16 explain the significance of a change in the

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16. Explain the significance of a change in the corporate tax rate when accounting for income tax. Para 51 of AASB 112 states that the measurement of deferred tax liabilities and deferred tax assets must reflect the tax consequences that would flow from the manner in which the entity expects, at the end of the reporting period to recover or settle the carrying amounts of its assets and liabilities.
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Para 52 indicates that the tax rate applicable that an entity expects when it recovers or settles the carrying amounts of its assets and liabilities is relevant to the measurement of deferred tax liabilities and deferred tax assets. Accordingly, a change in the corporate tax rates necessitates the restatement of the balances of Deferred Tax Assets and Deferred Tax Liabilities that have been calculated using a previous tax rate. The beginning balances of DTA and DTL need to be adjusted to reflect the new tax rate that will be used in regard to the amount of tax now expected to be settled or recovered. The change in the tax rate will also affect the current tax and deferred tax recognised in the current period, for example, the current tax liability will be determined using taxable income multiplied by the new tax rate. 17. Describe how income tax losses can provide a future tax benefit. What is criterion for the recognition of income tax losses as a deferred tax asset and in what circumstances is it likely to be satisfied? How does exempt income impact on tax losses? Income tax losses can provide a future tax benefit because the losses can be carried forward and utilised to reduce the taxable income of a future period. Paragraph 34 of AASB 112 sets out the recognition criteria in relation to raising a deferred tax asset from tax losses. A deferred tax asset is recognised for tax losses if it is probable that future taxable profit will be available against which the carried forward losses can be utilised. The recognition of tax losses as a deferred tax asset is consistent with the recognition of deductible temporary differences as deferred tax assets. Paragraph 36 of AASB 112 requires close consideration of whether future taxable profits will be available for tax losses and points to the following factors: taxable temporary differences that result in taxable amounts in the future the expiry date for tax losses, if any whether the cause of the tax losses is likely to reoccur tax planning opportunities Exempt income earned in the current year reduces the amount of that year’s tax loss. That is, where an entity has a tax loss of say $15 000 and the entity earned $3 000 in exempt income in that year, then the tax loss that can be carried forward to later years is reduced to $12 000. In the case of recovering a tax loss from a previous year, the entity must first of all reduce the carry forward tax loss by the amount of exempt income earned in the current period. This situation results in the ATO collecting additional tax from the entity because of the exempt income. For
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