IAS 12 -INCOME TAX
Objective:
1. Accounting for current & future tax i.r.o
- future recovery of carrying amount of A + L (in SFP)
- other txs
2. Presentation & Disclosure of Income Tax
Scope:
- Includes domestic & foreign tax on taxable profits; also withholding taxes
- No VAT, rates + taxes (not charged on income)
Conceptual Framework: see booklet for detail
1. Definitions (classify): Asset or Liability
2. Recognition Criteria: Reliably measured; Probable Outflow;
Intro Definitions:
Accounting Profit: P or L for period before deducting tax exp.
Taxable Profit: P or L for period, determined ito tax authorities
Current Tax: income taxes payable/recoverable iro taxable profit (SPLOCI)
Tax Base: amount attributed to A or L for tax purposes
Effective Rate: income tax expense divided by accounting profit
1
,Recognition:
1. Current & deferred tax recognised as income or an expense in P or L except if arises from tx
outside P or L i.e.
OCI
Statement of changes in equity (IAS 8: ∆ Retained Earnings balance – tax implications)
If event/tx in P/L, any movement in DT for that event/tx must also go to P/L.
2. CA of DTA & DTL can change, without a ∆TDs, due to:
∆ Tax Rates
Reassessment of recoverability of DTAs
Current Tax
Taxable profit = Accounting profit + non-deductible expenses (depreciation) – non-
taxable income (dividend income) – tax deductions/temporary differences (timing etc.)
Note: tax rate recon for non-deductible expenses & non-taxable incomes (deferred tax
NOT included in recon)
Measurement:
Amount expected to be paid to (recovered from) tax authority
using rates enacted or substantively enacted by end of reporting period
o when change not linked to ∆ tax law: announced in budget = substantively enacted
o when change linked to ∆ tax law: approved by Parliament + signed =
substantively enacted
o changes after reporting period = non-adjusting (:. disclosure
required) Presentation:
Offsetting of current tax A or L: required/permitted; same tax authority + permits it; groups
= NO in RSA;
Where on face of FS? see booklet
Recognition: if tx accounted for in P/L then current tax effect in P/L too
2
,Deferred Tax (non-current)
Potential current tax to be paid in future based on A & L (:. net assets) in SFP:
Assets: cash hope to collect in future (sell inv.; collect from debtors; PPE used to generate income)
Liab.: = claims :. reduces assets & decreases profit in future THUS affects tax to be paid
We account for the future tax because a “PAST EVENT” has already taken place (A/L on SFP)
Difference between CA (per IFRS) and Tax Base (per Income Tax legislation) :. = tax profit
NOTE:
2013 SPLOCI: subtract #2
2014 SPLOCI: subtract full prepaid expense; + back #2 (don’t get deduction twice!!)
Measurement:
Amount expected to be paid to (recovered from) tax authority in future
using rates enacted or substantively enacted by end of reporting period
o when change not linked to ∆ tax law: announced in budget = substantively enacted
o when change linked to ∆ tax law: approved by Parliament + signed =
substantively enacted
o changes after reporting period = non-adjusting (:. disclosure required)
DTA & DTL not discounted (impracticable; not comparable bet.
entities) Presentation:
Shall offset DTA and DTL if:
o legally enforceable right
3
, o same tax authority
However, if Group – keep DT A/L of parent separate from DT A/L of subsidiaries
Tax expense (Movement in Deferred Tax balance) presented as part of P or L in
SPLOCI Disclosure:
See booklet ‘Part C’
Movement in SPLOCI:
∆ Tax Rate (this done first)
o If question says “change implemented from year ending on/after dd/mm/yyyy”
then both DT & CT
o If question says “change implemented from year starting on/after dd/mm/yyyy”
then only DT but adjustment for CT in recon
TDs
Deferred Tax Liability
Definition: income tax payable in future iro taxable Temp Diffs (TDs that result in
taxable amounts in det. taxable profit of future periods)
Recognition: recognised for ALL taxable TDs EXCEPT:
Arose on initial recognition and
Tx not a business combination and
Tx doesn’t affect accounting profit/loss (consider jnl entry on initial recog) and
Tx doesn’t affect taxable profit/loss
WHY? If not, DTL recognised that will never result in actual claim :. not faithful representation
NOTE: If EXEMPT, state this as reason!
