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IAS12IncomeTaxes
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Overview
IAS12IncomeTaxesimp lementsasocalled'comp reh ensivebalancesheetmethod'ofaccountingforincometaxeswhichrecogn isesboththecurrenttaxconseq uencesof
transa ctionsandeventsandthefuturetaxconseq uencesofthefuturerecoveryorsettlementofthecarryingamountofanentity'sassetsandlia b ilities.Differe ncesbetween
thecarryingamountandtaxbaseofassetsandlia b ilities,andcarriedforwardtaxlossesandcredits,arerecogn ised,withlimitedexceptions,asdeferredtaxlia b ilitiesor
deferredtaxassets,withthelatteralsobeingsubjecttoa'probableprofits'test.
HistoryofIAS12
Date Dev elopment Comments
April1978 ExposureDraftE13AccountingforTaxesonIncomepublished
July1979 IAS12AccountingforTaxesonIncomeissued
January1989 ExposureDraftE33AccountingforTaxesonIncomepublished
1994 IAS12(1979)wasreformatted
October1994 ExposureDraftE49IncomeTaxespublished
October1996 IAS12IncomeTaxesissued Operativeforfinancialstatementscoveringperiodsbeginningon
orafter1January1988
October2000 LimitedRevisionstoIAS12published(taxconseq uencesofdividends) Operativeforfinancialstatementscoveringperiodsbeginningon
orafter1January2001
31March2009 ExposureDraftED/2009/2IncomeTaxpublished Commentdeadline31July2009
(proposalswerenotfinalised)
10September2010ExposureDraftED/2010/11DeferredTax:RecoveryofUnd erlyingAssets(Proposed Commentdeadline9November2010
amendmentstoIAS12)published
20December2010 AmendedbyDeferredTax:RecoveryofUnd erlyingAssets Effectiveforannualperiodsbeginningonorafter1January2012
19January2016 AmendedbyRecogn itionofDeferredTaxAssetsforUnrea lisedLosses Effectiveforannualperiodsbeginningonorafter1January2017
RelatedInterpretations
IFRIC7ApplyingtheRestatementApproachunderIAS29'FinancialReportinginHyp erinflationa ryEconomies'
SIC21IncomeTaxesRecoveryofRevaluedNonDep reciab leAssets(SIC21wasincorp oratedintoIAS12andwithdrawnbytheDecember2010amendments
madebyDeferredTax:RecoveryofUnd erlyingAssets)
SIC25IncomeTaxesChangesintheTaxStatusofanEnterp riseoritsShareh olde rs
AmendmentsunderconsiderationbytheIASB
IAS12Accountingforuncertaintiesinincometaxes
ResearchprojectIncometaxes(longerterm)
SummaryofIAS12
ObjectiveofIAS12
TheobjectiveofIAS12(1996)istoprescribetheaccountingtreatmentforincometaxes.
Inmeetingthisobjective,IAS12notesthefollowing:
Itisinherentintherecogn itionofanassetorliabilitythatthatassetorliabilitywillberecoveredorsettled,andthisrecoveryorsettlementmaygiverisetofuturetax
conseq uenceswhichshouldberecogn isedatthesametimeastheassetorliability
Anentityshouldaccountforthetaxconseq uencesoftransa ctionsandothereventsinthesamewayitaccountsforthetransa ctionsorothereventsthemselves.
