Explanatory Statement
Amending Standard AASB 2010-8 Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets
December 2010
EXPLANATORY STATEMENT
Reasons for Issuing AASB 2010-8
AASB 2010-8 Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets, which incorporates the IASB’s Deferred Tax: Recovery of Underlying Assets (Amendments to IAS 12), was made by the AASB in December 2010 to enable Australian reporting entities to continue to be compliant with International Financial Reporting Standards.
Main Features of AASB 2010-8
The amendments provide a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model in AASB 140 Investment Property. Under AASB 112 Income Taxes, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity expects to recover an asset by using it or by selling it. However, it is often difficult and subjective to determine the expected manner of recovery when the investment property is measured using the fair value model in AASB 140.
To provide a practical approach in such cases, the amendments introduce a presumption that an investment property is recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale.
Interpretation 121 Income Taxes – Recovery of Revalued Non-Depreciable Assets addresses similar issues involving non-depreciable assets measured using the revaluation model in AASB 116 Property, Plant and Equipment. The amendments incorporate Interpretation 121 into AASB 112 after excluding investment property measured at fair value from the scope of the guidance previously contained in Interpretation 121.
Application Date
The Amending Standard AASB 2010-8 is applicable to annual reporting periods beginning on or after 1 January 2012 with early adoption permitted for annual reporting periods beginning on or after 1 January 2005 but before 1 January 2012.
Consultation Prior to Issuing this Standard
The AASB issued Exposure Draft ED 204 Deferred Tax: Recovery of Underlying Assets in September 2010. ED 204 reproduced the proposals included in the IASB’s Exposure Draft ED/2010/11 Deferred Tax: Recovery of Underlying Assets (September 2010) without amendment.
The AASB received two submissions from Australian constituents on ED 204. While accepting that this is an issue in some jurisdictions and circumstances, the submissions received did not favour the proposals, and the AASB expressed similar concerns about the proposals in its submission to the IASB. The IASB subsequently narrowed the scope of its proposed exception to the principles in IAS 12, in part reflecting constituents’ comments.
A Regulation Impact Statement has not been prepared in connection with the issuance of AASB 2010-8 as the amendments made do not have a substantial direct or indirect impact on business or competition, are of a minor or machinery nature or clarify existing requirements.