IAS 12: Income Taxes
Objective: The objective of this standard is to prescribe accounting treatment for income taxes.
Scope: IAS 12 should be applied in accounting for income taxes.
Income taxes include:
• All domestic and foreign taxes the based on taxable profits
• Taxes, such as withholding taxes, payable by a subsidiary, associate or joint venture on distributions to reporting company
IAS 12 does not address:
• Investment tax credit
• Methods of accounting for government grant
However it does address the accounting for temporary differences arising due to above.
Definitions
Accounting Profit is profit or loss for a period before deducting tax expense.
Taxable Profit (or tax loss) is profit (or loss) for a period, determined in accordance with the rules established by the taxation authorities, upon which it will be determined whether income taxes are payable (or recoverable).
Tax Expense (or tax income) is the aggregate amount included in the determination of profit or loss for the period in respect of current and deferred tax. i.e. tax expense (tax income) = current tax + deferred tax
Current tax is the amount of income taxes payable (or recoverable) in respect of taxable profit (or tax loss) for a period.
i.e. current tax = taxable profit (or tax loss) * tax rate
Tax Base of an asset or liability is the amount attributed to the asset or liability for tax purposes. For e.g. Cost of an asset is 100 and depreciation is 20 but tax depreciation is 25then carrying value of that asset is 80 and tax base is 75.
• Tax base of an asset is equal to the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to the entity when the carrying value of such asset will be recovered. If those economic benefits are not taxable then the tax base is equal to the carrying amount of asset.
• Tax base of a