The objective of this blog post is to explain how non-deductible tax is handled in lease contracts.
In case a lease contract applies to non-deductible tax, the non-deductible tax amount needs to be considered for the lease liability and the right-of-use asset. Therefore, non-deductible tax amounts must be included in the present value calculation. Prior to the 2002 release this was only possible by adding the non-deductible tax amount manually to the lease installment amount. When doing so, it was not possible to create supplier invoices for such lease contracts automatically by the Lease Contract Invoice Run. With the 2002 release you can now enter tax codes which contain non-deductible tax amounts in lease contracts. The non-deductible tax amount will be automatically considered for the present value calculation.
This example shall explain the calculation including non-deductible tax a bit more in detail. The contract start date is 01.03.2019 and it ends after five years on 29.02.2024. The monthly lease installment is 7.000 Euro and paid at the last day of each month. The interest rate for discounting is 0,68%. The tax rate is 19% which leads to a tax amount of 1.330 Euro. Because 50% of the tax are non-deductible, the non-deductible tax amount of 665 Euro is part of the present value calculation.
Present value calculation
The present value is calculated based on the lease installment of 7.000 Euro plus the non-deductible tax of 665 Euro.
The deductible and non-deductible tax amount is shown in the lease contract. When you select an ID in the Leased Objects tab, the Deductible Amount and Non-Deductible Amount is displayed for each Condition Type in the Conditions sub tab. In addition, when you select a lease installment, service charge or initial cost of a leased object, you can also see the deductible and non-deductible amounts in the Tax Details sub tab.
The clearing amount in the Valuation Cash Flow report is shown as the sum of the lease installment amount plus the non-deductible tax amount. When executing the Lease Posting Run the clearing amount gets posted against the clearing account for lease contracts.
This explanation shall help you to understand how non-deductible tax is considered in the valuation of lease contracts.