Writing off a tax recoverable

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staceyq
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Writing off a tax recoverable

Post by staceyq »

At what stage should I write off or create a provision against a corporation tax recoverable? The refund has been outstanding for many years since Government has cashflow problems but they have not said they will not pay the refunds. I checked IAS 12 but this says alot about recoverability of deferred tax assets and not current tax receivables.
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Marek Muc
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Re: Writing off a tax recoverable

Post by Marek Muc »

Well, you should reassess at each reporting date really

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So they accept your position but just can't pay?
staceyq
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Re: Writing off a tax recoverable

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Yes. The position is accepted but based om conditions in the country there just is no cash to pay. They keep promising to settle but nothing is coming.
JRSB
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Re: Writing off a tax recoverable

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sounds like the position is sufficiently dire to write it off and reverse if they ever pay it... effectively a government default..and you've been waiting 'many years'.
staceyq
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Re: Writing off a tax recoverable

Post by staceyq »

I am thinking that we should atleast set up a provision and take the hit through the P&L. That way the amount is still acknowledged on the books.

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Leo
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Re: Writing off a tax recoverable

Post by Leo »

If you look at the definition of Provision under IAS37, it says the settlement will result to an outflow of resources. I don't think this is the case. So I'd rather cancel the receivable.
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JakobLavrod
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Re: Writing off a tax recoverable

Post by JakobLavrod »

Tax is not all my field, but if you have a receivable outstanding, would it not fall under the scope of IFRS 9 and you take an impairment on it based on the ECL model?
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JRSB
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Re: Writing off a tax recoverable

Post by JRSB »

Interesting, depends if the tax receivable is a financial asset or not. I'm not sure if there is a 'contractual' right to receive cash so I'm not sure it would be. Or is tax law deemed to create a contract between the government and registered businesses? ....
staceyq
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Re: Writing off a tax recoverable

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I think the tax is a statutory right to receive cash as opposed to a contractual right which means it isn't a financial asset for IFRS 9 purposes. Atleast that's how I have interpreted it.
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Marek Muc
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Re: Writing off a tax recoverable

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JakobLavrod wrote: 22 Sep 2022, 11:18 Tax is not all my field, but if you have a receivable outstanding, would it not fall under the scope of IFRS 9 and you take an impairment on it based on the ECL model?
Nope, income tax assets and liabilities are not contractual and thus aren't financial instruments (hence out of the scope of IFRS 9)

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Marek Muc
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Re: Writing off a tax recoverable

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Aren't there any offesting opportunities against other taxes payable?
staceyq
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Re: Writing off a tax recoverable

Post by staceyq »

I am afraid not. The company is in run-off so there is no foreseeable income which maybe taxed.
DJP
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Re: Writing off a tax recoverable

Post by DJP »

Interesting question.

I think you will have to refer to the Conceptual Framework and ask yourself if this "receivable" still meets the definition of an asset. If not, you should derecognise it. Otherwise, given that there is no specific standard addressing this matter, you could create your own accounting policy for it -- for example, by creating an impairment provision on the asset side so that you can keep the entries in your ledger and provide appropriate disclosures in the notes. Just a thought.
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Marek Muc
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Re: Writing off a tax recoverable

Post by Marek Muc »

But it is covered in IAS 12.46, i.e. this tax receivable
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
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