IAS 12 — Income Taxes

Complete Examples & Concept Reference

Every numbered example from the standard, preceded by its governing concept or provision.
1. Key definitions (IAS 12 ¶5–6)

1.1 Fundamental concepts

Accounting profit
Profit or loss for a period before deducting tax expense (¶5).

Taxable profit (tax loss)

Profit (loss) determined under the taxation authority's rules, upon which income taxes are payable
(recoverable) (¶5).

Current tax
The amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for the
current period (¶5).

Deferred tax liabilities (DTL)

Amounts of income taxes payable in future periods in respect of taxable temporary differences (¶5).

Deferred tax assets (DTA)

Amounts of income taxes recoverable in future periods in respect of (a) deductible temporary
differences, (b) carryforward of unused tax losses, and (c) carryforward of unused tax credits (¶5).

Temporary differences
Differences between the carrying amount of an asset or liability in the statement of financial position
and its tax base. May be taxable (create a DTL) or deductible (create a DTA) (¶5).

Tax base
The amount attributed to an asset or liability for tax purposes (¶5). Tax expense = current tax expense
+ deferred tax expense (¶6).
2. Tax base (IAS 12 ¶7–11)

Tax base of an asset (¶7)

The amount that will be deductible against taxable economic benefits when the entity recovers the
carrying amount. If those benefits are not taxable, the tax base equals the carrying amount.

Example 2.1 — Machine with accumulated tax depreciation

A machine cost 100. For tax purposes, depreciation of 30 has already been deducted in current and prior
periods. The remaining cost will be deductible in future periods either as depreciation or as a deduction
on disposal. Revenue from using the machine is taxable; any gain on disposal is also taxable.

Tax base of the machine IAS 12 ¶7 — Tax base of an asset

Original cost 100

Less: tax depreciation already allowed (30)
Tax base 70

Example 2.2 — Interest receivable (cash-basis taxation)

Interest receivable has a carrying amount of 100. The related interest revenue will be taxed on a cash
basis when collected.

Tax base of interest receivable IAS 12 ¶7 — Tax base of an asset

(cash-basis)

Carrying amount 100

Amount deductible in future (nil — revenue not yet taxed) Nil
Tax base Nil
→ Deductible temp. diff. (100 − 0 = 100) DTA may arise

Tax base = nil because the full 100 will be included in taxable profit when cash is received; no further
deduction is needed.

Example 2.3 — Trade receivables (already taxed)

Trade receivables carry 100. The related revenue has already been included in taxable profit (tax loss).

Tax base of trade receivables IAS 12 ¶7 — Tax base of an asset

(already taxed)

Carrying amount 100

Tax base (revenue already taxed; carrying amount = tax 100
 base)
Temporary difference Nil — no deferred tax

Example 2.4 — Dividends receivable from subsidiary (not taxable)

Dividends receivable from a subsidiary, carrying amount 100. The dividends are not taxable. Therefore,
the entire carrying amount is deductible against the economic benefits.

Tax base of dividends receivable IAS 12 ¶7 — Tax base of non-taxable

asset

Carrying amount 100

Tax base (entire carrying amount is deductible) 100
Temporary difference Nil — no deferred tax

Example 2.5 — Loan receivable (no tax consequences on repayment)

A loan receivable has a carrying amount of 100. Repayment will have no tax consequences.

Tax base of a loan receivable IAS 12 ¶7 — Tax base of asset with

no tax consequences

Carrying amount 100

Tax base 100
Temporary difference Nil

Tax base of a liability (¶8)

Its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability
in future periods. For revenue received in advance, the tax base is carrying amount less any amount of
revenue that will not be taxable in future.

Example 2.6 — Accrued expenses (cash-basis deduction)

Current liabilities include accrued expenses with carrying amount 100. The related expense will be
deductible for tax purposes on a cash basis (when paid).

Tax base of accrued expenses IAS 12 ¶8 — Tax base of a liability

Carrying amount 100

Less: amount deductible in future (100 — deductible when paid) (100)
Tax base Nil
→ Deductible temp. diff. (100 − 0 = 100); DTA may arise DTA
Example 2.7 — Interest received in advance (cash-basis)
Current liabilities include interest revenue received in advance, carrying amount 100. The revenue was
taxed on a cash basis when received.

