TAX in AFS for Small Business Corp

[Imp]

Hi there

I am accounting for tax for a business using IFRS for SME's. last year it required an audit and with the changes in the companies act this year just independent compilation by an accounting officer.

The auditors last year put in a provision for the deferred tax but not the tax loss, they just disclosed it in the notes. My question is - if the amount is an asset therefore a tax loss - does it have to be actually provided for, or is the note in the accounts sufficient.

If it has to be provided for is it provided for at the full 28% or based on the small business sliding scale?

Thanks for your assistance!

[Dave A]

My question is - if the amount is an asset therefore a tax loss - does it have to be actually provided for, or is the note in the accounts sufficient.

It stays as a note. I think the reason is it isn't a realisable asset without a profit being made (at which point all it does is reduce your tax liability).

[Imp]

That makes sense. But when the company starts making taxable income will we show it at the % or the small business sliding scale? Thanks Dave

[Dave A]

With sliding scales in play, assigning a value to the tax credit could prove tricky.

Technically, what you are actually tracking is the taxable loss carried forward. This is then offset against future profits and then the tax calculation is applied. In a standard company tax scenario obviously the tax value is easily determined, but with the sliding scale scenario...

All the more reason for disclosure via a note, methinks.

[CLIVE-TRIANGLE]

Imp, if the business realised an assessable loss, then there would be no normal tax charge in the income statement. Any tax charge in the income statement would comprise of a deferred tax charge only. (The tax charge in the income statement is the sum of the two.)

The tax note in the notes basically shows, for normal tax, how they arrived at zero tax. And that's all there is to it. The deferred tax component similarly simply explains how they got to it.

Accounting for deferred tax in an SBC is something that is food for debate always. If the SBC has an assessable profit in excess of R300,000 (now R350,00), then 28% should be applied in the deferred tax exercise. If the assessable profit is less than R300,000, then in my opinion it should be added to the taxable profit, the tax thereon calculated on the sliding scale, and the difference then represents the deferred tax liability, regardless of percentages.

To illustrate in 2013:
Taxable profit = R50,000 (therefore tax = zero)
Deferred tax differences = R60,000
R50,000 + R60,000 = R110,000
Tax thereon = (R110,000 - R63,556)X 7%
Total tax = R3,251
Therefore deferred tax liability = R3,251

Same example, but taxable profit = R350,00 (therefore tax = R20,051.08)
R350,000 + R60,000 = R410,000
Tax thereon = R36,851.08
Therefore deferred tax liability = R16,800

[Imp]

Perfect thanks so much. what a great forum!