From 1 January 2019, the distinction between operating and finance leases was removed by the revised Australian Accounting Standard, AASB16 Leases, meaning the majority of leases now require recognition on the balance sheet. Where a local government is the lessee, the lease effectively becomes a borrowing.
Under section 34 of the Statutory Bodies Financial Arrangements Act 1982 (SBFA Act), borrowings require approval by the Treasurer. The definition of borrowings includes finance leases, bank guarantees, and ‘other financial accommodation’.
Section 4 of the Statutory Bodies Financial Arrangements Regulation 2019 prescribes that an operating lease is a form of financial accommodation. This means that operating leases are now included in the definition of borrowings and therefore require approval by the Treasurer.
Queensland Treasury considers it appropriate for new leases that are high value and/or high risk to be subject to scrutiny by Queensland Treasury and the Treasurer. However, to remove the administrative burden of seeking approval for low value and/or low risk leases, the Treasurer has issued a General Approval allowing statutory bodies to enter into leasing agreements without the need to first seek the Treasurer’s approval.
Please note the General Approval applies only to operating and finance leases where either:
- the lessor is a statutory body, a department, or a government owned corporation; or
- the total net present value of rental payments does not exceed $2 million; or
- the lease being taken is for office premises.
Local governments are required to seek the Treasurer’s approval for any lease arrangement (where the local government is the lessee) that is not captured by the General Approval.
It is considered good business practice for each local government to maintain a register of lease arrangements entered into using the authority of the General Approval.