Keydefinitions
[IAS12.5]
Taxbase Thetaxbaseofanassetorliabilityistheamountattribu tedtothatassetorliabilityfortaxpurposes
Temporarydiffere nces Differe ncesbetweenthecarryingamountofanassetorliabilityinthestatementoffinancialpositionanditstaxbases
Taxabletemporarydiffer Temporarydiffere ncesthatwillresultintaxableamountsindeterminingtaxableprofit(taxloss)offutureperiodswhenthecarryingamountofthe
ences assetorliabilityisrecoveredorsettled
Deductibletemporary Temporarydiffere ncesthatwillresultinamountsthatareded uctibleindeterminingtaxableprofit(taxloss)offutureperiodswhenthecarrying
differe nces amountoftheassetorliabilityisrecoveredorsettled
Deferredtaxlia bilities Theamountsofincometaxespayableinfutureperiodsinrespectoftaxabletemporarydiffere nces
Deferredtaxassets Theamountsofincometaxesrecove ra bleinfutureperiodsinrespectof:
a.ded uctibletemporarydiffere nces
b.thecarryforwardofunusedtaxlosses,and
c.thecarryforwardofunusedtaxcredits
Currenttax
Currenttaxforthecurrentandpriorperiodsisrecogn isedasaliabilitytotheextentthatithasnotyetbeensettled,andasanassettotheextentthattheamountsalready
paidexceedtheamountdue.[IAS12.12]Thebenefitofataxlosswhichcanbecarriedbacktorecovercurrenttaxofapriorperiodisrecogn isedasanasset.[IAS12.13]
Currenttaxassetsandlia b ilitiesaremeasuredattheamountexpectedtobepaidto(recoveredfrom)taxationauthorities,usingtherates/lawsthathavebeenenactedor
substantivelyenactedbythebalancesheetdate.[IAS12.46]
Calc ulationofdeferredtaxes
Formulae
Deferredtaxassetsanddeferredtaxlia b ilitiescanbecalculatedusingthefollowingformulae:
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Thefollowingformulacanbeusedinthecalculationofdeferredtaxesarisingfromunusedtaxlossesorunusedtaxcredits:
Taxbases
Thetaxbaseofanitemiscrucialindeterminingtheamountofanytemporarydiffere nce,andeffectivelyrepresentstheamountatwhichtheassetorliabilitywouldbe
recordedinataxbasedbalancesheet.IAS12providesthefollowingguidanceondeterminingtaxbases:
Assets.Thetaxbaseofanassetistheamountthatwillbeded uctibleagainsttaxableeconomicbenefitsfromrecove ringthecarryingamountoftheasset.Where
recoveryofanassetwillhavenotaxconseq uences,thetaxbaseisequaltothecarryingamount.[IAS12.7]
Revenuereceivedinadvance.Thetaxbaseoftherecogn isedliabilityisitscarryingamount,lessrevenuethatwillnotbetaxableinfutureperiods[IAS12.8]
Otherlia bilities.Thetaxbaseofaliabilityisitscarryingamount,lessanyamountthatwillbeded uctiblefortaxpurposesinrespectofthatliabilityinfutureperiods
[IAS12.8]
Unrecogniseditems.Ifitemshaveataxbasebutarenotrecogn isedinthestatementoffinancialposition,thecarryingamountisnil[IAS12.9]
Taxbasesnotimmedia telyapparent.Ifthetaxbaseofanitemisnotimmed ia telyapparent,thetaxbaseshouldeffectivelybedeterminedinsuchasmannerto
ensurethefuturetaxconseq uencesofrecoveryorsettlementoftheitemisrecogn isedasadeferredtaxamount[IAS12.10]
Cons olidatedfinancialstatements.Inconsolid atedfinancialstatements,thecarryingamountsintheconsolid atedfinancialstatementsareused,andthetaxbases
determinedbyreferencetoanyconsolid atedtaxreturn(orotherwisefromthetaxreturnsofeachentityinthegroup).[IAS12.11]
Examples
Recognitionandmeas urementofdeferredtaxes
Recognitionofdeferredtaxlia bilities
Example
Recognitionofdeferredtaxassets
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theinitialrecogn itionofanassetorliabilityotherthaninabusinesscomb in ationwhich,atthetimeofthetransa ction,doesnotaffectaccountingprofitortaxable
profit.
Thecarryingamountofdeferredtaxassetsarereviewedattheendofeachreportingperiodandreducedtotheextentthatitisnolongerprobablethatsufficienttaxable
profitwillbeavailabletoallowthebenefitofpartorallofthatdeferredtaxassettobeutilised.Anysuchreductionissubseq uentlyreversedtotheextentthatitbecomes
probablethatsufficienttaxableprofitwillbeavailable.[IAS12.37]
Meas urementofdeferredtax
Deferredtaxassetsandlia b ilitiesaremeasuredatthetaxratesthatareexpectedtoapplytotheperiodwhentheassetisrealisedortheliabilityissettled,basedontax
rates/lawsthathavebeenenactedorsubstantivelyenactedbytheendofthereportingperiod.[IAS12.47]Themeasurementreflectstheentity'sexp ectations,attheendof
thereportingperiod,astothemannerinwhichthecarryingamountofitsassetsandlia b ilitieswillberecoveredorsettled.[IAS12.51]
IAS12providesthefollowingguidanceonmeasuringdeferredtaxes:
Wherethetaxrateortaxbaseisimpactedbythemannerinwhichtheentityrecoversitsassetsorsettlesitslia b ilities(e.g.whetheranassetissoldorused),the
measurementofdeferredtaxesisconsistentwiththewayinwhichanassetisrecoveredorliabilitysettled[IAS12.51A]
Wheredeferredtaxesarisefromrevaluednondep reciab leassets(e.g.revaluedland),deferredtaxesreflectthetaxconseq uencesofsellingtheasset[IAS12.51B]
DeferredtaxesarisingfrominvestmentpropertymeasuredatfairvalueunderIAS40InvestmentPropertyreflectthereb uttablepresumptionthattheinvestment
propertywillberecoveredthroughsale[IAS12.51C51D]
Ifdividendsarepaidtoshareh olde rs,andthiscausesincometaxestobepayableatahigherorlowerrate,ortheentitypaysadd itionaltaxesorreceivesarefund,
deferredtaxesaremeasuredusingthetaxrateapp lica b letoundistribu tedprofits[IAS12.52A]
Deferredtaxassetsandlia b ilitiescannotbediscounted.[IAS12.53]
Recognitionoftaxamountsfortheperiod
Amountofincometaxtorecognise
Thefollowingformulasummarisestheamountoftaxtoberecogn isedinanaccountingperiod:
Wheretorecogniseincometaxfortheperiod
Example
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Currenttaxassetsandcurrenttaxlia b ilitiescanonlybeoffsetinthestatementoffinancialpositioniftheentityhasthelegalrightandtheintentiontosettleonanetbasis.
