Income Taxes Flashcards
Current Taxes Payable
Dr. Current income tax expense
$XXX
Cr. Income taxes payable — current
$XXX
remoe any tax instalments done during year
Permanent Differences
rmanent income differences — income types not subject to income taxes:
- dividends received from a Canadian corporation by another Canadian corporation
- 50% of a capital gain
Permanent expense differences — expenses not deductible for tax purposes:
- golf club memberships
- 50% of meals and entertainment
- political contributions
- interest and penalties on taxes
Deferred Taxes
- Find difs between a/c and tax income
Warranty (estimation n liability)= exp as incurred =tax nil
Leases = exp as incurred =tax nil
ARO = exp as incurred =tax nil
Lawsuit = exp as incurred =tax nil
PP&E = CCA, tax basis -UCC
Pension expenses n accrued liabilities = exp as incurred =tax nil
Investments = original cost + [(FV – original cost) / 2].coz 1/2 CAP GAIN TAXABLE
How to record these temp differences
Item
Accounting basis
Tax basis
Temporary difference deductible (taxable)
A taxable difference will result in higher income tax paid by the entity in the future, whereas a deductible difference will result in less tax paid by the entity in the future.
Hint: Enter the values in your table as positive numbers for assets and negative numbers for liabilities. To compute the temporary differences, subtract the “accounting basis” from the “tax basis” column. The net result will be a positive number that is a deductible difference, or a negative number that is a taxable difference.
How to get deferred tax expense (recovery)
- Find temp difs
- Calc the balance of deferred taxes
multiply total from 1 with the tax rate - Adjust to actual with opening and amt from 2
liabilities -
assets +
Dr. Deferred tax asset
$4,500
Dr. Deferred tax liability
$10,400
Cr. Deferred tax recovery
$14,900
a/c for Tax Losses
Either:
Carried back 3 years
OR
Carried forward up to 20 years against future taxable income = future [possible tax savings but ONLY works if there will be profits
which year:
higher the income tax rate - more taxes recovered fro a loss so apply to year with highest rate
Or the earliest year for the 3 to not lose op for recovery eg in 2016 u can still get for 2018 but can’t for 2014 in 2018
When amt is determined:
Dr. Income taxes receivable
XXX
Cr. Current income tax expense (recovery)
XXX
Loss carryforward reversal so when actually used:
Dr. Deferred income tax expense
XXX
Cr. Deferred tax asset
XXX
dif between ifrs n aspe
Income Taxes)
ASPE (Section 3465 Income Taxes)
Method of accounting for taxes
Entities must account for current taxes and deferred taxes.
Entities may choose either the future income taxes method or taxes payable method. Under the taxes payable method, only current income taxes are recorded. If the company elects to use the taxes payable method, deferred taxes are ignored.
Presentation of deferred tax balances
Deferred tax asset and liability balances are considered long-term.
Under ASPE, the portion of future income tax that pertains to current items (such as warranties or temporary investments) is recorded as a current future income tax asset / liability. The portion of future income tax that pertains to non-current items (such as capital assets) is recorded as a non-current future income tax asset / liability.
Income tax Losses
taxable income is calculated for year If loss, it triggers a refund **remember SBD have a lower tax rate** 3 options: Loss carryback = 3 yrs back immediate CF as taxes are recovered
Loss carryforward = see if they are bound to make losses or gains in future
with this info, and see if it can be used to offset future income
carry some back and some forward
Helpful if you in need of SOME cash now and know more profits coming in future
To max. tax refund, take a salary too = deductible
