Chapter 4: Accounting for Company Income Tax

Comprehensive vocabulary flashcards covering the principles of AASB 112/IAS 12, accounting vs. taxable profit, and the calculation of deferred tax assets and liabilities.

Current Tax

The income tax payable for the current period, calculated based on the taxable income for the year.

Deferred Tax

The future tax consequences for the assets and liabilities shown in the statement of financial position at the end of the reporting period.

AASB 112/IAS 12

The accounting standard that requires companies to account for the current and future tax consequences of current transactions and the recovery/settlement of assets and liabilities.

Accounting Profit Equation

$$\text{Income} - \text{Expenses} = \text{Accounting profit}$$

Taxable Income Equation

$$\text{Assessable income (AI)} - \text{Allowable deductions (AD)} = \text{Taxable income}$$

Income Tax Assessment Act 1997

The legislation that determines the tax treatment of transactions in Australia.

Taxable Profit

The profit for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable.

PAYG (pay as you go)

A system where company income tax is paid in quarterly instalments based on the formula: $$\text{Instalment income} imes ext{instalment rate}$ houses.

Taxable Temporary Differences (TTDs)

Temporary differences that result in taxable amounts in determining taxable income of future periods when the carrying amount of an asset or liability is recovered or settled; these lead to deferred tax liabilities.

Deductible Temporary Differences (DTDs)

Temporary differences that result in amounts that are deductible in determining taxable income of future periods when the carrying amount of an asset or liability is recovered or settled; these lead to deferred tax assets.

Carrying Amount (CA)

The value of asset and liability balances (net of accumulated depreciation and allowances) based on the accounting statement of financial position.

Tax Base (TB)

The asset and liability balances implied by income tax legislation, representing a tax statement of financial position.

Deferred Tax Asset (DTA) Calculation

$$\text{DTD} \times \text{tax rate } \% = \text{DTA}$$

Deferred Tax Liability (DTL) Calculation

$$\text{TTD} \times \text{tax rate } \% = \text{DTL}$$

Tax Base of a Liability (General Rule)

$$\text{Tax base of liability} = \text{CA} - \text{deductible amount in future}$$

Tax Base of Unearned Revenue

$$\text{Tax base of liability} = \text{CA} - \text{untaxed future revenue}$$

Goodwill (Tax Treatment)

A temporary difference excluded by AASB 112/IAS 12 from being recognised as a deferred tax liability.

DTA Recognition Criteria

Recognised only if it is probable that the company will have sufficient future taxable profit against which the deductible temporary difference can be utilised.

Offsetting Tax Assets/Liabilities

The practice of presenting a net amount in the statement of financial position for tax assets and liabilities when specific criteria (under para. 71) are met.

Tax Losses

Created when tax deductions exceed assessable income plus exempt income; these can be carried forward and used as a deduction against future taxable profit.

Recoupment

The process where a tax loss is used to reduce taxable income as soon as a taxable profit is earned.