IAS 12 - Income taxes

Question 1

Permanent differences

Answer 1

*These are items of income or expense for book purposes that are not recognised for tax purposes (based on tax authority rules) and that have no future tax consequences — meaning they will never reverse over time. Permanent differences affect income taxes payable but do not give rise to deferred tax assets and liabilities. Eg (Entertainment expenses)

Question 2

Temporary differences

Answer 2

*These are items of income or expense for book purposes that are allowed for tax purposes but are recognised in a different accounting period for tax purposes. These differences will reverse over time and are often described as ‘timing differences’. Temporary differences are the source of deferred tax assets and liabilities. Only temporary differences are considered when calculating deferred tax; permanent differences are ignored for deferred tax purposes. (eg depreciation)