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IFRS Presentation and disclosure of deferred taxes

IFRS Presentation and disclosure of deferred taxes: Presentation Tax assets and tax liabilities

An entity shall offset current tax assets and current tax liabilities if, and only if, the entity:

  1. Has a legally enforceable right to set off the recognised amounts
  2. Intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Although current tax assets and liabilities are separately recognised and measured they are offset in the statement of financial position subject to criteria similar to those established for financial instruments in IAS 32. 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.

In consolidated financial statements, a current tax asset of one entity in a group is offset against a current tax liability of another entity in the group if, and only if, the entities concerned have a legally enforceable right to make or receive a single net payment and the entities intend to make or receive such a net payment or to recover the asset and settle the liability simultaneously.

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An entity shall offset deferred tax assets and deferred tax liabilities if, and only if:

  1. The entity has a legally enforceable right to set off current tax assets against current tax liabilities.
  2. The deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either:
    1. the same taxable entity.
    2. different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

To avoid the need for detailed scheduling of the timing of the reversal of each temporary difference, this Standard requires an entity to set off a deferred tax asset against a deferred tax liability of the same taxable entity if, and only if, they relate to income taxes levied by the same taxation authority and the entity has a legally enforceable right to set off current tax assets against current tax liabilities.

In rare circumstances, an entity may have a legally enforceable right of set-off, and an intention to settle net, for some periods but not for others. In such rare circumstances, detailed scheduling may be required to establish reliably whether the deferred tax liability of one taxable entity will result in increased tax payments in the same period in which a deferred tax asset of another taxable entity will result in decreased payments by that second taxable entity.

IFRS Presentation and disclosure of deferred taxes

IFRS Presentation and disclosure of deferred taxes

IFRS Presentation and disclosure of deferred taxes: Disclosure

The major components of tax expense (income) shall be disclosed separately.

Components of tax expense (income) may include.

  1. current tax expense (income).
  2. any adjustments recognised in the period for current tax of prior periods.
  3. the amount of deferred tax expense (income) relating to the origination and reversal of temporary differences.
  4. the amount of deferred tax expense (income) relating to changes in tax rates or the imposition of new taxes.
  5. the amount of the benefit arising from a previously unrecognised tax loss, tax credit or temporary difference of a prior period that is used to reduce current tax expense.
  6. the amount of the benefit from a previously unrecognised tax loss, tax credit or temporary difference of a prior period that is used to reduce deferred tax expense.
  7. deferred tax expense arising from the write-down, or reversal of a previous write-down.
  8. the amount of tax expense (income) relating to those changes in accounting policies and errors that are included in profit or loss in accordance with IAS 8, because they cannot be accounted for retrospectively.

IFRS Presentation and disclosure of deferred taxes: The following shall also be disclosed separately:

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  1. The aggregate current and deferred tax relating to items that are charged or credited directly to equity .
  2. The amount of income tax relating to each component of other comprehensive income.
  3. An explanation of the relationship between tax expense (income) and accounting profit in either or both of the following forms:
    1. a numerical reconciliation between tax expense (income) and the product of accounting profit multiplied by the applicable tax rate(s), disclosing also the basis on which the applicable tax rate(s) is (are) computed.
    2. a numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis on which the applicable tax rate is computed.
  4. An explanation of changes in the applicable tax rate(s) compared to the previous accounting period;
  5. The amount (and expiry date, if any) of deductible temporary differences, unused tax losses, and unused tax credits for which no deferred tax asset is recognised in the statement of financial position.
  6. The aggregate amount of temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures, for which deferred tax liabilities have not been recognised.
  7. In respect of each type of temporary difference, and in respect of each type of unused tax losses and unused tax credits:
    1. the amount of the deferred tax assets and liabilities recognised in the statement of financial position for each period presented.
    2. the amount of the deferred tax income or expense recognised in profit or loss, if this is not apparent from the changes in the amounts recognised in the statement of financial position.
  8. In respect of discontinued operations, the tax expense relating to:
    1. the gain or loss on discontinuance.
    2. the profit or loss from the ordinary activities of the discontinued operation for the period, together with the corresponding amounts for each prior period presented.
  9. Ihe amount of income tax consequences of dividends to shareholders of the entity that were proposed or declared before the financial statements were authorised for issue, but are not recognised as a liability in the financial statements.
  10. If a business combination in which the entity is the acquirer causes a change in the amount recognised for its pre-acquisition deferred tax asset , the amount of that change.
  11. If the deferred tax benefits acquired in a business combination are not recognised at the acquisition date but are recognised after the acquisition date, a description of the event or change in circumstances that caused the deferred tax benefits to be recognised.

IFRS Presentation and disclosure of deferred taxes: 

An entity shall disclose the amount of a deferred tax asset and the nature of the evidence supporting its recognition, when:

(a) The utilisation of the deferred tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences;

(b) The entity has suffered a loss in either the current or preceding period in the tax jurisdiction to which the deferred tax asset relates.

A In the circumstances described, an entity shall disclose the nature of the potential income tax consequences that would result from the payment of dividends to its shareholders. In addition, the entity shall disclose the amounts of the potential income tax consequences practicably determinable and whether there are any potential income tax consequences not practicably determinable.

(c) Enable users of financial statements to understand whether the relationship between tax expense (income) and accounting profit is unusual and to understand the significant factors that could affect that relationship in the future. The relationship between tax expense (income) and accounting profit may be affected by such factors as revenue that is exempt from taxation, expenses that are not deductible in determining taxable profit (tax loss), the effect of tax losses and the effect of foreign tax rates.

IFRS Presentation and disclosure of deferred taxes

In explaining the relationship between tax expense (income) and accounting profit, an entity uses an applicable tax rate that provides the most meaningful information to the users of its financial statements.

Often, the most meaningful rate is the domestic rate of tax in the country in which the entity is domiciled, aggregating the tax rate applied for national taxes with the rates applied for any local taxes which are computed on a substantially similar level of taxable profit (tax loss). However, for an entity operating in several jurisdictions, it may be more meaningful to aggregate separate reconciliations prepared using the domestic rate in each individual jurisdiction.

IFRS Presentation and disclosure of deferred taxes

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