Tax base of interest received in advance IAS 12 ¶8 — Tax base of liability

(already taxed)

Carrying amount 100

Amount of revenue not taxable in future (already taxed) 100
Tax base (100 − 100) Nil
Temporary difference (carrying 100, tax base nil) Nil net effect

Example 2.8 — Accrued fines and penalties (not deductible)

Current liabilities include accrued fines and penalties, carrying amount 100. Fines and penalties are not
deductible for tax purposes.

Tax base of accrued fines IAS 12 ¶8 — Tax base of non-

deductible liability

Carrying amount 100

Amount deductible in future Nil
Tax base (100 − nil = 100) 100
Temporary difference Nil — no deferred tax asset

Alternative analysis: the fines have a tax base of nil and a tax rate of nil is applied to the resulting deductible
temporary difference of 100. Either way, no deferred tax asset is recognised.

Example 2.9 — Loan payable (no tax consequences)

A loan payable has a carrying amount of 100. The repayment will have no tax consequences.

Tax base of a loan payable IAS 12 ¶8 — Tax base of liability with

no tax consequences

Carrying amount 100

Tax base (100 − nil deductible = 100) 100
Temporary difference Nil
3. Recognition of deferred tax liabilities — taxable temporary
differences (IAS 12 ¶15–23)

Mandatory recognition of DTL (¶15)

A deferred tax liability shall be recognised for ALL taxable temporary differences, EXCEPT: (a) Initial
recognition of goodwill; or (b) Initial recognition of an asset or liability in a transaction that (i) is not a
business combination and (ii) affects neither accounting profit nor taxable profit at the time of the
transaction.

Why DTL arises on an asset (¶16)

When an asset's carrying amount exceeds its tax base, the economic benefits to be earned will exceed
the deductible amount. The excess is taxable in future periods — a deferred tax liability.

Example 3.1 — Accelerated tax depreciation creating a DTL

An asset cost 150 and has a carrying amount of 100. Cumulative depreciation for tax purposes is 90. The
tax rate is 25%.

DTL from accelerated tax depreciation IAS 12 ¶15–17 — Taxable temporary

difference

Carrying amount 100

Tax base (150 − 90) 60
Taxable temporary difference 40
Tax rate 25%
Deferred tax liability 10

The entity will pay income taxes of 10 (40 × 25%) when it recovers the carrying amount of 100, because it
can only deduct tax depreciation of 60. Recognising the DTL now prevents a surprise.

Example 3.2 — Interest revenue accrued, taxable on cash basis (¶17a)

Interest revenue of 100 is included in accounting profit on an accrual basis but is only taxed when cash is
collected. Tax base of the receivable = nil.

DTL — interest accrued, taxed on cash basis IAS 12 ¶17(a) — Timing difference:
income recognised earlier in
accounting

Carrying amount of interest receivable 100

Tax base of receivable (taxed when collected → nil) Nil
Taxable temporary difference 100
Deferred tax liability = 100 × applicable rate DTL
Example 3.3 — Accounting depreciation slower than tax depreciation (¶17b)
Depreciation used in taxable profit may differ from accounting. If tax depreciation is accelerated (faster
than accounting), carrying amount > tax base → taxable temp diff → DTL. Conversely if tax is slower, a
deductible temp diff → DTA arises.

Scenario Carrying Tax base Temp difference Result

amount
Tax depreciation faster 100 60 40 taxable DTL

Tax depreciation slower 100 130 30 deductible DTA (if probable

profit)

Example 3.4 — Development costs capitalised (¶17c)

Development costs of 100 have been capitalised and will be amortised over 5 years in determining
accounting profit, but were deducted in full when incurred for tax purposes.

DTL — capitalised development costs IAS 12 ¶17(c) — Development costs

Carrying amount of development costs (year 1) 80

Tax base (fully deducted already) Nil
Taxable temporary difference 80
Deferred tax liability = 80 × tax rate DTL

Example 3.5 — Business combination: fair value uplift (¶18a, ¶19)

In a business combination, identifiable assets are recognised at fair value. No equivalent adjustment is
made for tax purposes. A taxable temporary difference arises.

DTL — asset revalued to FV in business combination IAS 12 ¶18(a), ¶19 — Business

combinations

Fair value at acquisition date 200

Tax base (historical cost, no uplift) 120
Taxable temporary difference 80
DTL recognised (affects goodwill, not P&L) DTL

The DTL recognised on acquisition reduces the bargain purchase gain or increases goodwill. No P&L
charge arises at acquisition date.

