IAS 12
General
• Presentation of liability- Current tax payable
• If there is a tax loss- no tax income can be created (recognise Deferred tax assets for unused tax losses)
• Income tax expense consist of current tax, deferred tax and foreign withholding tax
Foreign tax
• If withholding tax- income will be amount that is received plus the amount of withholding tax.
• Thus would debit income tax expense with the amount of the withholding tax, debit bank with the amount
received, and credit the entire income amount.
Current tax
Practical for calculation
• In calculation, distinguish between non- taxable income, non-deductible expenses; and temporary differences to
ease calculations (for reconciliation)
• ***Prepaid expenses: check if the prepaid expense of the previous year, which would thus have been deducted in
the current year for accounting purposes, would have been deductible in the previous year for tax purposes
already (e.g. if used within 6 months). If so, add that amount back in the current year’s tax calculation.
• Deduct all income received in advance of the previous year for tax purposes, as it is taxed on the earlier of receipt
and accrual, and would thus not taxable in the current year- and add income received in advance in the current
year
• Foreign tax- in current tax calculation, and not taxed in SA- first deduct income from foreign sources to get profit
from SA sources
• Capital gains tax- subtract accounting profit, and add tax recoupment and CGT (@80%)- 20% of GCT is a non-
temporary difference (Included in reconciliation as well)
• ****If asked to split temporary and non temporary differences, and there is CGT: For non-temporary differences,
subtract the exempt portion of CGT. For temporary differences, add the recoupment, and subtract the non-
taxable accounting profit (the accumulated depreciation written off)
Tax laws- allowance for expected credit losses
• 12 month expected credit losses- 25%
• Lifetime expected credit losses- 40%
Provisional payments
• 1st payment- 6 months after start of year (estimate of taxable income)
• 2nd- at year end
• 3rd 6 months after year end (of outstanding liability)
• ******If there is thus an under provision in 2018- will increase the tax expense of 2019 – this is included because it
represents a change in accounting estimate- thus changed prospectively; changed in the year when the
information becomes available (Thus, discuss in terms of IAS 8)
• An over provision will thus decrease the tax expense of the following year
Journal:
DT: Current tax payable/SARS
Ct Bank
Under provision
Dt Income Tax expense
Ct Bank/tax payable
Over provision
Dt Bank/ Current tax
Ct Income Tax expense
Recognition
• Amount unpaid is a liability, asset if paid more than required (par 12)
, Measurement
• Par 46- using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the
reporting period. – in SA, budget speech of Minister of Finance: if it is not inextricably linked to a change in tax
law, the speech is the date. If it is inextricably linked, when approved by parliament and president (FRG 1)
• But also have to wait until the effective date
Presentation in SPLOCI
• Tax is classified where the transaction is classified- thus in P/L, OCI or equity
• Par 71- Offsetting: allowed if there is a legally enforceable right, and you intend to offset- thus, same tax authority
in SARS in separate financial statements
• However, no offsetting between entities in a group of companies, as they are separate tax entities
Deferred tax
Practical
• Par 12: Only assets where there will be taxable economic benefits when the carrying amount of the asset is
recovered in the future will have temporary differences, otherwise the tax base equals the carrying amount
• Thus, if allowances for tax is more than for accounting, a deferred tax liability will arise- taxable temporary
difference
• If tax allowance is less than accounting allowance, deferred tax asset- deductible temporary difference
• Only temporary differences can be consolidated, and not non-temporary (permanent) differences
For calculation:
* Thus, difference between accounting carrying amount and tax base is the temporary difference, which is multiplied
by the tax rate to get the deferred tax
* If you take CA-TB; positive amount will equal liabilities (Put liabilities in brackets, in order to ease the calculation)
* This is then done for every year, and the balance at the end of the year is thus calculated
* *****Deferred tax is a non-current asset or liability
* Only assets that have not been sold will be included in the deferred tax calculation
* Write in heading: CT (DT) or Taxable (Deductible)
* If exemption rule applies, write “exempt” in deferred tax column, and not 0
Tax base
Asset
• The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes
• Par 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- thus no temporary differences will arise if
the economic benefits will not be taxable; e.g. benefit of debtors is cash that will be paid, and that is thus not taxable.
But e.g. land is needed to produce economic benefits
• Use gross debtors (trade debtors + allowances) as the carrying amount
• Thus look if any economic benefits will be taxable to determine tax base- not only if there will be tax deductions. E.g.
office building- has a contribution towards profit that will be taxable
• Inventories- usually the entire amount of the inventories will be deductible for tax in the future as COS (closing
balance will be opening balance of next year, and thus the entire amount will be deductible)
• However, e.g. land that has no tax deductions will have a tax base of 0, which will result in a temporary difference,
but as it arises at recognition will be exempt from recognition
• Prepaid expenses- always remember S 23H!
