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3/19/2017 IAS12IncomeTaxes

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.

IAS12wasreissuedinOctober1996andisapp lica b letoannualperiodsbeginningonorafter1January1998.

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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Temporarydiffere nce = Carryingamount Taxbase

Deferredtaxassetorliability = Temporarydiffere nce x Taxrate

Thefollowingformulacanbeusedinthecalculationofdeferredtaxesarisingfromunusedtaxlossesorunusedtaxcredits:

Deferredtaxasset = Unusedtaxlossorunusedtaxcredits x Taxrate

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

Thedetermin ationofthetaxbasewilldependontheapp lica b letaxlawsandtheentity'sexp ectationsastorecoveryandsettlementofitsassetsandlia b ilities.The


followingaresomebasicexamples:
Property,plantandequipment.Thetaxbaseofproperty,plantandequipmentthatisdep reciab lefortaxpurposesthatisusedintheentity'sope ra tionsisthe
unclaimedtaxdep recia tionpermittedasdeductioninfutureperiods
Rec eiva bles.Ifreceivingpaymentofthereceiva blehasnotaxconseq uences,itstaxbaseisequaltoitscarryingamount
Goodwill.Ifgoodwillisnotrecogn isedfortaxpurposes,itstaxbaseisnil(noded uctionsareavailable)
Revenueinadvance.Iftherevenueistaxedonreceiptbutdeferredforaccountingpurposes,thetaxbaseoftheliabilityisequaltoitscarryingamount(asthere
arenofuturetaxableamounts).Conversely,iftherevenueisrecogn isedfortaxpurposeswhenthegoodsorservicesarereceived,thetaxbasewillbeequaltonil
Loans.Iftherearenotaxconseq uencesfromrepaymentoftheloan,thetaxbaseoftheloanisequaltoitscarryingamount.Iftherepaymenthastaxconse
quences(e.g.taxableamountsorded uctionsonrep aymentsofforeigncurrencyloansrecogn isedfortaxpurposesattheexchangerateonthedatetheloanwas
drawndown),thetaxconseq uenceofrepaymentatcarryingamountisadjustedagainstthecarryingamounttodeterminethetaxbase(whichinthecaseofthe
aforementionedforeigncurrencyloanwouldresultinthetaxbaseoftheloanbeingdeterminedbyreferencetotheexchangerateonthedrawdowndate).


Recognitionandmeas urementofdeferredtaxes

Recognitionofdeferredtaxlia bilities

ThegeneralprincipleinIAS12isthatadeferredtaxliabilityisrecogn isedforalltaxabletemporarydiffere nces.Therearethreeexceptionstothereq uirementtorecognisea


deferredtaxliability,asfollows:
lia b ilitiesarisingfrominitialrecogn itionofgoodwill[IAS12.15(a)]
lia b ilitiesarisingfromtheinitialrecogn itionofanasset/liabilityotherthaninabusinesscomb in ationwhich,atthetimeofthetransa ction,doesnotaffecteitherthe
accountingorthetaxableprofit[IAS12.15(b)]
lia b ilitiesarisingfromtemporarydiffere ncesassocia tedwithinvestmentsinsubsidiaries,branches,andassocia tes,andinterestsinjointarrangements,butonlyto
theextentthattheentityisabletocontrolthetimingofthereversalofthediffere ncesanditisprobablethatthereversalwillnotoccurintheforeseea blefuture.
[IAS12.39]

Example

Anentityund ertakenabusinesscomb in ationwhichresultsintherecogn itionofgoodwillinaccord ancewithIFRS3BusinessComb in ations.Thegoodwillisnottaxdep re


ciab leorotherwiserecogn isedfortaxpurposes.

Asnofuturetaxded uctionsareavailableinrespectofthegoodwill,thetaxbaseisnil.Accordingly,ataxabletemporarydiffere ncearisesinrespectoftheentirecarrying


amountofthegoodwill.However,thetaxabletemporarydiffere ncedoesnotresultintherecogn itionofadeferredtaxliabilitybecauseoftherecogn itionexceptionfor
deferredtaxlia b ilitiesarisingfromgoodwill.

Recognitionofdeferredtaxassets

Adeferredtaxassetisrecogn isedforded uctibletemporarydiffere nces,unusedtaxlossesandunusedtaxcreditstotheextentthatitisprobablethattaxableprofitwillbe


availableagainstwhichtheded uctibletemporarydiffere ncescanbeutilised,unlessthedeferredtaxassetarisesfrom:[IAS12.24]

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theinitialrecogn itionofanassetorliabilityotherthaninabusinesscomb in ationwhich,atthetimeofthetransa ction,doesnotaffectaccountingprofitortaxable
profit.