Example 3.6 — Asset revaluation upward (¶18b, ¶20)

An asset carried at 100 is revalued to 150 (IAS 16 revaluation model). No equivalent tax adjustment. Tax
rate 30%.
 DTL — revaluation of asset upward IAS 12 ¶18(b), ¶20 — Revaluation

Carrying amount post-revaluation 150

Tax base (unchanged at cost) 100
Taxable temporary difference 50
Deferred tax liability = 50 × 30% 15
Recognised in OCI (revaluation surplus) Dr OCI / Cr DTL 15

Example 3.7 — Goodwill: DTL prohibited (¶15a, ¶21)

A business combination results in goodwill of CU100. In the tax jurisdiction, goodwill has a tax base of nil
(not deductible).

Goodwill — no DTL recognised IAS 12 ¶15(a), ¶21 — Initial

recognition of goodwill exemption

Carrying amount of goodwill 100

Tax base Nil
Taxable temporary difference 100
DTL recognised? NO — prohibited by ¶15(a)

Recognising a DTL would increase the carrying amount of goodwill in a circular way. Therefore IAS 12
explicitly prohibits it.

Example 3.8 — Initial recognition exemption (¶15b, ¶22c)

An entity acquires an asset for 1,000. The asset is not deductible for tax purposes and any capital gain or
loss on disposal will also not be taxable or deductible. Tax rate is 40%.

Initial recognition exemption — non-deductible asset IAS 12 ¶15(b), ¶22(c) — IRE on initial
recognition

Carrying amount at acquisition 1,000

Tax base (no deductions ever allowed) Nil
Taxable temporary difference 1,000
DTL = 1,000 × 40% = 400 400
Is the IRE met? Not a biz combo + affects neither profit? YES
DTL recognised? NO — IRE applies

Subsequent years: the entity does NOT recognise subsequent changes in the unrecognised DTL as the
asset is depreciated. The carrying amount is simply depreciated without any deferred tax adjustment.
4. Recognition of deferred tax assets — deductible temporary
differences (IAS 12 ¶24–33)

Conditional recognition of DTA (¶24)

A deferred tax asset shall be recognised for ALL deductible temporary differences to the extent that it
is probable that taxable profit will be available against which the deductible temporary difference can
be utilised — UNLESS the DTA arises from the same IRE conditions as paragraph 15(b).

Example 4.1 — Warranty provision: DTA (¶25–26)

An entity recognises a liability of 100 for accrued product warranty costs. The product warranty costs will
not be deductible until the entity pays claims. The tax rate is 25%.

DTA — warranty provision IAS 12 ¶24–26 — Deductible

temporary difference

Carrying amount of warranty liability 100

Tax base (100 − 100 future deduction = nil) Nil
Deductible temporary difference 100
DTA = 100 × 25% (if probable future taxable profit) 25

Settling the liability reduces future taxable profit by 100, reducing future tax payments by 25. The DTA
represents this future benefit, provided probable taxable profit exists.

Example 4.2 — Retirement benefit costs (¶26a)

Retirement benefit costs are recognised as an expense as service is provided (IAS 19), but are only
deductible when contributions are paid to a fund or benefits are paid. Tax rate 30%.

DTA — pension / retirement liability IAS 12 ¶26(a) — Employee benefits

deductible on cash basis

IAS 19 liability (PV of defined benefit obligation) 500

Tax base (nil — deductible when paid) Nil
Deductible temporary difference 500
DTA = 500 × 30% 150

Example 4.3 — Research costs expensed, deductible later (¶26b)

Research costs of 100 are recognised as an expense immediately under IAS 38, but will only be
permitted as a tax deduction in a later period. Tax rate 25%.
 DTA — research costs expensed before deductible IAS 12 ¶26(b) — Research costs

Carrying amount (already expensed, so nil on balance sheet) Nil

Tax base (amount deductible in future periods) 100
Deductible temporary difference (tax base > carrying amount) 100
DTA = 100 × 25% 25

Example 4.4 — Deductible temporary difference from unrealised losses (IAS 12

¶26d, 2016 amendment)
Entity A purchases a debt instrument for CU1,000 (nominal CU1,000, 2% coupon, 5 years). By end of
Year 2, fair value falls to CU918 due to market interest rate rising to 5%. Entity A expects to collect all
contractual cash flows if it holds the instrument. Tax base = original cost CU1,000.