General
• Presentation of liability- Current tax payable
• If there is a tax loss- no tax income can be created (recognise Deferred tax assets for unused tax losses)
• Income tax expense consist of current tax, deferred tax and foreign withholding tax
Foreign tax
• If withholding tax- income will be amount that is received plus the amount of withholding tax.
• Thus would debit income tax expense with the amount of the withholding tax, debit bank with the amount
received, and credit the entire income amount.
Current tax
Practical for calculation
• In calculation, distinguish between non- taxable income, non-deductible expenses; and temporary differences to
ease calculations (for reconciliation)
• ***Prepaid expenses: check if the prepaid expense of the previous year, which would thus have been deducted in
the current year for accounting purposes, would have been deductible in the previous year for tax purposes
already (e.g. if used within 6 months). If so, add that amount back in the current year’s tax calculation.
• Deduct all income received in advance of the previous year for tax purposes, as it is taxed on the earlier of receipt
and accrual, and would thus not taxable in the current year- and add income received in advance in the current
year
• Foreign tax- in current tax calculation, and not taxed in SA- first deduct income from foreign sources to get profit
from SA sources
• Capital gains tax- subtract accounting profit, and add tax recoupment and CGT (@80%)- 20% of GCT is a non-
temporary difference (Included in reconciliation as well)
• ****If asked to split temporary and non temporary differences, and there is CGT: For non-temporary differences,
subtract the exempt portion of CGT. For temporary differences, add the recoupment, and subtract the non-
taxable accounting profit (the accumulated depreciation written off)
Tax laws- allowance for expected credit losses
• 12 month expected credit losses- 25%
• Lifetime expected credit losses- 40%
Provisional payments
• 1st payment- 6 months after start of year (estimate of taxable income)
• 2nd- at year end
• 3rd 6 months after year end (of outstanding liability)
• ******If there is thus an under provision in 2018- will increase the tax expense of 2019 – this is included because it
represents a change in accounting estimate- thus changed prospectively; changed in the year when the
information becomes available (Thus, discuss in terms of IAS 8)
• An over provision will thus decrease the tax expense of the following year
Journal:
DT: Current tax payable/SARS
Ct Bank
Under provision
Dt Income Tax expense
Ct Bank/tax payable
Over provision
Dt Bank/ Current tax
Ct Income Tax expense
Recognition
• Amount unpaid is a liability, asset if paid more than required (par 12)
, Measurement
• Par 46- using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the
reporting period. – in SA, budget speech of Minister of Finance: if it is not inextricably linked to a change in tax
law, the speech is the date. If it is inextricably linked, when approved by parliament and president (FRG 1)
• But also have to wait until the effective date
Presentation in SPLOCI
• Tax is classified where the transaction is classified- thus in P/L, OCI or equity
• Par 71- Offsetting: allowed if there is a legally enforceable right, and you intend to offset- thus, same tax authority
in SARS in separate financial statements
• However, no offsetting between entities in a group of companies, as they are separate tax entities
Deferred tax
Practical
• Par 12: Only assets where there will be taxable economic benefits when the carrying amount of the asset is
recovered in the future will have temporary differences, otherwise the tax base equals the carrying amount
• Thus, if allowances for tax is more than for accounting, a deferred tax liability will arise- taxable temporary
difference
• If tax allowance is less than accounting allowance, deferred tax asset- deductible temporary difference
• Only temporary differences can be consolidated, and not non-temporary (permanent) differences
For calculation:
* Thus, difference between accounting carrying amount and tax base is the temporary difference, which is multiplied
by the tax rate to get the deferred tax
* If you take CA-TB; positive amount will equal liabilities (Put liabilities in brackets, in order to ease the calculation)
* This is then done for every year, and the balance at the end of the year is thus calculated
* *****Deferred tax is a non-current asset or liability
* Only assets that have not been sold will be included in the deferred tax calculation
* Write in heading: CT (DT) or Taxable (Deductible)
* If exemption rule applies, write “exempt” in deferred tax column, and not 0
Tax base
Asset
• The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes
• Par 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- thus no temporary differences will arise if
the economic benefits will not be taxable; e.g. benefit of debtors is cash that will be paid, and that is thus not taxable.
But e.g. land is needed to produce economic benefits
• Use gross debtors (trade debtors + allowances) as the carrying amount
• Thus look if any economic benefits will be taxable to determine tax base- not only if there will be tax deductions. E.g.
office building- has a contribution towards profit that will be taxable
• Inventories- usually the entire amount of the inventories will be deductible for tax in the future as COS (closing
balance will be opening balance of next year, and thus the entire amount will be deductible)
• However, e.g. land that has no tax deductions will have a tax base of 0, which will result in a temporary difference,
but as it arises at recognition will be exempt from recognition
• Prepaid expenses- always remember S 23H!