[IAS12.71]
Deferredtaxassetsanddeferredtaxlia b ilitiescanonlybeoffsetinthestatementoffinancialpositioniftheentityhasthelegalrighttosettlecurrenttaxamountsonanet
basisandthedeferredtaxamountsareleviedbythesametaxingauthorityonthesameentityordifferententitiesthatintendtorealisetheassetandsettletheliabilityatthe
sametime.[IAS12.74]
IAS12.80requiresthefollowingdisclosures:
majorcomp on entsoftaxexpense(taxincome)[IAS12.79]Examplesinclude:
currenttaxexpense(income)
anyadjustmentsoftaxesofpriorperiods
amountofdeferredtaxexpense(income)relatingtotheorigin ationandreversaloftemporarydiffere nces
amountofdeferredtaxexpense(income)relatingtochangesintaxratesortheimp ositionofnewtaxes
amountofthebenefitarisingfromaprevio uslyunrecogn isedtaxloss,taxcreditortemporarydiffere nceofapriorperiod
writedown,orreversalofapreviouswritedown,ofadeferredtaxasset
amountoftaxexpense(income)relatingtochangesinaccountingpoliciesandcorrectionsoferrors.
IAS12.81requiresthefollowingdisclosures:
aggregatecurrentanddeferredtaxrelatingtoitemsrecogn iseddirectlyinequity
taxrelatingtoeachcomponentofothercomp reh ensiveincome
exp lan ationoftherelationshipbetweentaxexpense(income)andthetaxthatwouldbeexpectedbyapplyingthecurrenttaxratetoaccountingprofitorloss(this
canbepresentedasareco ncilia tionofamountsoftaxorareco ncilia tionoftherateoftax)
changesintaxrates
amountsandotherdetailsofded uctibletemporarydiffere nces,unusedtaxlosses,andunusedtaxcredits
temporarydiffere ncesassocia tedwithinvestmentsinsubsidiaries,branchesandassocia tes,andinterestsinjointarrangements
foreachtypeoftemporarydiffere nceandunusedtaxlossandcredit,theamountofdeferredtaxassetsorlia b ilitiesrecogn isedinthestatementoffinancialposition
andtheamountofdeferredtaxincomeorexpenserecogn isedinprofitorloss
taxrelatingtodiscontinu edope ra tions
taxconseq uencesofdividendsdeclaredaftertheendofthereportingperiod
informationabouttheimpactsofbusinesscomb in ationsonanacquirer'sdeferredtaxassets
recogn itionofdeferredtaxassetsofanacquireeaftertheacq uisitiondate.
Otherrequireddisclosures:
detailsofdeferredtaxassets[IAS12.82]
taxconseq uencesoffuturedividendpayments.[IAS12.82A]
InadditiontothedisclosuresrequiredbyIAS12,somedisclosuresrelatingtoincometaxesarerequiredbyIAS1PresentationofFinancialStatements,asfollows:
Disclosureonthefaceofthestatementoffinancialpositionaboutcurrenttaxassets,currenttaxlia b ilities,deferredtaxassets,anddeferredtaxlia b ilities[IAS
1.54(n)and(o)]
Disclosureoftaxexpense(taxincome)intheprofitorlosssectionofthestatementofprofitorlossandothercomp reh ensiveincome(orseparatestatementif
presented).[IAS1.82(d)]
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