Maintenance and consistent application

Date recorded:

Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) (Agenda Paper 12A)


In July 2019, the Board published the Exposure Draft ED/2019/5 Deferred Tax related to Assets and Liabilities arising from a Single Transaction, which proposed amendments to IAS 12. In September 2020, staff presented the initial analysis and preliminary recommendations on how to address the matters raised in the feedback on the ED to the IFRS Interpretations Committee (the Committee). In October 2020 the Board decided to finalise the proposed amendments to IAS 12 as published in the ED, with some modifications.

The purpose of this meeting was to ask the Board whether they agree with the effective date of the amendments, confirm that due process requirements have been met and to ask if any Board members intend to dissent from the amendments.

Summary of the amendments

As a general principle, IAS 12 requires an entity to recognise deferred tax for all temporary differences. However, the Standard prohibits entities from recognising deferred tax assets or liabilities—both on initial recognition and subsequently—for deductible or taxable temporary differences arising on initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit (recognition exemption).

The Board proposed to narrow the scope of the recognition exemption so that it would not apply to transactions that give rise to equal and offsetting temporary differences. In such cases an entity would generally recognise a deferred tax asset and liability of the same amount and, therefore, the Board concluded that the recognition exemption is unnecessary. This approach would result in entities recognising deferred tax assets and liabilities for temporary differences arising on initial recognition of transactions such as leases and decommissioning obligations.

The Board has also proposed to provide an illustrative example explaining the deferred tax accounting for advance lease payments and initial direct costs.

In relation to transition requirements the Board proposes that entities will apply the amendments for the first time by:

  • (a) recognising deferred tax for all temporary differences related to leases and decommissioning obligations at the beginning of the earliest comparative period presented; and
  • (b) applying the amendments prospectively for transactions other than leases and decommissioning obligations.

Staff recommendation

The staff recommendation was that the Board:

  • (a) Agree an effective date of 1 January 2023 for the amendments—this will be 18 months after the expected issue date of the amendments in the second quarter of 2021.
  • (b) Agree that the amendments do not require re-exposure.
  • (c) Agree that due process requirements have been met and that the balloting process should commence.

Board Discussion

It was confirmed by the staff that there had been no issues raised by preparers in relation to the removal of the capping proposal.

Board Decisions

All 13 Board members voted in favour of each of the staff recommendations.

No Board member indicated intention to dissent from publication of the final amendment.

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