Australian Accounting Standards Board clarifies deferred tax recognition rules

The Australian Accounting Standards Board (AASB) on July 2 amended its guidance on accounting for deferred tax with respect to transactions that give rise to equal taxable and deductible temporary differences at the time of the transaction.

The amendments clarify the exemption under which, in certain circumstances, entities do not need to recognize deferred tax when they recognize assets or liabilities for the first time. The amendments specify that this exemption does not apply to a transaction for which an entity recognizes both an asset and a liability and that results in equal taxable and deductible temporary differences.

Because the exemption does not apply in such circumstances, entities are required to recognize deferred tax on such transactions. The AASB notes this may apply for transactions such as leases, decommissioning, and restoration.

The amendments will apply to annual reporting periods beginning on or after January 1, 2023, but entities can adopt them for earlier reporting periods.