Under International Financial Reporting Standards (IFRS), in specific circumstances, companies are exempt from recognizing deferred tax when they recognize assets or liabilities for the first time. There has been some uncertainty about whether the exemption applies to leases and decommissioning obligations – transactions for which companies recognize both an asset and a liability. Therefore, the International Accounting Standards Board recently issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction. This pronouncement includes narrow-scope amendments to International Accounting Standard (IAS) 12, Income Taxes, to clarify how companies should account for deferred tax on leases and decommissioning obligations.
Per the amendments, the exemption in IAS 12 does not apply to leases and decommissioning obligations—transactions for which companies recognize both an asset and a liability. The amendments will result in companies recognizing deferred tax on such transactions.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction is effective for annual periods beginning on or after January 1, 2023, with early application permitted.