Set 5 FR 23 Income Taxes

Question 1

Entry for tax payable current year

Answer 1

DR income tax expense, CR income tax payable

Question 2

How is the income tax shown when instalments are paid on the balance sheet?

Answer 2

Netted out, to reflect total amount actually due

Question 3

What are some permanent differences between accounting income and tax income, which are not subject to tax? Income-based.

Answer 3

dividends received from Canadian corporation by another Canadian corporation
50% of a capital gain

Question 4

What are some permanent differences between accounting income and tax income, which are not subject to tax? Expense-based.

Answer 4

50% of meals and entertainment
golf club membership
interest and penalties on taxes
political contributions

Question 5

define deferred tax liability

Answer 5

tax paid now is less than actually due because of temp differences

Question 6

define deferred tax asset

Answer 6

tax paid now is more than actually due because of temp differences

Question 7

Step 1 is to determine taxable differences. why do temporary differences between tax and accounting income occur?

Answer 7

tax and accounting treatments are different

Question 8

examples of temp differences

Answer 8

Depreciation vs CCA

warranty liability/decom asset/lease asset etc - all expense as incurred, no liabilities for tax

Question 9

FVTPL vs FTVOCI - how is this treated

Answer 9

50% of gain is treated as a temp difference. deferred tax basis equal to: original cost + [(FV – original cost) / 2]

Question 10

Step 2 is to analyze tax base vs accounting base. Table to do this? Use positive numbers for assets and negative numbers for liabilities.

Answer 10

Item / Accounting basis / Tax basis / Temp difference (taxable)

Question 11

Once you have the total temp differences, what is the next step? What if the number is negative? Postive?

Answer 11

Mutiply by the tax rate substanstively enacted at reporting date. Negative = deferred tax liability. Positive = deferred tax asset.

Question 12

FInal step - reporting the DTA/DTL

Answer 12

Adjust DTA/DTL to the correct amount, taking into account the current amount sitting on the B/S.

Question 13

Loss carryback/forward - how long?

Answer 13

Back - 3 years. Forward - 20 years.

Question 14

Strategy to utilize tax losses

Answer 14

• can apply to that with highest tax rate first to get the most refund
• can apply to the oldest first (3 years back) due to rules

Question 15

Strategy to utilize tax losses - JE

Answer 15

DR Income tax rec

CR Current income tax recoverable

Question 16

Loss carryforwards - what needs to be assessed?

Answer 16

If entity is likely to make taxable income in the future to offset

Question 17

Loss carryforwards - rate used / JE

Answer 17

tax rate at time it’s expected to be used.

DR deferred tax, CR deferred income tax (recovery)

Question 18

Disclosures under IFRS

Answer 18

components of income tax expense, separating out current/deferred and benefits from these
separate disclosure of taxes from discontinued ops, continued ops and OCI items
each type of temp. difference
unused loss carryforwards and tax credits
reconciliation of effective tax rates to statutory rates

Question 19

ASPE differences - terms used

Answer 19

IFRS - deferred income tax

ASPE - future income taxes

Question 20

ASPE differences - methods of use

Answer 20

IFRS - must use current and deferred taxes

ASPE - can choose future income taxes or taxes payable method

Question 21

ASPE - disclosures

Answer 21

• separate disclosure of income taxes on earnings from continued operations, earnings from discontinued operations, and amounts charged directly to equity
• current income tax expense and future income tax expense (if future income taxes method used)
• if the taxes payable method is used, then a reconciliation of the income tax rate to the statutory rate, either by percentages or dollar amounts
• unused loss carryforwards and tax credits
• recovery of refundable taxes
• if an entity is not subject to tax, then disclosure of this fact