Deferred Tax on Ifrs 16 Example

For lease and decommissioning liabilities, the associated deferred tax assets and liabilities should be recognized at the beginning of the first comparative period presented, with any cumulative effects being recognised at that time as an adjustment to retained earnings or other equity components. If an entity has already recognized deferred taxes on lease and decommissioning liabilities in net recognition, the transition effects will likely be limited to the separate presentation of deferred and deferred tax liabilities. This example (PDF 80 KB) illustrates the transition requirements. The `initial recognition exemption` cannot therefore be applied since, at the time of the merger, the rental liability and the associated ROU asset component result in the same temporary taxable and deductible differences. Therefore, for temporary taxable differences of $50,000 on the ro-ro asset component, a LTL of $10,000 is recognized and a deferred tax asset (DTA) of $10,000 is recognized for the temporary deductible difference of $50,000 in respect of the rental liability: Several members noted that the analysis did not take into account the day 2 accounting. This could be illustrated by an example. All corporations must now consider the future tax impact of these transactions and account for deferred taxes, as outlined below. The amendments limit the scope of the Initial Recognition Exemption (ERI) so that it does not apply to transactions that result in equal and compensatory temporary differences. Therefore, corporations must recognise a deferred tax asset and a deferred tax liability for temporary differences resulting from the initial recognition of a lease and a provision for dismantling. Targeted amendments1 to IAS 12 Income taxes clarify how companies should recognise deferred taxes on certain transactions – provisions for leases and downgrades by . B electronic.

The `exemption from initial recognition` cannot therefore be applied in the present case, since, at the time of the transaction, the taxable result is affected. Therefore, a deferred tax liability (DTL) of $1,300 should be recognized for taxable temporary differences of $5,000 and $1,500 on lease advance payment and upfront direct costs (as shown in the table below): There is no specific provision dealing with financing and operating leases under the Mauritius Income Tax Act (âITAâ). The Mauritius Revenue Authority (MRRA) has not yet issued guidance on IFRS 16 and there may be different practices among tax professionals under the new IFRS16. Some may choose to (i) take lease payments as a deduction, while others prefer (ii) to claim an annual capital contribution on the rou asset. This leads to different tax positions, both from the point of view of income tax and deferred taxes. Accounting for deferred taxes on a temporary net difference occurring after initial recognition and not subject to IRE IAS 12 provides that an entity does not recognise a deferred tax asset or liability to the extent that it results from the initial recognition of an asset or liability in a transaction that is not a business combination; and at the time of the transaction; has no effect on retained earnings or taxable profits. The applicant indicates that at least three approaches are adopted in the application of the exemption (ias 12.15 and IAS 12.24) and that this diversity will become even greater with the introduction of IFRS 16. For example, an entity may be entitled to a cash tax deduction for a lease that recognizes a right of use (RS) and a corresponding lease liability in accordance with IFRS 16 Leases2. A temporary difference may then occur when the current asset and rental liability are recognised for the first time. When applying ERI to this temporary difference, a company can currently use one of the following approaches. The amendments clarify that the exception does not apply to transactions such as leases and decommissioning obligations.

These transactions result in equal and compensatory temporary differences, and this example (PDF 88 KB) illustrates how a company applies the changes. 2 The changes were explained using the example of leases; they would also apply to the recognition of downgrading liabilities and the corresponding adjustment of assets. In Accounting News of June 2021, we used a detailed example to show how a lessee applies recent changes to IAS 12 Income taxes when accounting for deferred taxes related to transactions that give rise to an asset and a liability in a single transaction. .