There is no requirement that an expenditure has to be charged to the year in which it contractually falls due. This will normally be the appropriate way of achieving a spread of the lessee’s gross rental payments which is consistent with the accrual concept. Where a lessee accounts for a lease on the basis of HKFRS 16, the expenditures charged in the profit and loss account will equal the depreciation relating to the leased asset and interest relating to the corresponding lease liability. the legal characterisation of the expenditures is consideration for the right to use leased assets for a period of time.Īll along, the accrual basis of accounting is required to be applied in computing the assessable profits, with any necessary adjustments to conform with the IRO.the deduction relates to expenditures/losses that have been incurred/realised and.the lease is not a sale for tax purposes.interest on lease liability and depreciation on right-of-use (ROU) asset charged in the profit and loss account) in respect of leased assets, which are recognised in accordance with the principles in HKFRS 16, subject to the following conditions: Lessees will be allowed deduction of expenditures (i.e. This means that profits tax treatment for lessors would depend on whether the ownership of the leased asset will pass to the lessee at the end of the lease term (i.e. With the adoption of HKFRS 16 for accounting purposes, the Commissioner will adopt the following assessing practice:Ĭurrent profits tax treatment for lessors under the Inland Revenue Ordinance (IRO) remains unchanged since there is no substantial change in accounting treatment for lessors.
Early application is permitted with application of HKFRS 15 Revenue from Contracts with Customers.
HKFRS 16 Leases applies with effect from annual reporting periods beginning on or after 1 January 2019.