS 16 requires the companies to revisit the lease agreements and distinguish between the leasing and non-leasing in a contract. Depending on the contract, the tax treatment will vary. 

KPMG Principal Suresh R. I. Perera said: “The tax treatment for leasing has changed. The lease classification under the tax law is an important element and understanding the different classification is vital to determine the correct tax implications. Though lessee accounting does not require the classification of leases, the tax accounting will require such classifications.”

The Gazette published to address Transition Rules pertaining to leases has kept live the rules stemming from the repealed Act in relation to finance leases. Accordingly, the old rules would continue to govern the finance leases executed before the date of commencement of the new Inland Revenue Act. 

The dawn of 2019 mandates that under SLFRS 16, single, on balance sheet lessee accounting model to be adopted by the companies. With the implementation of SLFRS 16, all companies that lease major assets for use in their business will see an increase in reported assets and liabilities. This will affect a wide variety of sectors, from airlines that lease aircraft to retailers that lease stores. The larger the lease portfolio, the greater the impact on key reporting metrics.

The key change will be the increase in transparency and comparability. For the first time, analysts will be able to see a company’s own assessment of its lease liabilities, calculated using a prescribed methodology that all companies reporting under IFRS will be required to follow.

The impacts are not limited to the balance sheet. There are also changes in accounting over the life of the lease. In particular, companies will now recognise a front-loaded pattern of expense for most leases, even when they pay constant annual rentals and the standard introduces a stark dividing line between leases and service contracts.

The key challenge will be gathering the required data. For others, more judgmental issues will dominate – E.g. identifying which transactions contain leases.

The workshop organised by KPMG Sri Lanka Academy on Leases to demystify the accounting and tax aspects will be held at Movenpick Hotel on 18 January from 9 a.m. to 12 noon. The presentation on tax aspects will be delivered by Principal Suresh R.I. Perera – Tax  and Regulatory, and Director Hasna Hassan – Tax and Regulatory whilst Partner Mohamed Shameel – Accounting Advisory Services would discuss extensively on accounting for leases under SLFRS 16. 

The workshop will address issues including capital gains tax and capital allowances pertaining to leases, tax deductibility of lease rentals, tax aspects with regard to sale and lease back, hire purchase, Financial VAT and NBT on leases and accounting aspects under SLFRS regarding sublease, rescheduling of leases, sale of leased assets etc. 

For registration,

Contact Sita – 0115426214 

Email – [email protected]