A lease agreement is generally considered either as a financing lease or as an operational lease-sale agreement for the purposes of applying IFRS to SMEs. As far as leases are concerned, attention should be paid to the effects of VAT.) It is not permissible to assume that, since a lease has been classified as a lease for accounting purposes, it is also a financing lease (as defined in point b) of the definition of the VAT Act`s term credit contract) for VAT purposes. The aim of this article is to compare the accounting considerations for the classifications of a financial lease (as published in a previous article (accounting for ifrs leases for SMEs – Part 1: The basics) with the legal requirements of a temperamental credit contract (paragraph b)) of the VAT act. While, in the example above, the lease was considered a lease for accounting and vat purposes, it cannot always be accepted for all leases. As noted in the tables above, the indicators for the classification of a financing lease for accounting purposes differ significantly from the requirements of a financing lease (as defined in point (b) from the definition of the VAT Act`s term credit contract) for VAT purposes. Accounting indicators are consistent with the requirements of a temperamental credit contract under the VAT Act (notably point b) of the definition of an installment credit contract (i.e. an installment credit contract) in the table below: the transaction therefore qualifies as a financing lease in the form of part b) of the definition of the term credit contract of the VAT ACT. Accounting Indicators versus Temperamental Credit Contracts All types of businesses must acquire significant assets at some point and, since companies rarely have the cash to purchase that cash, the entity must decide to enter into an installment sale or a financing lease. The table below takes into account the information provided by Example 1 for the classification of a temperamental credit contract at point b) (a lease) for VAT purposes: […] and illustrates the accounting treatment of financial leasing and certain joint operating leases.

The fourth article examined the classification of leases for VAT purposes and submitted them to the guidance below […] Tax: right to aid at SARS rates or when companies have a small right to SBC rates (100% for machines or 50/30/20 for all other assets).