IFRS

Amendment to IAS 12 Income Taxes

This amendment was released by the IASB on 7 May 2021. This amendment looks at the deferred tax related to assets and liabilities arising from a single transaction. This article is part of our IFRS technical updates newsletter.
Contents

Prior to the amendment, there was uncertainty about the exemption applied to some transactions like leasing and decommissioning obligations as entity recognised both asset and liability. This gave rise to equal amounts of deductible and taxable temporary differences on initial recognition.

The amendment clarifies that the exemption does not apply. Companies are required to recognise deferred tax on such transactions, where equal amounts of deductible and taxable temporary differences arise on initial recognition. The amendment will help to reduce diversity in the reporting of deferred tax on leases and decommissioning obligations.

Deferred tax assets shall be recognised to the extent that:

  • it is probable that taxable profit will be available against which the deductible temporary difference can be utilised
  • deferred tax liability shall be recognised for all deductible and taxable temporary differences associated with:
    • right-of-use assets and lease liabilities
    • decommissioning, restoration and similar liabilities recognised as part of the cost of the related asset.
  • the cumulative effect of initially applying the amendments is recognised as an adjustment to the opening balance of retained earnings or components of equity, as appropriate

The amendments to IAS 12 are effective for annual reporting periods beginning on or after 1 January 2023. Earlier application is permitted.

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