DTA — unrealised loss on debt instrument at fair value IAS 12 ¶26(d), 2016 Amendment —
DTA for unrealised losses

Carrying amount (fair value at end of Year 2) 918

Tax base (original cost) 1,000
Deductible temporary difference 82
DTA recognised (regardless of how recovered — use or sale) 82 × rate

Key 2016 amendment: the deductible temporary difference exists irrespective of whether Entity A expects to
recover through sale or by holding to maturity. The method of recovery does not affect whether a DTA
arises.

Example 4.5 — DTA from business combination (¶26c)

In a business combination, a liability of 300 is assumed at fair value, but the related costs are not
deductible until paid (cash basis). Tax rate 30%.

DTA — liability assumed in business combination IAS 12 ¶26(c) — Business

combinations: DTA

Carrying amount (FV at acquisition) 300

Tax base (nil — deductible when paid) Nil
Deductible temporary difference 300
DTA = 300 × 30% (affects goodwill at acquisition) 90
5. Unused tax losses and unused tax credits (IAS 12 ¶34–36)

DTA for unused tax losses (¶34)

A deferred tax asset shall be recognised for the carryforward of unused tax losses and unused tax
credits to the extent that it is probable that future taxable profit will be available against which the
unused tax losses and credits can be utilised.

History of losses — additional caution (¶35)

The existence of unused tax losses is strong evidence that future taxable profit may not be available.
The entity recognises a DTA only to the extent it has sufficient taxable temporary differences OR
convincing other evidence of future taxable profit.

Example 5.1 — DTA from unused tax loss carryforward

An entity has unused tax losses of 200 available to carry forward. Tax rate 25%. The entity projects
sufficient future taxable profit to utilise the losses.

DTA — unused tax loss carryforward IAS 12 ¶34–36 — Unused tax losses

Unused tax losses available for carryforward 200

Probable future taxable profit available 200
DTA recognised = 200 × 25% 50

If the entity has a history of recent losses, it can only recognise the DTA to the extent it has sufficient taxable
temporary differences of the same jurisdiction/entity expected to reverse in the appropriate period.
6. Investments in subsidiaries, branches and associates (IAS
12 ¶38–45)

DTL on investments in subsidiaries (¶39)

An entity recognises a DTL for all taxable temporary differences associated with investments in
subsidiaries, branches, associates, and joint arrangements, EXCEPT where both: (a) the parent can
control the timing of reversal, AND (b) it is probable the difference will not reverse in the foreseeable
future.

Example 6.1 — Undistributed profits of subsidiary: DTL controlled by parent

Parent P owns 100% of subsidiary S. S has undistributed profits of 500 that create a temporary difference
(carrying amount of investment > tax base). P controls dividend policy and has no intention to distribute
those profits in the foreseeable future. Tax rate on distribution = 10%.

DTL on subsidiary profits — exemption applies IAS 12 ¶39–40 — Control of timing of

reversal

Temporary difference (undistributed profits) 500

Potential DTL = 500 × 10% 50
Can P control timing of reversal? YES (controls dividend policy)
Is it probable the diff will NOT reverse in foreseeable future? YES (no plans to distribute)
DTL recognised? NO — both conditions met

Example 6.2 — Investor in associate: no control of timing

Investor holds 25% in associate. Associate has undistributed profits of 400 creating a taxable temporary
difference. Investor cannot control dividend policy (no control per IAS 28). Tax rate on dividends = 5%.

DTL on associate — investor cannot control timing IAS 12 ¶42 — Associate: DTL
recognised

Investor's share of temporary difference 100

Can investor control timing? NO (only 25% — no control)
DTL = 100 × 5% 5
Note: DTL measured at minimum determinable amount if full
amount uncertain
7. Measurement (IAS 12 ¶46–56)

Measurement of deferred taxes (¶47)

Deferred tax assets and liabilities shall be measured at the tax rates expected to apply to the period
when the asset is realised or the liability is settled, based on tax rates (and tax laws) enacted or
substantively enacted by the end of the reporting period. No discounting is permitted (¶53).

Manner of recovery drives measurement (¶51)

The measurement of deferred tax liabilities and deferred tax assets shall reflect the tax consequences
that would follow from the manner in which the entity EXPECTS, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.

