AASB112 ch08 PDF

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FACT SHEET

AASB 112 Income Taxes

OBJECTIVE

The objective of this standard is to allow the reporting entity to account for income taxes, particularly the differences between tax law and financial reporting. KEY DEFINITIONS

A temporary difference is a difference between the carrying amount of an asset or liability and its tax base. A taxable temporary difference is a temporary difference that will result in taxable amounts in the future when the carrying amount of the asset is recovered or the liability is settled. A deductible temporary difference is a temporary difference that will result in amounts that are tax deductible in the future when the carrying amount of the asset is recovered or the liability is settled. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of: 1. deductible temporary differences 2. the carry forward of unused tax losses, and 3. the carry forward of unused tax credits. Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences. KEY REPORTING REQUIREMENTS

1. Any unpaid current tax liability should be recognised as a liability unless there is a tax loss, in which case an asset is recognised (see below) (paras. 12–14). 2. A deferred tax liability (DTL) should be recognised for all taxable temporary differences unless it (paras. 15–23) arises from: • goodwill •the initial recognition of an asset unless it is part of a business combination or affects neither taxable profit nor accounting profit. 3. A deferred tax asset (DTA) should be recognised for all deductible temporary differences, unless it is part of a business combination and affects neither taxable profit nor accounting profit (paras. 24–45). •A DTA can only be recognised to the extent that it is probable that the reporting entity will have taxable income future to enable the DTA to be utilised. 4. Measurement of DTAs and DTLs are in accordance with tax laws and tax rates (in Australia this is currently 30%); that is, if a temporary difference is $1000 the corresponding DTA/DTL would be $300 (paras. 46–56). 5. Current and deferred tax should be recognised as income or expense and included in profit or loss unless it relates to a business combination or the transaction is recognised directly to equity (e.g. an asset revaluation). 6. A reporting entity can only offset DTAs and DTLs if it has a legally enforceable right to do so, and intends to settle both simultaneously. 7. Disclosures: •All items relating to tax should be disclosed separately in the statements. • Major items of tax expense should be disclosed, including: − current tax expense (income) − any adjustments of taxes of prior periods −amount of deferred tax expense (income) relating to the origination and reversal of temporary differences −amount of deferred tax expense (income) relating to changes in tax rates or the imposition of new taxes −amount of the benefit arising from a previously unrecognised tax loss, tax credit or temporary difference of a prior period

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APPENDIX Fact sheets

−write-down, or reversal of a previous write-down, of a deferred tax asset, and −amount of tax expense (income) relating to changes in accounting policies and corrections of errors. • Items requiring separate disclosure include: − the aggregate of items reported directly in equity −tax relating to each component of other comprehensive income −a reconciliation of tax profit to accounting profit or a description of the differences − changes in tax rates −amounts and other details of deductible temporary differences, unused tax losses and unused tax credits −temporary differences associated with investments in subsidiaries, associates and branches, and − details of deferred tax assets. CHANGES ON THE HORIZON

The standard is expected to be revised in 2010 to eliminate some minor differences as part of the convergence project between the IASB and the FASB. It is not expected to have any major differences. GAAP DIFFERENCES

No differences.

APPENDIX Fact sheets

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