Explanatory Statement
Accounting Standard AASB 2021-5
Amendments to Australian Accounting Standards –
Deferred Tax related to Assets and Liabilities arising from a Single Transaction
June 2021
EXPLANATORY STATEMENT
Standards Amended by AASB 2021-5
This Standard makes amendments to AASB 1 First-time Adoption of Australian Accounting Standards (July 2015) and AASB 112 Income Taxes (August 2015).
These amendments arise from the issuance of International Financial Reporting Standard Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) by the International Accounting Standards Board (IASB) in May 2021.
Marked-up Text
This Standard incorporates marked-up text to clearly identify some of the amendments to AASB 1 and AASB 112. All amendments are incorporated using clean text into the compilations of those Standards when they are prepared, based on the legal commencement date of the amendments.
Power to Make Amendments
Under subsection 33(3) of the Acts Interpretation Act 1901, where an Act confers a power to make, grant or issue any instrument of a legislative or administrative character (including rules, regulations or by-laws), the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument. Accordingly, the AASB has the power to amend the Accounting Standards that are made by the AASB as legislative instruments under the Corporations Act 2001.
Main Features of AASB 2021-5
Main Requirements
This Standard amends AASB 112 to clarify the accounting for deferred tax on transactions that, at the time of the transaction, give rise to equal taxable and deductible temporary differences. In specified circumstances, entities are exempt from recognising deferred tax when they recognise assets or liabilities for the first time. The amendments clarify that the exemption does not apply to transactions for which entities recognise both an asset and a liability and that give rise to equal taxable and deductible temporary differences. This may be the case for transactions such as leases and decommissioning, restoration and similar obligations. Entities are required to recognise deferred tax on such transactions.
The Standard amends AASB 1 to require deferred tax related to leases and decommissioning, restoration and similar obligations to be recognised by first-time adopters at the date of transition to Australian Accounting Standards, despite the exemption set out in AASB 112.
Application Date
AASB 2021-5 applies to annual reporting periods beginning on or after 1 January 2023. The amendments may be applied to earlier reporting periods.
References to Other AASB Standards
References in this Standard to the titles of other AASB Standards that are legislative instruments are to be construed as references to those other Standards as originally made and as amended from time to time and incorporate provisions of those Standards as in force from time to time.
Consultation Prior to Issuing this Standard
The AASB issued ED 294 Deferred Tax related to Assets and Liabilities arising from a Single Transaction in July 2019, with comments due by 18 October 2019. ED 294 incorporated IASB Exposure Draft ED/2019/5 Deferred Tax related to Assets and Liabilities arising from a Single Transaction. No comment letters were received by the AASB relating to ED 294. The AASB did not make a submission to the IASB on ED/2019/5.
The IASB analysed the feedback it received on the proposed amendments and decided to finalise the amendments after making some minor changes, including removing the proposed requirement for an entity to limit the recognition of a deferred tax liability to the extent that it recognises a deferred tax asset, while also simplifying the transition requirements. The IASB concluded that these amendments would significantly reduce the complexity of applying the proposed amendments, while still achieving their objective. The IASB set an effective date for the amendments of annual periods beginning on or after 1 January 2023, with earlier application permitted. The AASB considered and adopted the amendments made by the IASB to IFRS Standards in finalising AASB 2021-5 and the amendments to the Australian Accounting Standards.
A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2021-5 as the amendments made do not have a substantial direct or indirect impact on business or competition.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011
Accounting Standard AASB 2021-5
Amendments to Australian Accounting Standards –
Deferred Tax related to Assets and Liabilities arising from a Single Transaction
Overview of the Accounting Standard
This Standard amends AASB 112 Income Taxes to clarify the accounting for deferred tax on transactions that, at the time of the transaction, give rise to equal taxable and deductible temporary differences. In specified circumstances, entities are exempt from recognising deferred tax when they recognise assets or liabilities for the first time. The amendments clarify that the exemption does not apply to transactions for which entities recognise both an asset and a liability and that give rise to equal taxable and deductible temporary differences. This may be the case for transactions such as leases and decommissioning, restoration and similar obligations. Entities are required to recognise deferred tax on such transactions.
The Standard amends AASB 1 First-time Adoption of Australian Accounting Standards to require deferred tax related to leases and decommissioning, restoration and similar obligations to be recognised by first-time adopters at the date of transition to Australian Accounting Standards, despite the exemption set out in AASB 112.
Human Rights Implications
This Standard is issued by the AASB in furtherance of the objective of facilitating the Australian economy. It does not diminish or limit any of the applicable human rights or freedoms, and thus does not raise any human rights issues.
Conclusion
This Standard is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.