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Objective of IAS 12=
The
objective of IAS 12 (Revised 1996) is to prescribe the accounting treat=
ment
for income taxes.
Key Definitions [IAS 12.5]
Tem=
porary
difference: A difference between the carrying amount of an asset or
liability and its tax base.
Tax=
able
temporary difference: A temporary difference that will result in taxable
amounts in the future when the carrying amount of the asset is recovere=
d or
the liability is settled.
Ded=
uctible
temporary difference: A temporary difference that will result in amounts
that are tax deductible in the future when the carrying amount of the a=
sset
is recovered or the liability is settled.
Current Tax
Curren=
t tax
for the current and prior periods should be recogn=
ised
as a liability to the extent that it has not yet been settled, and as an
asset to the extent that the amounts already paid exceed the amount due.
[IAS 12.12] The benefit of a tax loss which can be carried back to reco=
ver
current tax of a prior period should be recognised=
as an asset. [IAS 12.13] Current tax assets and liabilities should be
measured at the amount expected to be paid to (recovered from) taxation
authorities, using the rates/laws that have been enacted or substantive=
ly
enacted by the balance sheet date. [IAS 12.46]
Recognition of Deferred Tax
Liabilities
The ge=
neral
principle in IAS 12 is that deferred tax liabilities should be recognised for all taxable temporary differences.=
There
are 3 exceptions to the requirement to recognise
a deferred tax liability, as follows: [IAS 12.15]
- liabilities arising fr=
om
goodwill for which amortisation is not
deductible for tax purposes;
- liabilities arising fr=
om the
initial recognition of an asset/liability other than in a business
combination which, at the time of the transaction, does not affect
either the accounting or the taxable profit; and
- liabilities arising from undistri=
buted
profits from investments where the enterprise is able to control t=
he
timing of the reversal of the difference and it is probable that t=
he
reversal will not occur in the foreseeable future.
Recognition of Deferred Tax Ass=
ets
A defe=
rred
tax asset should be recognised for deductib=
le
temporary differences, unused tax losses and unused tax credits to the
extent that it is probable that taxable profit will be available against
which the deductible temporary differences can be =
utilised,
unless the deferred tax asset arises from: [IAS 12.24]
- negative goodwill whic=
h was
treated as deferred income under IAS 22 Business Combinations; or =
- the initial recognition o=
f an
asset/liability other than in a business combination which, at the
time of the transaction, does not affect the accounting or the tax=
able
profit.
Deferred tax assets for deductible temporary differences
arising from investments in subsidiaries, associates, branches and joint
ventures should be recognised to the extent=
that
it is probable that the temporary difference will reverse in the
foreseeable future and that taxable profit will be available against wh=
ich
the temporary difference will be utilised. =
[IAS
12.44]
The ca=
rrying
amount of deferred tax assets should be reviewed at the end of each
reporting period and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow the benefit of
part or all of that deferred tax asset to be=
utilised. Any such reduction should be subsequent=
ly
reversed to the extent that it becomes probable that sufficient taxable
profit will be available. [IAS 12.37]
A defe=
rred
tax asset should be recognised for an unuse=
d tax
loss carryforward or unused tax credit if, =
and
only if, it is considered probable that there will be sufficient future
taxable profit against which the loss or credit ca=
rryforwards
can be utilised. [IAS 12.34]
Measurement of Deferred Tax Ass=
ets
and Liabilities
Deferr=
ed tax
assets and liabilities should be measured at the tax rates that are
expected to apply to the period when the asset is =
realised
or the liability is settled (liability method), based on tax rates/laws
that have been enacted or substantively enacted by the end of the repor=
ting
period. [IAS 12.47] The measurement should reflect the entity's
expectations, at the balance sheet date, as to the manner in which the
carrying amount of its assets and liabilities will be recovered or sett=
led.
[IAS 12.51]
Deferr=
ed tax
assets and liabilities should not be discounted. [IAS 12.53]
Recognition of Tax Expense or I=
ncome
Curren=
t and
deferred tax should be recognised as income=
or
expense and included in profit or loss for the period, except to the ex=
tent
that the tax arises from: [IAS 12.58]
- a transaction or event=
that
is recognised directly in equity; or <=
o:p>
- a business combination
accounted for as an acquisition.
If the tax relates to items that are credited or charged
directly to equity, the tax should also be charged or credited directly=
to
equity. [IAS 12.61]
If the=
tax
arises from a business combination that is an acquisition, it should be=
recognised as an identifiable asset or liability =
at the
date of acquisition in accordance with IFRS 3 Business
Combinations (thus affecting goodwill or negative goodwill). <=
/o:p>
Tax Consequences of Dividends
In some
jurisdictions, income taxes are payable at a higher or lower rate if pa=
rt
or all of the net profit or retained earnings is paid out as a dividend=
. In
other jurisdictions, income taxes may be refundable if part or all of t=
he
net profit or retained earnings is paid out as a dividend. Possible fut=
ure
dividend distributions or tax refunds should not be anticipated in
measuring deferred tax assets and liabilities. [IAS 12.52A] =
IAS 10, Events after=
the
Reporting Period, requires disclosure, and prohibits accrual, of a
dividend that is proposed or declared after the end of the reporting pe=
riod
but before the financial statements were authorise=
d
for issue. IAS 12 requires disclosure of the tax consequences of such
dividends as well as disclosure of the nature and amounts of the potent=
ial
income tax consequences of dividends. [IAS 12.82A]
Presentation
Curren=
t tax
assets and current tax liabilities should be offset on the balance sheet
only if the enterprise has the legal right and the intention to settle =
on a
net basis. [IAS 12.71]
Deferr=
ed tax
assets and deferred tax liabilities should be offset on the balance she=
et
only if the enterprise has the legal right to settle on a net basis and
they are levied by the same taxing authority on the same entity or
different entities that intend to realise t=
he
asset and settle the liability at the same time. [IAS 12.74]
Disclosure
- current tax assets [IAS
12.69]
- current tax liabilitie=
s [IAS
12.69]
- deferred tax assets (a=
lways
classified as noncurrent) [IAS 12.69-7=
0]
- deferred tax liabiliti=
es
(always classified as noncurrent) [IAS
12.69-70]
- tax expense (tax incom=
e)
relating to profit or loss from ordinary activities (must be shown=
on
the face of the income statement) [IAS 12.77]
- major components of tax
expense (tax income) [IAS 12.79]
- aggregate current and
deferred tax relating to items reported directly in equity [IAS 12=
.81]
- tax relating to
extraordinary items [IAS 12.81]
- explanation of the
relationship between tax expense (income) and the tax that would be
expected by applying the current tax rate to accounting profit or =
loss
(this can be presented as a reconciliation of amounts of tax or a
reconciliation of the rate of tax) [IAS 12.81] <=
/li>
- changes in tax rates [=
IAS
12.81]
- amounts and other deta=
ils of
deductible temporary differences, unused tax losses, and unused tax
credits [IAS 12.81]
- temporary differences
associated with investments in subsidiaries, associates, branches,=
and
joint ventures [IAS 12.81]
- for each type of tempo=
rary
difference and unused tax loss and credit, the amount of deferred =
tax
assets or liabilities recognised in the
statement of financial position and the amount of deferred tax inc=
ome
or expense recognised in the income
statement [IAS 12.81]
- tax relating to
discontinuing operations [IAS 12.81]
- tax consequences of
dividends declared after the end of the reporting period[IAS 12.81=
]
- details of deferred tax
assets [IAS 12.82]
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