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Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – International Accounting Standards Board

Date recorded:

At its meeting on October 27-29, 2020, the IASB met and discussed feedback on its Exposure Draft.  With respect to the proposed approach, the Board tentatively decided to:

  1. confirm its proposal to narrow the scope of the recognition exemption in paragraphs 15 and 24 of IAS 12 Income Taxes so that it would not apply to transactions that give rise to equal amounts of taxable and deductible temporary differences;
  2. remove the capping proposal—in other words, include no requirement to limit the recognition of a deferred tax liability to the amount recognized for a deferred tax asset;
  3. provide no application guidance or examples illustrating how an entity determines whether tax deductions relate to the lease asset or lease liability; and
  4. provide an illustrative example explaining the deferred tax accounting for advance lease payments and initial direct costs.

With respect to other matters, the Board tentatively decided to:

  1. require entities to apply the amendments to transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences.
  2. require entities already applying IFRS Standards to apply the amendments for the first time by: (a) recognizing deferred tax for all temporary differences related to leases and decommissioning obligations at the beginning of the earliest comparative period presented, with the cumulative effect recognized as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at that date; and (b) applying the amendments prospectively to transactions other than leases and decommissioning obligations (in other words, only to such transactions that occur on or after the beginning of the earliest comparative period presented); and
  3. require first-time adopters to recognize deferred tax for all temporary differences related to leases and decommissioning obligations at the date of transition to IFRS Standards. The Board would provide no other requirements for first-time adopters.

The Board will discuss the proposed amendment’s effective date, as well as the Board’s compliance with applicable due process steps, at a future meeting.

Review the IASB Update and podcast on the Board's Web site.

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