Sale and leaseback under IFRS 16

Telecom operators sell their towers, airlines sell aircraft and retailers sell stores, then lease them back to raise cash while carrying on as before. IFRS 16 stops these deals from producing a large gain for an asset the company still uses. This guide explains the rules with a tower example.

By Muhammad Bilal, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

In a sale and leaseback, a company sells an asset and leases it back. Under IFRS 16 it first asks whether the transfer is a sale under IFRS 15. If it is, the seller-lessee measures the right-of-use asset at the part of the asset's previous carrying amount that relates to the rights it keeps, and recognises only the part of the gain that relates to the rights transferred to the buyer. If it is not a sale, the seller keeps the asset and records the cash received as a financial liability.

At a glance

First question
Is the transfer a sale under IFRS 15?
If a sale
Partial gain only
Right-of-use asset
Share of the old carrying amount
Off-market terms
Prepayment or extra financing
If not a sale
Financial liability
Common in
Telecom, aviation, retail
Sale and leaseback under IFRS 16First question: Is the transfer a sale under IFRS 15?; If a sale: Partial gain only; Right-of-use asset: Share of the old carrying amount; Off-market terms: Prepayment or extra financing; If not a sale: Financial liability; Common in: Telecom, aviation, retail.KEY FACTS AT A GLANCESale and leaseback under IFRS 16First questionIs the transfer a saleunder IFRS 15?If a salePartial gain onlyRight-of-use assetShare of the old carryingamountOff-market termsPrepayment or extrafinancingIf not a saleFinancial liabilityCommon inTelecom, aviation, retailChecked against official sourcesTax BakersSale and leaseback under IFRS 16First question: Is the transfer a sale under IFRS 15?; If a sale: Partial gain only; Right-of-use asset: Share of the old carrying amount; Off-market terms: Prepayment or extra financing; If not a sale: Financial liability; Common in: Telecom, aviation, retail.KEY FACTS AT A GLANCESale and leaseback under IFRS 16First questionIs the transfer a sale under IFRS 15?If a salePartial gain onlyRight-of-use assetShare of the old carrying amountOff-market termsPrepayment or extra financingIf not a saleFinancial liabilityCommon inTelecom, aviation, retailChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

How does a sale and leaseback work?

Sale and leaseback, step by stepSale and leaseback, step by step1Sell towersCarrying amountCU 600, price 10002Is it a sale?Control passesunder IFRS 153Lease themback10-year lease,liability 4004Gain on thepart soldCU 240 of theCU 400 total gain
The seller recognises only the gain on the rights it has actually given up.

Is the transfer a sale?

The seller applies the IFRS 15 rules on when control of an asset passes. If the seller has a right or obligation to buy the asset back, control has not passed and there is no sale. A leaseback alone does not prevent a sale, unless it is in substance a financing arrangement, for example a leaseback covering almost the whole remaining life of the asset.

A worked example: telecom towers

An operator sells a portfolio of towers with a carrying amount of CU 600 million to a tower company for CU 1000 million, their fair value. It leases space on the towers back for ten years; the present value of the lease payments, at market rates, is CU 400 million. The transfer meets the IFRS 15 criteria for a sale.

  • The total gain would be CU 1000 million less CU 600 million = CU 400 million.
  • The operator keeps rights worth CU 400 million of the towers' CU 1000 million value, or 40%.
  • Right-of-use asset: 40% of the CU 600 million carrying amount = CU 240 million.
  • Gain recognised: only on the 60% transferred, so CU 400 million x 60% = CU 240 million.
The seller-lessee's entry on the sale (CU million)The seller-lessee's entry on the sale (CU million)Towers sold and leased backDebitCreditDr Cash1,000.00Dr Right-of-use asset240.00Cr Towers (carrying amount)600.00Cr Lease liability400.00Cr Gain on rights transferred240.00
Cash in, towers out, a right-of-use asset and lease liability in, and only part of the gain recognised.

Debits of CU 1240 million equal credits of CU 1240 million. The CU 160 million of gain not recognised now is effectively spread over the lease through lower depreciation of the right-of-use asset.

What if the price is not fair value?

If the sale price or the lease payments are not at market rates, the seller adjusts the figures. A price below fair value is treated as a prepayment of lease payments; a price above fair value is treated as extra financing from the buyer, recorded as a financial liability.

How is the lease accounted for afterwards?

Like any other lessee lease, with one restriction added in 2022 and effective from 2024: when the seller-lessee remeasures the lease liability, it must not recognise any gain or loss relating to the right of use it kept. This matters when leaseback payments are variable.

What happens if it is not a sale?

The seller continues to recognise the towers and depreciates them as before. The cash received is a financial liability under IFRS 9, and the payments to the buyer are split into interest and repayment of that liability. The buyer records a financial asset rather than the towers.

How does US GAAP compare?

ASC 842 also requires a sale under ASC 606, but if the transaction is a sale, the seller recognises the full gain immediately, subject to off-market adjustments. That is one of the larger practical differences between the two lease standards; see IFRS vs US GAAP: the key differences.

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Questions people ask

How is a sale and leaseback accounted for under IFRS 16?

If the transfer is a sale under IFRS 15, the seller recognises a right-of-use asset for the rights kept and only the gain on the rights transferred.

How is the right-of-use asset measured in a sale and leaseback?

At the proportion of the asset's previous carrying amount that relates to the right of use retained.

What if the sale in a sale and leaseback is not a sale?

The seller keeps the asset and recognises the cash received as a financial liability.

Does US GAAP treat sale and leaseback gains the same way?

No. Under ASC 842 the full gain is generally recognised when the transfer is a sale.

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 16IFRS 16 lessee accounting step by stepIFRS 15Consignment, bill-and-hold and repurchase agreements under IFRS 15IFRS 16IFRS 16 leases explained

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