Businesses continue to feel the impact of the coronavirus (COVID-19) pandemic, and with 30 June reporting season approaching, taxpayers need to consider the recoverability of deferred tax assets and prepare accordingly.
Management needs to consider the effect of any changes to their forecasting and the probability of future taxable profits.
Australian Accounting Standards Board (AASB) 12—a refresher
Under AASB 12 Income Taxes, a deferred tax asset is to be recognised for deductible temporary differences, and unused tax losses, to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences/unused tax losses can be used (paragraphs 24 and 34).
In assessing whether a deferred tax asset can be recognised and assuming the adverse economic conditions arising from COVID-19 existed at the reporting date, businesses need to be able to demonstrate that:
Action steps for management
While management has been modelling and considering the impacts of COVID-19, this work needs to be leveraged and used in the organisation’s deferred tax asset recoverability model and paper.
In this regard, the updated model and paper must, at a minimum, reflect:
For more information, contact a KPMG tax professional in Australia
Tim Lynch | +61 7 3233 9341 | firstname.lastname@example.org
Emma Pratt | +61 7 3233 9775 | email@example.com
Michael Baartz | +61 7 3233 9464 | firstname.lastname@example.org
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.