IAS 12: Income Taxes - HTK Academy

IAS 12

Deferred tax liabilities are the amounts of income taxes payable in future periods due to taxable temporary differences
Deferred tax assets are the amounts of income taxes recoverable in future periods due to deductible temporary difference, unused credit/loss carry forwards
Temporary difference is the difference between the book value and the tax base of an asset or liability
- Taxable temporary difference = temporary differences that will result in future taxable income when the asset is recovered or the liability is settled
- Deductible temporary = temporary difference that will result in future tax deductions when the asset is recovered or the liability is settled

The tax base of an asset = amount that will be deductible for tax purposes; if the recovery of the asset will not have any tax consequences, the tax base is the carrying amount
- For Depreciable Capital Property; tax base = Undepreciated Cost of Capital (UCC)
- For Inventory; tax base = carrying amount
- For Accounts Receivables; tax base = Carrying Amount
- For Loan Receivable; tax base = Carrying amount
- For Dividends Receivable by a Canadian resident corporation; tax base = Carrying Value (since a dividend is deducted under Division C in arriving at taxable income)

The tax base of a liability = carrying amount of the liability less amount deductible for tax purposes in future periods
- For current liabilities with accrued expenses deducted on an accrual basis for tax purpose; tax base = carrying amount
- For current liabilities with accrued expenses deducted on a cash basis for tax purpose; tax base = NIL
- For Fines/penalty liability; tax base = carrying amount (since fines/penalties are not deductible)
- For loan payable; tax base = carrying amount

current tax payable (receivable) for the current and prior periods is recognized as a current liability (asset) at the amount expected to be paid (recovered) to (from) the tax authorities
tax loss that are carried back to recover past taxes are recognized as a current asset

If the carrying value of asset > tax base of asset; there will be a taxable temporary difference
If the CV of asset/liability = tax base of asset/liability; there will be no temporary diff.
If the CV of the asset < tax base of asset; there will be a deductible temporary diff.
If the tax base of the liability = NIL; there will be a deductible temporary diff.

A deferred tax liability is recognized for all taxable temporary difference
Deferred tax liability = taxable temporary difference * tax rate expected to apply to the period when the asset is realised or the liability is settled
Use the tax rates that have been enacted
When different tax rates apply to different levels of taxable income (i.e. small business rate and general rate) , deferred tax assets and liabilities are measured using the average rates that are expected to apply
Deferred tax liabilities shall not be discounted

A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available so that you can deduct future amounts
Deferred tax asset = deductible temporary difference * tax rate expected to apply to the period when the asset is realised or the liability is settled
Use the tax rates that have been enacted
When different tax rates apply to different levels of taxable income (i.e. small business rate and general rate) , deferred tax assets and liabilities are measured using the average rates that are expected to apply
Deferred tax assets shall not be discounted

A deferred tax asset is recognized for unused tax loss carryforwards and unused tax credit carryforward as long as it is probable that there will be sufficient future taxable income to use these carryforward balances
Keep in mind that the existence of unused tax losses may be strong evidence that future taxable profit may not be available
When an entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses or tax credits only to the extent of temporary differences or there is convincing other evidence that sufficient taxable profit will be available
At the end of each reporting period, an entity reassesses unrecognised deferred tax assets

Current and deferred tax is recognised as income or an expense and included in profit or loss
Current tax and deferred tax shall be recognised outside profit or loss (i.e. in other comprehensive income) if the tax relates to items that are recognised outside profit or loss (i.e. depreciable capital assets measured using the revaluation model)

You can offset current tax asset and current tax liabilities only if:
1. You have legal right to offset; and
2. You intend to settle on a net basis
An entity will normally have a legally enforceable right to set off a current tax asset against a current tax liability when they relate to income taxes levied by the same taxation authority and the taxation authority permits the entity to make or receive a single net payment
You can offset deferred tax assets and deferred tax liabilities only if:
1. the entity has a legally enforceable right to offset; and
2. the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority

Income Taxes is covered under ASPE 3465
under ASPE, the taxes payable method is allowed
under ASPE, deferred income tax is called future income tax
under ASPE, the future income tax asset/liabilities can be current or long-term depending on the asset which the temporary difference relates to
- under IFRS, all deferred tax asset/liability are always non-current