4
Objective:
1. Accounting for current & future tax i.r.o
- future recovery of carrying amount of A + L (in SFP)
- other txs
2. Presentation & Disclosure of Income Tax
Scope:
- Includes domestic & foreign tax on taxable profits; also withholding taxes
- No VAT, rates + taxes (not charged on income)
Conceptual Framework: see booklet for detail
1. Definitions (classify): Asset or Liability
2. Recognition Criteria: Reliably measured; Probable Outflow;
Intro Definitions:
Accounting Profit: P or L for period before deducting tax exp.
Taxable Profit: P or L for period, determined ito tax authorities
Current Tax: income taxes payable/recoverable iro taxable profit (SPLOCI)
Tax Base: amount attributed to A or L for tax purposes
Effective Rate: income tax expense divided by accounting profit
1
,Recognition:
1. Current & deferred tax recognised as income or an expense in P or L except if arises from tx
outside P or L i.e.
OCI
Statement of changes in equity (IAS 8: ∆ Retained Earnings balance – tax implications)
If event/tx in P/L, any movement in DT for that event/tx must also go to P/L.
2. CA of DTA & DTL can change, without a ∆TDs, due to:
∆ Tax Rates
Reassessment of recoverability of DTAs
Current Tax
Taxable profit = Accounting profit + non-deductible expenses (depreciation) – non-
taxable income (dividend income) – tax deductions/temporary differences (timing etc.)
Note: tax rate recon for non-deductible expenses & non-taxable incomes (deferred tax
NOT included in recon)
Measurement:
Amount expected to be paid to (recovered from) tax authority
using rates enacted or substantively enacted by end of reporting period
o when change not linked to ∆ tax law: announced in budget = substantively enacted
o when change linked to ∆ tax law: approved by Parliament + signed =
substantively enacted
o changes after reporting period = non-adjusting (:. disclosure
required) Presentation:
Offsetting of current tax A or L: required/permitted; same tax authority + permits it; groups
= NO in RSA;
Where on face of FS? see booklet
Recognition: if tx accounted for in P/L then current tax effect in P/L too
2
,Deferred Tax (non-current)
Potential current tax to be paid in future based on A & L (:. net assets) in SFP:
Assets: cash hope to collect in future (sell inv.; collect from debtors; PPE used to generate income)
Liab.: = claims :. reduces assets & decreases profit in future THUS affects tax to be paid
We account for the future tax because a “PAST EVENT” has already taken place (A/L on SFP)
Difference between CA (per IFRS) and Tax Base (per Income Tax legislation) :. = tax profit
NOTE:
2013 SPLOCI: subtract #2
2014 SPLOCI: subtract full prepaid expense; + back #2 (don’t get deduction twice!!)
Measurement:
Amount expected to be paid to (recovered from) tax authority in future
using rates enacted or substantively enacted by end of reporting period
o when change not linked to ∆ tax law: announced in budget = substantively enacted
o when change linked to ∆ tax law: approved by Parliament + signed =
substantively enacted
o changes after reporting period = non-adjusting (:. disclosure required)
DTA & DTL not discounted (impracticable; not comparable bet.
entities) Presentation:
Shall offset DTA and DTL if:
o legally enforceable right
3
, o same tax authority
However, if Group – keep DT A/L of parent separate from DT A/L of subsidiaries
Tax expense (Movement in Deferred Tax balance) presented as part of P or L in
SPLOCI Disclosure:
See booklet ‘Part C’
Movement in SPLOCI:
∆ Tax Rate (this done first)
o If question says “change implemented from year ending on/after dd/mm/yyyy”
then both DT & CT
o If question says “change implemented from year starting on/after dd/mm/yyyy”
then only DT but adjustment for CT in recon
TDs
Deferred Tax Liability
Definition: income tax payable in future iro taxable Temp Diffs (TDs that result in
taxable amounts in det. taxable profit of future periods)
Recognition: recognised for ALL taxable TDs EXCEPT:
Arose on initial recognition and
Tx not a business combination and
Tx doesn’t affect accounting profit/loss (consider jnl entry on initial recog) and
Tx doesn’t affect taxable profit/loss
WHY? If not, DTL recognised that will never result in actual claim :. not faithful representation
NOTE: If EXEMPT, state this as reason!
4
