Discount rate and on-costs for a long service leave provision

What AASB 119 says about the discount rate

AASB 119 paragraph 83 sets the discount rate by reference to:

“market yields at the end of the reporting period on high quality corporate bonds”

AASB 119 paragraph 83

Where a currency has no deep market in those bonds, paragraph 83 says to use the yields on government bonds in that currency instead. Either way, the currency and term of the bonds are to be consistent with the currency and estimated term of the obligation. Paragraph 85 adds that, in practice, an entity often applies a single weighted average rate that reflects the estimated timing and amount of the payments.

Paragraph Aus83.1 is an Australian paragraph that applies despite paragraph 83. For not-for-profit public sector entities, it says obligations in Australian currency are:

“discounted using market yields on government bonds”

AASB 119 paragraph Aus83.1

Paragraph 83 is written for post-employment benefit obligations. It reaches long service leave through two other paragraphs. Paragraph 153 names long-service leave as one of the other long-term employee benefits, those not expected to be settled wholly within twelve months after the end of the annual reporting period in which the service is rendered. Paragraph 155 applies paragraphs 56–98, which include paragraph 83, to measuring them.

These paragraphs are described from AASB 119 Employee Benefits, the compiled version that applies to annual periods beginning on or after 1 January 2023 but before 1 July 2026, read on 2026-10-06. For a period beginning on or after 1 July 2026, look on the AASB's site for the version that applies.

Why the rate matters

A higher discount rate gives a lower present value. Vestline discounts each expected payment back to the valuation date by (1 + salary growth) ÷ (1 + discount rate), raised to the number of years until the payment, as Step 3 of the worked example sets out. The warning quoted below makes the same point about the two bases: it says the corporate rate is higher and gives a lower provision.

Vestline uses one discount rate for every employee in a file. How much the rate matters depends on how far away each employee's payments are, so the illustration below is one employee, not a rule of thumb.

What Vestline does by default

Vestline starts with a government bond yield: the 10-year Australian Government bond yield from the RBA's F2 table, for the valuation date. That is the basis paragraph Aus83.1 gives public sector not-for-profits. For other entities, paragraph 83 points to corporate bonds, so the rate is a starting point for the preparer to replace. Vestline's basis note for the assumption reads:

AASB 119 para 83 requires high quality corporate bond yields where a deep market exists, as it is accepted to in Australia; only not-for-profit public sector entities use government bond yields (para Aus83.1). The default is the RBA 10-year government bond yield. For-profit entities and private sector not-for-profits (such as charities) should replace it with a corporate bond rate, for example from the Group of 100 discount rate report.

Basis for each assumption, in the calculator and in the working paper

For a for-profit entity or a private sector not-for-profit, the calculator shows this warning while the RBA yield is still the rate:

The discount rate is the government bond yield. AASB 119 para 83 requires a high quality corporate bond yield for for-profit entities and private sector not-for-profits; only public sector not-for-profits may use government bonds (para Aus83.1). The corporate rate is higher and gives a lower provision. Enter the corporate bond rate for the obligation's term (for example from the Group of 100 discount rate report), or document why the difference is immaterial.

The calculator's warning under Assumptions

The entity type the preparer chooses decides whether the warning appears:

The warning goes once the preparer enters a rate. The working paper carries the same warning as a WARNING line until then, and the draft note wording Vestline suggests names corporate bonds or government bonds to match the entity type.

What the preparer does. Vestline does not supply a corporate bond rate, and this page does not give one. The preparer enters the corporate bond rate for the obligation's term, or documents why the difference from the government bond yield is immaterial. Which rate to use, and whether a difference is immaterial, is the preparer's judgement.

The calculator names the Group of 100 discount rate report as one place to find a corporate bond rate. The Group of 100's discount rates page says the Group of 100 has commissioned Milliman to generate a standardised set of discount rates for discounting employee benefit liabilities under AASB 119, limited to Australian employee benefit schemes. See that page for how to get the report and its terms. Vestline does not reproduce the report's rates.

On-costs

On-costs are the payroll tax, workers compensation and superannuation payable on leave, as the calculator lists them. The rate depends on state thresholds and the entity's premiums, so it differs from one entity to the next.

Vestline starts the on-costs rate at 0.00%, which leaves all three out, because the rate depends on the entity. While the rate is left there, the calculator says:

On-costs are 0%. Superannuation, payroll tax and workers compensation are usually payable when leave is taken, so a 0% rate understates the provision. Enter the entity's rate, or record why none apply.

The calculator's prompt under Assumptions

The working paper flags it too, as a WARNING line with the same words. A zero rate understates the provision because those costs are usually payable when the leave is taken, as the prompt says.

Vestline applies the rate to each employee's present value and adds the result: provision = present value + on-costs. Step 3 of the worked example shows the line in its build-up. Which of the three costs apply to the entity, and at what rate, is for the preparer to establish and record.

Sources

• AASB: AASB 119 Employee Benefits, the compiled version that applies to annual periods beginning on or after 1 January 2023 but before 1 July 2026. Read on 2026-10-06.
• Group of 100: G100 Discount Rates. Read on 2026-10-06.

These pages can change. Check them before you rely on this guide.

What this guide is not

It describes what the AASB's page says, what the calculator does and one example, as read on the date shown. It is general information, not a view on what rate to use or which on-costs apply to any entity: those are for the preparer to decide and record. Vestline is a calculation tool. It does not give accounting, legal or financial product advice, and the preparer remains responsible for the assumptions and the figures in the financial report.