Document ID: chunk:federal_register_of_legislation:F2023C00930:reg:5:p54
Version: federal_register_of_legislation:F2023C00930
Segment Type: reg
Provision Reference: reg 5 (pt 54/61)
Character Range: 180266–184534

the carrying amount of Debt Instrument C by sale as capital and allows capital losses to be offset only against capital gains (see paragraph 27A of the Standard).

The separate assessment results in not recognising a deferred tax asset for the deductible temporary difference that arises from Debt Instrument C because Entity Z has no source of taxable profit available that tax law classifies as capital.

In contrast, the deductible temporary difference that arises from Debt Instrument A and other sources are assessed for utilisation in combination with one another. This is because their related tax deductions would be classified as ordinary by tax law.

The tax deductions represented by the deductible temporary differences related to Debt Instrument A are classified as ordinary because the tax law classifies the effect on taxable profit (tax loss) from deducting the tax base on maturity as ordinary.

In assessing the utilisation of deductible temporary differences on 31 December 20X1, the following two steps are performed by Entity Z.

Step 1: Utilisation of deductible temporary differences because of the reversal of taxable temporary differences (see paragraph 28 of the Standard)

Entity Z first assesses the availability of taxable temporary differences as follows:

                                                                                                              (CU)

Expected reversal of deductible temporary differences in 20X2
                                                                                      From Debt Instrument A            57,143
                                                                                      From other sources                430,000
Total reversal of deductible temporary differences                                                            487,143
Expected reversal of taxable temporary differences in 20X2
                                                                                      From Debt Instrument B            (28,571)
                                                                                      From other sources                (50,000)
Total reversal of taxable temporary differences                                                               (78,571)
Utilisation because of the reversal of taxable temporary differences (Step 1)                                 78,571

Remaining deductible temporary differences to be assessed for utilisation in Step 2
(487,143 – 78,571)                                                                                            408,572

In Step 1, Entity Z can recognise a deferred tax asset in relation to a deductible temporary difference of CU78,571.

Step 2: Utilisation of deductible temporary differences because of future taxable profit (see paragraph 29(a) of the Standard)

In this step, Entity Z assesses the availability of future taxable profit as follows:

                                                                                                                           (CU)
Probable future tax profit (loss) in 20X2 (upon which income taxes are payable (recoverable))                              (200,000)
Add back: reversal of deductible temporary differences expected to reverse in 20X2                                         487,143
Less: reversal of taxable temporary differences (utilised in Step 1)                                                       (78,571)
Probable taxable profit excluding tax deductions for assessing utilisation of deductible temporary differences in 20X2     208,572
Remaining deductible temporary differences to be assessed for utilisation from Step 1                                      408,572
Utilisation because of future taxable profit (Step 2)                                                                      208,572
Utilisation because of the reversal of taxable temporary differences (Step 1)                                              78,571
Total utilisation of deductible temporary differences                                                                      287,143

The tax loss of CU200,000 includes the taxable economic benefit of CU2 million from the collection of the principal of Debt Instrument A and the equivalent