Example 7.1 — Two tax rates: use vs sale (¶51A Example A)

An item of PPE has carrying amount 100 and tax base 60. Tax rate applicable to a sale = 20%. Tax rate
on other income = 30%.

If expected to USE (retain) If expected to SELL

Carrying amount 100 100

Tax base 60 60

Taxable temporary difference 40 40

Applicable tax rate 30% 20%

DTL recognised 12 8

Same asset, same temporary difference — but a different DTL of 4 (12 vs 8) depending solely on
management's intent. A change of intent requires immediate remeasurement.

Example 7.2 — Revalued asset, proceeds = cost (¶51A Example B)

PPE: original cost 100, revalued to carrying amount 150. Cumulative tax depreciation = 30. Tax rate =
30%. If sold for more than cost, the reversal of cumulative tax depreciation (30) is included in taxable
income; proceeds in excess of cost are NOT taxable.

If expected to USE If expected to SELL at 150

Carrying amount 150 150

Tax base 70 70

Taxable temp. difference 80 —

Tax on cum. depreciation — 9

reversal (30 × 30%)

Tax on proceeds over cost — —

(50 × nil)
 DTL recognised 24 9

The DTL on the revaluation surplus (24 − nil at cost = 24 recognised in OCI) is per ¶61A. If selling
immediately, only the claw-back of tax depreciation is taxable.

Example 7.3 — Revalued asset, proceeds > cost with split rates (¶51A Example C)
Same facts as Example B, BUT: cumulative tax depreciation reversal taxed at 30%; sale proceeds in
excess of indexed cost (110) taxed at 40%.

DTL — sale scenario with split capital gain rate IAS 12 ¶51A Example C — Split tax
rates on sale

Net proceeds over indexed cost (150 − 110 = 40) × 40% 16

Cumulative tax depreciation reversal (30) × 30% 9
Total DTL if selling 25
DTL if using (80 × 30%) 24
Sale DTL > Use DTL — intent matters! +1

Example 7.4 — Investment property at fair value: rebuttable presumption of sale

(¶51C)
An investment property: cost 100, fair value 150 (IAS 40 fair value model). Land component: cost 40, FV
60. Building component: cost 60, FV 90. Cum. tax depreciation on building = 30. Tax rate: 30% on
depreciation reversal; 20% on gains held ≥2 years; 25% on gains held <2 years. Entity expects to hold >2
years.

DTL — investment property (fair value model) IAS 12 ¶51C — Rebuttable

presumption of recovery through sale

Taxable temp. diff. — land (FV 60 − tax base 40) 20

Taxable temp. diff. — building (FV 90 − tax base 30) 60
Total taxable temp. difference 80
DTL — cum. tax depreciation (30 × 30%) 9
DTL — proceeds over cost land (20 × 20%) 4
DTL — proceeds over cost building (50 × 20%) 10
Total DTL (presumption of sale NOT rebutted for land; 19 (land sale + bldg use)
rebutted for building)

Presumption of sale is REBUTTED for the building if the entity holds it within a business model to consume
economic benefits over time (depreciable asset). Land is never depreciable, so the sale presumption for
land can never be rebutted (¶51B).
Example 7.5 — Dividend-related tax rate (¶52A)
In a jurisdiction, income taxes are payable at 50% on undistributed profits and 35% on distributed profits.
At 31 Dec 20X1, taxable income = 100,000; net taxable temporary difference = 40,000.

Current and deferred tax — dividend tax rate IAS 12 ¶52A, ¶57A — Tax on
undistributed vs distributed profits

Current tax (100,000 × 50%) 50,000

Deferred tax liability (40,000 × 50%) 20,000
Total tax expense recognised at reporting date 70,000
Subsequent event: 15 Mar 20X2 — dividends of 10,000 declared
Recovery of tax on dividends = 10,000 × 15% (50% − 35%) 1,500 current tax asset
8. Where to recognise current and deferred tax (IAS 12 ¶57–
68C)

General principle (¶57–58)

Tax is recognised in the same place as the transaction it relates to: • If in profit or loss → tax in P&L • If
in OCI → tax in OCI (¶61A) • If directly in equity → tax directly in equity (¶62A)

Example 8.1 — P&L item: interest accrued (¶59a)

Interest revenue accrued in accounting profit in Year 1 but taxable on cash in Year 2.

