Australia: Consider recovery of deferred tax assets, as 30 June reporting season approaches (COVID-19)

Australia: Consider recovery of deferred tax assets

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.


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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:

  • The forecasting around future taxable profits is robust and is based on reasonable assumptions regarding the business’ performance in the economic environment taking into account any deterioration that may have occurred; and
  • In respect of tax losses, that those losses are in fact available for use (i.e., one of the loss utilisation tests has been satisfied).

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:

  • Changes in forecast production/sales and price/costs (cash flows)
  • Changes in any tax positions adopted
  • Any substantive enacted income tax law (specifically relevant are any stimulus measures that may affect the entity)

For more information, contact a KPMG tax professional in Australia

Tim Lynch | +61 7 3233 9341 |

Emma Pratt | +61 7 3233 9775 |

Michael Baartz | +61 7 3233 9464 |

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