Do your client landlords offer some tenants rent free periods in their lease agreements? Or have your clients who are tenants accepted an incentive form a landlord to fit out their shop or pay some or all of their legal fees when moving into new premises?
To hear more about this topic, come to our:
Audit Update on Monday 4 December 2017 or the
Accounting Update for the Busy Accountant on Monday 27 November 2017
These types of transaction come within the definition of ‘Operating lease incentives’ under Section 20 of FRS 102.
They are often in the form of cash-back or rent-free initial periods and are frequently offered to lessees to encourage them to enter a lease. Under old Irish GAAP, the effect of such incentives was spread over the shorter of either the lease term or the period after which market rent is expected to be payable (this is typically a ‘break’ point in the lease).
However, under New Irish GAAP, paragraph 20.15A of FRS 102 requires incentives to be spread by lessees over the lease term. This will often have the effect of reducing the amount of incentive recognised in profit or loss in early years, which will decrease profits and may lead to improved tax cash flow. Similar requirements are set out for lessors.
Note that for lessors, a transitional option within paragraph 35.10(p) allows them to retain the old Irish GAAP (known as UITF 28) treatment for existing lease incentives, so they need not suffer a detrimental tax cash flow as a result.
To hear more about this topic, come to our:
Audit Update on Monday 4 December 2017 or the
Accounting Update for the Busy Accountant on Monday 27 November 2017