Tax in P&L — timing difference on interest IAS 12 ¶58–59 — Items recognised in

profit or loss

Year 1: Interest income in P&L 100

Year 1: Tax base of receivable = nil → DTL Dr Tax expense / Cr DTL
Year 2: Cash received, taxed Current tax payable
Year 2: DTL reverses Dr DTL / Cr Tax expense
Net effect over 2 years Zero

Example 8.2 — OCI item: asset revaluation surplus (¶61A, ¶62, ¶64–65)
An asset is revalued upward by 50 (recognised in OCI as a revaluation surplus). Tax rate 30%.

Tax on OCI item — revaluation surplus IAS 12 ¶61A — Items recognised in

OCI

Revaluation surplus (gross) 50

DTL on revaluation (50 × 30%) (15)
OCI: Revaluation surplus (net) 35
Journal: Dr Revaluation surplus OCI / Cr DTL 15

Example 8.3 — Equity item: compound financial instrument (¶23, ¶62A)

A convertible bond is issued. The liability component has a carrying amount of 900. In the tax jurisdiction,
the entire instrument has a tax base equal to 1,000 (liability + equity components). Taxable temporary
difference = 100 (tax base 1,000 > liability carrying 900). Tax rate 30%.

Tax on equity component — compound instrument IAS 12 ¶23, ¶62A — Items

recognised directly in equity

Taxable temp. diff. on equity component 100

DTL = 100 × 30% 30
Recognised directly in equity (not P&L or OCI) Dr Equity / Cr DTL 30
9. Deferred tax from business combinations (IAS 12 ¶66–68)

Business combinations and goodwill (¶66–68)

Temporary differences arising from a business combination are recognised as DTLs and DTAs at the
acquisition date (except for the initial recognition of goodwill). These affect goodwill or the bargain
purchase gain recognised. Post-acquisition, if acquirer's own previously unrecognised DTA now
becomes probable (due to the combination), it is recognised as a gain in P&L.

Example 9.1 — Acquiree's intangible recognised at FV, no tax base

In a business combination, an identifiable intangible asset (brand) is recognised at fair value of 300. In the
tax jurisdiction, no step-up is available — tax base remains at nil. Tax rate 30%.

DTL on acquired intangible — business combination IAS 12 ¶66 — Business combination:

DTL on identifiable assets

FV of intangible at acquisition 300

Tax base Nil
Taxable temporary difference 300
DTL recognised (increases goodwill) 90 (at 30%)

Example 9.2 — Acquirer's previously unrecognised DTA becomes probable (¶67)

Before a business combination, acquirer had unused tax losses of 200 (DTA of 50 at 25% not recognised
as taxable profit was not probable). After the combination, the acquiree's future profits make utilisation
probable.

DTA recognised post-combination — acquirer IAS 12 ¶67 — Acquirer DTA

recognised after business
combination

Previously unrecognised DTA (200 losses × 25%) 50

Recognition trigger: combination makes taxable profit probable Probable now
Journal: Dr DTA / Cr P&L (deferred tax income) 50
10. Presentation and disclosure (IAS 12 ¶71–88)

Offsetting deferred tax (¶74)

An entity shall offset a deferred tax asset against a deferred tax liability if and only if: (a) the entity has
a legally enforceable right to offset current tax assets against current tax liabilities, AND (b) the
deferred tax assets and liabilities relate to income taxes levied by the same tax authority on the same
taxable entity (or different entities which intend to settle on a net basis).

Example 10.1 — Offsetting DTL and DTA — same jurisdiction

Offset of DTA and DTL IAS 12 ¶74 — Offset within same tax
jurisdiction

DTA (deductible temporary differences — same entity, same 80

jurisdiction)
DTL (taxable temporary differences — same entity, same (50)
jurisdiction)
Net DTA presented on balance sheet 30

Example 10.2 — No offset: different tax authorities

No offset — different jurisdictions IAS 12 ¶74 — No offset across

jurisdictions

DTA (entity in Jurisdiction A) 80

DTL (entity in Jurisdiction B) 50
Presented separately — cannot offset DTA 80 | DTL 50

Tax expense disclosure (¶79–80)

Major components of tax expense (income) shall be disclosed separately, including: current tax
expense, deferred tax relating to origination and reversal of temporary differences, benefit from
previously unrecognised DTA, tax expense relating to rate changes, and deferred tax relating to
business combinations.

