Short-term and low-value lease exemptions under IFRS 16

Without these exemptions, every laptop, coffee machine and two-month equipment hire would need a right-of-use asset and a lease liability. The exemptions keep IFRS 16 practical, but they have conditions. This guide explains each one and the traps.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

IFRS 16 lets a lessee choose not to put two kinds of lease on its balance sheet. Short-term leases, with a lease term of 12 months or less and no purchase option, can be exempted by class of asset. Leases of low-value assets, judged on the value of the asset when new, can be exempted lease by lease. Payments on exempted leases are expensed, normally on a straight-line basis over the lease term.

At a glance

Short-term
12 months or less, no purchase option
Chosen
By class of underlying asset
Low-value
Judged on the asset's value when new
Chosen
Lease by lease
Accounting
Straight-line expense
Optional
Yes, both
Short-term and low-value lease exemptions under IFRS 16Short-term: 12 months or less, no purchase option; Chosen: By class of underlying asset; Low-value: Judged on the asset's value when new; Chosen: Lease by lease; Accounting: Straight-line expense; Optional: Yes, both.KEY FACTS AT A GLANCEShort-term and low-value lease exemptions underIFRS 16Short-term12 months or less, nopurchase optionChosenBy class of underlyingassetLow-valueJudged on the asset'svalue when newChosenLease by leaseAccountingStraight-line expenseOptionalYes, bothChecked against official sourcesTax BakersShort-term and low-value lease exemptions under IFRS 16Short-term: 12 months or less, no purchase option; Chosen: By class of underlying asset; Low-value: Judged on the asset's value when new; Chosen: Lease by lease; Accounting: Straight-line expense; Optional: Yes, both.KEY FACTS AT A GLANCEShort-term and low-value leaseexemptions under IFRS 16Short-term12 months or less, no purchase optionChosenBy class of underlying assetLow-valueJudged on the asset's value when newChosenLease by leaseAccountingStraight-line expenseOptionalYes, bothChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

Which leases can be exempted?

Can the lease stay off the balance sheet?Can the lease stay off the balance sheet?Is the lease term over 12 months,or is there a purchase option?NoShort-termexemptionYesIs the asset worth more thana low amount when new?NoLow-valueexemptionYesRecognise the lease on the balance sheet
A No to either question means the lessee may choose to expense the payments instead.

What is a short-term lease?

A lease that, at its commencement date, has a lease term of 12 months or less and contains no purchase option. The lease term includes extension periods the lessee is reasonably certain to use, so a six-month lease with a six-month extension that will almost certainly be used is a 12-month lease and qualifies; one with an extension to 18 months that is reasonably certain does not. See lease term and options.

The election is made by class of underlying asset, such as all vehicles or all office space. If the lease is modified or its term changes, it is treated as a new lease for this test.

What is a low-value asset?

The assessment is made on the value of the asset when new, regardless of its age or of the size of the lessee. In its basis for conclusions the IASB indicated it had in mind assets worth around US$5,000 or less when new. Tablets, laptops, small office furniture and telephones usually qualify; cars never do, because a new car is not low-value.

An asset qualifies only if the lessee can benefit from it on its own or with readily available resources, and it is not highly dependent on or interrelated with other assets. If the lessee subleases the asset, the head lease does not qualify. The election is available lease by lease.

Examples

LeaseExemption available?Why
Crane hired for a nine-month project, no purchase optionYes, short-termTerm under 12 months
Office leased for 11 months with an extension the company is reasonably certain to useNoThe lease term exceeds 12 months
200 laptops leased for three yearsYes, low-valueEach laptop is low-value when new, assessed individually
A new car leased for three yearsNoA car is not low-value when new
Servers that only work as part of a larger data systemNoHighly interdependent with other assets

How are exempted leases accounted for?

The lessee recognises the lease payments as an expense on a straight-line basis over the lease term, or on another systematic basis if that better reflects the pattern of benefit. No asset or liability is recognised, other than accruals or prepayments for timing differences in payments.

The lessee discloses that it uses the exemptions, the expense for short-term leases and for low-value leases, and the commitment for short-term leases if the portfolio at year end differs from the one behind the expense. See IFRS 16 disclosures.

A worked example of the expense

A company hires a crane for nine months at CU 4,000 a month, with the first month free, and applies the short-term exemption. Total payments are CU 32,000 over nine months, so it recognises CU 3,556 a month on a straight-line basis, building up an accrual in the free month. No right-of-use asset or lease liability appears, and the CU 32,000 is disclosed as short-term lease expense.

Do many low-value leases add up?

The test looks at each asset, not the total. A company leasing 5,000 tablets can apply the exemption to each even though, together, the leases are material. Companies sometimes choose to capitalise large portfolios anyway to keep their figures comparable with peers.

Is it the same under US GAAP?

ASC 842 has a short-term lease exemption, with a similar 12-month test, but no low-value exemption. US companies apply a capitalisation threshold through materiality instead.

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Questions people ask

What is a short-term lease under IFRS 16?

A lease with a term of 12 months or less at commencement and no purchase option.

What counts as a low-value asset?

An asset of low value when new, such as a laptop or small office furniture. The IASB indicated around US$5,000 or less.

Are the IFRS 16 exemptions mandatory?

No. They are optional: the short-term exemption by class of asset, and the low-value exemption lease by lease.

Does US GAAP have a low-value lease exemption?

No. ASC 842 has a short-term exemption only.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 16 Leases

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IFRS 16Lease term, extension and termination options under IFRS 16IFRS 16IFRS 16 leases explainedIFRS 16IFRS 16 disclosure checklist

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This guide is general information. It is not tax or legal advice for your situation.