IAS 12 Income taxes

IAS 12 Objective Scope Definitions

Objective

The objective of this Standard is to prescribe the accounting treatment for income taxes. The principal issue in accounting for income taxes is how to account for the current and future tax consequences of:

1. the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognised in an entity’s statement of financial position; and
2. transactions and other events of the current period that are recognised in an entity’s financial statements.

It is inherent in the recognition of an asset or liability that the reporting entity expects to recover or settle the carrying amount of that asset or liability. If it is probable that recovery or settlement of that … Read more

IAS 12 Income taxes

IAS 12 Tax base

7 The tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset. If those economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount.

IAS 12 Income taxes

IAS 12 Recognition current tax

Recognition of current tax liabilities and current tax assets

12 Current tax for current and prior periods shall, to the extent unpaid, be recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess shall be recognised as an asset.

13 The benefit relating to a tax loss that can be carried back to recover current tax of a previous period shall be recognised as an asset.

14 When a tax loss is used to recover current tax of a previous period, an entity recognises the benefit as an asset in the period in which the tax … Read more

IAS 12 Income taxes

IAS 12 Recognition deferred tax

Recognition of deferred tax liabilities and deferred tax assets

Taxable temporary differences

15 A deferred tax liability shall be recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from:

1. the initial recognition of goodwill; or
2. the initial recognition of an asset or liability in a transaction which:
   1. is not a business combination; and
   2. at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

However, for taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements, a deferred tax liability shall be recognised in accordance with paragraph 39.

16 It is inherent in the … Read more

IAS 12 Income taxes

IAS 12 Tax measurement

46 Current tax liabilities (assets) for the current and prior periods shall be measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

47 Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

48 Current and deferred tax assets and liabilities are usually measured using … Read more

IAS 12 Income taxes

IAS 12 Tax recognition of current and deferred tax

57 Accounting for the current and deferred tax effects of a transaction or other event is consistent with the accounting for the transaction or event itself. Paragraphs 58 to 68C implement this principle.

57A An entity shall recognise the income tax consequences of dividends as defined in IFRS 9 when it recognises a liability to pay a dividend. The income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity shall recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity … Read more

IAS 12 Income taxes

IAS 12 Tax presentation

Tax assets and tax liabilities

69–70 [Deleted]

Offset

71 An entity shall offset current tax assets and current tax liabilities if, and only if, the entity:

1. has a legally enforceable right to set off the recognised amounts; and
2. intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

72 Although current tax assets and liabilities are separately recognised and measured they are offset in the statement of financial position subject to criteria similar to those established for financial instruments in IAS 32. An entity will normally have a legally enforceable right to set off a current tax asset against a current tax liability when … Read more

IAS 12 Income taxes

IAS 12 Tax disclosure

79 The major components of tax expense (income) shall be disclosed separately.

80 Components of tax expense (income) may include:

1. current tax expense (income);
2. any adjustments recognised in the period for current tax of prior periods;
3. the amount of deferred tax expense (income) relating to the origination and reversal of temporary differences;
4. the amount of deferred tax expense (income) relating to changes in tax rates or the imposition of new taxes;
5. the amount of the benefit arising from a previously unrecognised tax loss, tax credit or temporary difference of a prior period that is used to reduce current tax expense;
6. the amount of the benefit from a previously unrecognised tax loss, tax

IAS 12 Income taxes

IAS 12 Tax Illustrative examples

These illustrative examples accompany, but are not part of, IFRS 12.

Examples of temporary differences

A. Examples of circumstances that give rise to taxable temporary differences

All taxable temporary differences give rise to a deferred tax liability.

Transactions that affect profit or loss

1 Interest revenue is received in arrears and is included in accounting profit on a time apportionment basis but is included in taxable profit on a cash basis.

2 Revenue from the sale of goods is included in accounting profit when goods are delivered but is included in taxable profit when cash is collected. (note: as explained in B3 below, there is also a deductible temporary difference associated … Read more

IAS 12 Income taxes

IAS 12 Tax Depreciable assets

Illustrative computations and presentation

Extracts from statements of financial position and statements of comprehensive income are provided to show the effects on these financial statements of the transactions described below. These extracts do not necessarily conform with all the disclosure and presentation requirements of other Standards.

All the examples below assume that the entities concerned have no transaction other than those described.

Example 1 – Depreciable assets

An entity buys equipment for 10,000 and depreciates it on a straight-line basis over its expected useful life of five years. For tax purposes, the equipment is depreciated at 25% a year on a straight-line basis. Tax losses may be carried back against taxable … Read more