Example 10.3 — Reconciliation of accounting profit to tax expense (¶81c)

Entity has accounting profit of 1,000. Statutory tax rate is 30%. Actual tax expense = 280.

Item Amount Rate

Accounting profit before tax 1,000 —

Tax at statutory rate (30%) 300 30%

Non-deductible expenses (fines) 30 +3%

Tax-exempt income (dividends) (60) −6%

Effect of rate change on deferred tax 10 +1%

Actual tax expense 280 28%

11. Quick reference — all examples at a glance

Example Concept / provision Result

2.1 Machine — tax Tax base of asset (¶7) Tax base = 70
depreciation

2.2 Interest receivable — Tax base of asset (¶7) Tax base = nil → DTA
cash basis potential

2.3 Trade receivables — Tax base of asset (¶7) Tax base = 100, no temp diff
already taxed

2.4 Dividends receivable — Tax base of non-taxable asset (¶7) Tax base = 100, no temp diff
not taxable
2.5 Loan receivable — no Tax base (¶7) Tax base = 100, no temp diff
tax effect

2.6 Accrued expenses — Tax base of liability (¶8) Tax base = nil → DTA
cash deduction

2.7 Interest received in Tax base of liability (¶8) Tax base = nil
advance

2.8 Fines — not deductible Tax base of liability (¶8) Tax base = 100, no DTA

2.9 Loan payable — no tax Tax base of liability (¶8) Tax base = 100, no temp diff
effect

3.1 Accelerated tax DTL — taxable temp diff (¶15–17) DTL = 10

depreciation

3.2 Interest accrued, taxed DTL — timing difference (¶17a) DTL

on cash

3.3 Accounting vs tax DTL / DTA — depreciation (¶17b) DTL or DTA depending on
depreciation direction

3.4 Development costs DTL — development costs (¶17c) DTL

capitalised

3.5 Business combination DTL — business combination (¶19) DTL (increases goodwill)
— FV uplift

3.6 Asset revaluation DTL — revaluation (¶20) DTL in OCI

upward

3.7 Goodwill — DTL Initial recognition of goodwill (¶15a, ¶21) No DTL

prohibited

3.8 Initial recognition IRE — non-deductible asset (¶15b, ¶22c) No DTL

exemption

4.1 Warranty provision DTA — deductible temp diff (¶24–26) DTA = 25

4.2 Pension liability DTA — employee benefits (¶26a) DTA = 150

4.3 Research costs DTA — research costs (¶26b) DTA = 25

4.4 Unrealised loss — debt DTA — 2016 amendment (¶26d) DTA regardless of recovery
instrument method

4.5 Liability in business DTA — business combination (¶26c) DTA (reduces goodwill)
combination

5.1 Unused tax loss DTA — unused losses (¶34–36) DTA = 50

carryforward

6.1 Subsidiary profits — DTL — subsidiaries (¶39–40) No DTL (exemption)

parent controls

6.2 Associate — investor DTL — associates (¶42) DTL recognised

no control

7.1 Two tax rates: use vs Manner of recovery (¶51, ¶51A) DTL 12 (use) vs 8 (sale)
sale (Ex A)

7.2 Revalued asset — Manner of recovery (¶51A) DTL 24 (use) vs 9 (sale)

proceeds = cost (Ex B)

7.3 Revalued asset — split Manner of recovery (¶51A) DTL 24 (use) vs 25 (sale)
rates (Ex C)

7.4 Investment property — Rebuttable presumption of sale DTL 19 (mixed)

FV model (¶51C)

7.5 Dividend tax rate Tax on undistributed profits DTL at undistributed rate
(¶52A)

8.1 Interest accrual — P&L Tax in P&L (¶58–59) DTL in P&L

8.2 Asset revaluation — Tax in OCI (¶61A) DTL in OCI

OCI

8.3 Compound instrument Tax directly in equity (¶62A, ¶23) DTL in equity
— equity

9.1 Intangible in business Business combinations (¶66) DTL increases goodwill

combination

9.2 Acquirer DTA post- Business combinations (¶67) DTA in P&L gain
combination

10.1 Offset — same Offset (¶74) Net DTA 30

jurisdiction

10.2 No offset — different Offset (¶74) Present separately

jurisdiction

10.3 Tax rate reconciliation Disclosure (¶81c) Reconciliation table

© IFRS Foundation | IAS 12 Income Taxes | All examples sourced from the standard