Deferred Tax related to Assets and Liabilities arising from a Single Transaction

All topics related to IFRS Standards.
Post Reply
marea
Posts: 135
Joined: 27 Feb 2020, 17:35

Deferred Tax related to Assets and Liabilities arising from a Single Transaction

Post by marea »

Hello everyone,

The IASB published the changes to IAS 12 about Deferred Tax related to Assets and Liabilities arising from a Single Transaction. Maybe some of you will find this helpful (especially regarding lease accounting):

"...the initial recognition exemption does not apply to transactions in which both deductible and taxable temporary differences arise on initial recognition that result in the recognition of equal deferred tax assets and liabilities."

Here is the link to the summary.
https://www.iasplus.com/en-ca/news/2021/05/ias-12

I think that the entire document is available only if you have premium access to the IFRS Foundation website.
JRSB
Trusted Expert
Posts: 1309
Joined: 01 Mar 2020, 01:10
Location: UK

Re: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

Post by JRSB »

I may be missing the point as it relates to leases, in practical terms.
JRSB
Trusted Expert
Posts: 1309
Joined: 01 Mar 2020, 01:10
Location: UK

Re: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

Post by JRSB »

This gets part the way there but I need to research some tax rules...

https://www.ifrs.org/content/dam/ifrs/p ... ias-12.pdf
marea
Posts: 135
Joined: 27 Feb 2020, 17:35

Re: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

Post by marea »

This is my understanding from the IASB Document;

If, on initial recognition, we have a RoU asset and an equal lease liability to which the same tax rate is applied, we would have temporary differences that are equal and offsetting and therefore, the exemption would not be needed. However, let´s assume that the temporary differences are equal, but the company cannot recognize the entire amount of the deferred tax asset based on IAS 12.24. In such a case, since the recognition exemption does not apply, the deferred tax asset and deferred tax liability arising on such transactions would not be of the same amount. IASB clarified that it does not expect that this scenario will not occur very often.

Please correct me if my understanding is wrong.
marea
Posts: 135
Joined: 27 Feb 2020, 17:35

Re: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

Post by marea »

The Board also included an example where the company made an advance payment and some initial direct costs incurred. If the tax law allows to deduct them when the payment occurs the difference between the tax base and the CA will give to taxable temporary differences, and since the exemption does not apply in this case, the lessee recognises a DT liability with regard to both the advance payment and the initial direct costs (this example will be part of IE in IAS 12).
Post Reply