Off-balance sheet financing (OBSF) has long been a go-to strategy for Australian businesses looking to manage risk, preserve debt covenants, and access capital without swelling their reported liabilities. But with sweeping regulatory changes and evolving accounting standards in 2025, the way companies approach OBSF is undergoing a seismic shift. Here’s what every business owner and finance professional needs to know about the latest trends and compliance risks in this space.
What Is Off-Balance Sheet Financing? How Does It Work?
Off-balance sheet financing refers to methods of funding or acquiring assets without having those assets or the associated debts appear directly on a company’s balance sheet. Common tools include:
- Operating leases: Traditionally allowed businesses to use property, plant, or equipment without owning them or recording the full liability.
- Special Purpose Vehicles (SPVs): Separate legal entities used for specific projects or asset management, keeping related assets and debts off the parent company’s books.
- Factoring and securitisation: Selling receivables or bundling loans to external investors, removing those assets (and associated risk) from the balance sheet.
For years, these structures have helped companies improve their financial ratios and meet lending covenants. But regulators have always kept a wary eye on potential abuses—especially after past corporate scandals both in Australia and abroad.
2025 Regulatory Updates: New Rules and Tightening Loopholes
In 2025, Australian businesses face a tougher regulatory environment around OBSF. The Australian Accounting Standards Board (AASB) has moved to align more closely with international standards, particularly the latest IFRS 16 amendments. Here’s what’s changed:
- Stricter lease accounting: Nearly all leases must now be recognised on the balance sheet. The days of classifying long-term leases as ‘operating’ to keep them off the books are over, except for truly short-term or low-value leases.
- Greater SPV transparency: New disclosure requirements force parent companies to reveal their exposure to risks and rewards in SPVs—even if those entities remain legally separate.
- Enhanced scrutiny on receivables sales: Regulators now require more granular reporting on factoring and securitisation, especially where the business still retains some risk.
The ATO and ASIC have both flagged increased audit activity in 2025, targeting aggressive off-balance sheet arrangements. Businesses using creative OBSF structures should expect closer examination of the substance (not just the form) of transactions.
Real-World Examples: Who’s Using OBSF—And How?
Despite tighter rules, off-balance sheet financing remains alive and well—especially in capital-intensive industries. Here are some current Australian examples:
- Transport & logistics: Major fleet operators are leveraging short-term lease exemptions for vehicles under 12 months, carefully structuring contracts to remain compliant while maximising flexibility.
- Renewable energy projects: Many solar and wind farm developments use SPVs to ring-fence project risks, attract third-party investors, and reduce parent company liabilities. Investors are now demanding more transparent reporting before committing capital.
- Retail & hospitality chains: Chains are renegotiating lease terms to fit within new low-value or short-term carve-outs, particularly for pop-up locations and seasonal stores.
It’s worth noting that some large corporates have voluntarily expanded their disclosures beyond regulatory minimums to reassure shareholders and lenders in the current climate.
What Should Businesses Do Now?
With heightened scrutiny and rapid regulatory change, every business that relies on OBSF should be reviewing its structures and contracts. Key steps include:
- Conducting a detailed audit of all lease, SPV, and factoring arrangements under the 2025 standards.
- Engaging with external advisors to ensure full compliance and avoid reputational or financial penalties.
- Proactively communicating with lenders and investors about any changes to reported liabilities or financial ratios.
- Considering the strategic use of OBSF for future projects—balancing benefits against transparency demands and compliance costs.
Ultimately, the new era of off-balance sheet financing is about smarter structuring—not just hiding liabilities. As regulations evolve, so must your approach.
