Money
Issue No. 20 - December/January 2005
Taxing Times
by John Rawson
International Financial Reporting Standards and Income Tax
The first point to consider when it comes to the impact of the introduction of International Financial Reporting Standards (IFRS) on your company and how you calculate your tax balances, is whether your business is required to adopt IFRS.
In most cases, IFRS should not apply to 'small proprietary' companies. You are NOT a small proprietary company if you satisfy two or more of the following tests:
- Have more than 50 employees
- Have more than $5m in assets or
- Have more than $10m in gross revenue.
If you are a small proprietary company, and neither ASIC nor 5% nor more of your shareholders have requested the company prepare an annual financial report, you are NOT required to comply with IFRS.
For large proprietary companies or public companies IFRS will apply for reporting periods beginning on or after 1 January 2005.
However, in relation to a June year end, this does not mean that the first financial statements to be affected are those for the 2005-06 year.
- the 2004 accounts must disclose the likely effects of IFRS on future financial statements
- that disclosure will need to be updated for the 2005 financial statements and
- the year ended 2005 will need to be calculated in compliance with IFRS as it will form the comparative figures for the 2005-06 financial statements.
If you report six monthly results then your IFRS reporting timetable is six months earlier. You need good project management skills to deliver.
The changes
From profit based approach: Under IFRS there will be a different way of calculating tax amounts in the financial statements. Previously book profit was adjusted for permanent differences to arrive at income tax expense, for example goodwill amortisation and some entertainment. To arrive at provision for income tax further adjustments were the...