Deferredtaxassetsforded uctibletemporarydiffere ncesarisingfrominvestmentsinsubsidiaries,branchesandassocia tes,andinterestsinjointarrangements,areonly


recogn isedtotheextentthatitisprobablethatthetemporarydiffere ncewillreverseintheforeseea blefutureandthattaxableprofitwillbeavailableagainstwhichthe
temporarydiffere ncewillbeutilised.[IAS12.44]

Thecarryingamountofdeferredtaxassetsarereviewedattheendofeachreportingperiodandreducedtotheextentthatitisnolongerprobablethatsufficienttaxable
profitwillbeavailabletoallowthebenefitofpartorallofthatdeferredtaxassettobeutilised.Anysuchreductionissubseq uentlyreversedtotheextentthatitbecomes
probablethatsufficienttaxableprofitwillbeavailable.[IAS12.37]

Adeferredtaxassetisrecogn isedforanunusedtaxlosscarryforwardorunusedtaxcreditif,andonlyif,itisconside redprobablethattherewillbesufficientfuturetaxable


profitagainstwhichthelossorcreditcarryforwardcanbeutilised.[IAS12.34]

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:

Taxtorecognisefortheperiod = Currenttaxfortheperiod + Movementindeferredtaxbalancesfortheperiod

Wheretorecogniseincometaxfortheperiod

Consistentwiththeprincip lesund erlyingIAS12,thetaxconseq uencesoftransa ctionsandothereventsarerecogn isedinthesamewayastheitemsgivingrisetothose


taxconseq uences.Accordingly,currentanddeferredtaxisrecogn isedasincomeorexpenseandincludedinprofitorlossfortheperiod,excepttotheextentthatthetax
arisesfrom:[IAS12.58]
transa ctionsoreventsthatarerecogn isedoutsideofprofitorloss(othercomp reh ensiveincomeorequity)inwhichcasetherelatedtaxamountisalsorecogn ised
outsideofprofitorloss[IAS12.61A]
abusinesscomb in ationinwhichcasethetaxamountsarerecogn isedasidentifia bleassetsorlia b ilitiesattheacq uisitiondate,andaccordinglyeffectivelytaken
intoaccountinthedetermin ationofgoodwillwhenapplyingIFRS3BusinessComb in ations.[IAS12.66]

Example

Anentityund ertakesacapitalraisingandincursincrementalcostsdirectlyattribu ta bletotheequitytransa ction,includingregu latoryfees,legalcostsandstampduties.In


accord ancewiththereq uirementsofIAS32FinancialInstruments:Presentation,thecostsareaccountedforasadeductionfromequity.

Assumethatthecostsincurredareimmed ia telyded uctiblefortaxpurposes,reducingtheamountofcurrenttaxpayablefortheperiod.Whenthetaxbenefitoftheded uc


tionsisrecogn ised,thecurrenttaxamountassocia tedwiththecostsoftheequitytransa ctionisrecogn iseddirectlyinequity,consistentwiththetreatmentofthecoststhem
selves.

IAS12providesthefollowingadd itionalguidanceontherecogn itionofincometaxfortheperiod:


Whereitisdifficulttodeterminetheamountofcurrentanddeferredtaxrelatingtoitemsrecogn isedoutsideofprofitorloss(e.g.wheretherearegraduatedratesor
tax),theamountofincometaxrecogn isedoutsideofprofitorlossisdeterminedonareasona bleprorataallocation,orusinganothermoreapp rop ria temethod[IAS
12.63]
Inthecircumstanceswherethepaymentofdividendsimpactsthetaxrateorresultsintaxableamountsorrefunds,theincometaxconseq uencesofdividendsare
conside redtobemoredirectlylinkedtopasttransa ctionsoreventsandsoarerecogn isedinprofitorlossunlessthepasttransa ctionsoreventswererecogn ised
outsideofprofitorloss[IAS12.52B]
Theimpactofbusinesscomb in ationsontherecogn itionofprecomb in ationdeferredtaxassetsarenotincludedinthedetermin ationofgoodwillaspartofthe
businesscomb in ation,butaresepa ratelyrecogn ised[IAS12.68]
Therecogn itionofacquireddeferredtaxbenefitssubseq uenttoabusinesscomb in ationaretreatedas'measurementperiod'adjustments(seeIFRS3Business
Comb in ations)iftheyqualifyforthattreatment,orotherwisearerecogn isedinprofitorloss[IAS12.68]
Taxbenefitsofequitysettledsharebasedpaymenttransa ctionsthatexceedthetaxeffectedcumulativeremun era tionexpenseareconside redtorelatetoanequity
itemandarerecogn iseddirectlyinequity.[IAS12.68C]
Pres entation

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Currenttaxassetsandcurrenttaxlia b ilitiescanonlybeoffsetinthestatementoffinancialpositioniftheentityhasthelegalrightandtheintentiontosettleonanetbasis.
[IAS12.71]

Deferredtaxassetsanddeferredtaxlia b ilitiescanonlybeoffsetinthestatementoffinancialpositioniftheentityhasthelegalrighttosettlecurrenttaxamountsonanet
basisandthedeferredtaxamountsareleviedbythesametaxingauthorityonthesameentityordifferententitiesthatintendtorealisetheassetandsettletheliabilityatthe
sametime.[IAS12.74]

Theamountoftaxexpense(orincome)relatedtoprofitorlossisrequiredtobepresentedinthestatement(s)ofprofitorlossandothercomp reh ensiveincome.[IAS12.77]

Thetaxeffectsofitemsincludedinothercomp reh ensiveincomecaneitherbeshownnetforeachitem,ortheitemscanbeshownbeforetaxeffectswithanaggregate


amountofincometaxforgroupsofitems(allocatedbetweenitemsthatwillandwillnotbereclassifiedtoprofitorlossinsubseq uentperiods).[IAS1.91]
Disc los ure

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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