Income Tax

Question 1

Objective of IAS 12

Answer 1

to prescribe the accounting treatment for income taxes - both current and future

Question 2

Current tax

Answer 2

for the current and prior periods is recognised as a liability to the extent that it has not yet been settled, and as an asset to the extent that the amounts already paid exceed the amount due.

Question 3

Tax base

Answer 3

The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes

Question 4

tax base of an asset

Answer 4

the amount that will be deductible against taxable economic benefits from recovering the carrying amount of the asset.
Where recovery of an asset will have no tax consequences, the tax base is equal to the carrying amount.

Question 5

tax base of the recognised liability

Answer 5

its carrying amount, less revenue that will not be taxable in future periods

Question 6

tax base of a liability

Answer 6

its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future periods

Question 7

tax base of unrecognised items

Answer 7

the carrying amount is nil

Question 8

Tax bases not immediately apparent

Answer 8

the tax base should effectively be determined in such as manner to ensure the future tax consequences of recovery or settlement of the item is recognised as a deferred tax amount

Question 9

tax base of Consolidated financial statements

Answer 9

the carrying amounts in the consolidated financial statements are used, and the tax bases determined by reference to any consolidated tax return

Question 10

Permanent differences

Answer 10

are differences between the tax and financial reporting of revenue or expense items that will not be reversed in future.

Question 11

Temporary differences

Answer 11

Differences between the carrying amount of an asset or liability in the statement of financial position and its tax bases

Question 12

Taxable temporary differences

Answer 12

Temporary differences that will result in taxable amounts in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled

Question 13

Deductible temporary differences

Answer 13

Temporary differences that will result in amounts that are deductible in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled

Question 14

Deferred tax

Answer 14

the tool we use to show users the impact of the difference between Accounting and Tax rules

an accounting transaction, not a physical amount paid to SARS

Question 15

Measurement of deferred taxes

Answer 15

1. tax base/rate: measurement of deferred taxes is consistent with the way in which an asset is recovered or liability settled
2. revalued non-depreciable assets: deferred taxes reflect the tax consequences of selling the asset
3. Investment property: reflect the rebuttable presumption that the investment property will be recovered through sale
4. Dividends: measured using the tax rate applicable to undistributed profits

Question 16

Recognition of tax amounts

Answer 16

Tax to recognised for the period = Current tax for the period + Movement in deferred tax balances for the period

recognised as income or expense and included in profit or loss for the period, except to the extent that the tax arises from transactions or events that are recognised outside of profit or loss and a business combination

Question 17

Deferred tax liabilities

Answer 17

The amounts of income taxes payable in future periods in respect of taxable temporary differences

Question 18

Recognition of deferred tax liabilities

Answer 18

recognised for all taxable temporary differences

Question 19

Liabilities exempted from deferred tax

Answer 19

1. arising from initial recognition of goodwill
2. arising from the initial recognition of an asset/liability other than in a business combination which does not affect either the accounting or the taxable profit and, does not give rise to equal taxable and deductible temporary differences.
3. arising from temporary differences associated with investments in subsidiaries, branches, and associates, and interests in joint arrangements if the entity is able to control the timing of the reversal of the differences and it is probable that the reversal will not occur in the foreseeable future.

Question 20

Deferred tax assets

Answer 20

The amounts of income taxes recoverable in future periods in respect of:
1. deductible temporary differences
2. the carry-forward of unused tax losses, and
3. the carry-forward of unused tax credits

Question 21

Recognition of deferred tax assets

Answer 21

recognised for an unused tax loss carry-forward or unused tax credit if, and only if, it is considered probable that there will be sufficient future taxable profit against which the loss or credit carry-forward can be utilised.

Question 22

assets exempted from deferred tax

Answer 22

the initial recognition of an asset or liability other than in a business combination which, at the time of the transaction, does not affect accounting profit or taxable profit.

Question 23

Deferred tax BALANCE vs deferred tax MOVEMENT

Answer 23

SFP Method (for balance): (Carrying amount - tax base) * 28%
SCI Method (for movement): temporary difference * 28%

Question 24

Current income tax

Answer 24

the amount of income tax payable/(recoverable) in respect of the taxable profit or tax loss of a company for a tax period

Question 25

taxable income

Answer 25

determined by applying the Income Tax Act

Question 26

a current asset

Answer 26

Where the tax for the current and previous periods is paid in advance

Question 27

current liability

Answer 27

Unpaid current tax for the current period and preceding periods

Question 28

capital gains

Answer 28

the difference between the proceeds on disposal of an asset and the base cost of an asset

Question 29

capital gains tax

Answer 29

a tax levied on profit from the sale of property or an investment

80% * 28% = 22.4%

Question 30

dividends tax

Answer 30

A tax charged levied on shareholders when dividends are paid to
them. Under normal circumstances, this tax is withheld from their
dividend payment by the company paying the dividend (withholding agent)

Question 31

who pays the dividend tax

Answer 31

the beneficial owner of the dividend, but is withheld from the dividend from the dividend payment and paid to the SARS by a withholding agent

Question 32

Presentation and disclosure

Answer 32

Deferred tax assets and deferred tax liabilities - SFP if they settle current tax amounts on a net basis/deferred tax amounts are levied by the same taxing authority
tax expense - SPL
tax effects of items - OCI
Current tax assets and current tax liabilities - SFP if they settle on a net basis.