Document ID: chunk:federal_register_of_legislation:F2023C00181:body:0:p20
Version: federal_register_of_legislation:F2023C00181
Segment Type: other
Provision Reference: 
Character Range: 51603–54567

Actual earnings match expectations. The following table shows the amount of income tax expense that is reported in each quarter:

             1st      2nd      3rd      4th      Annual
             Quarter  Quarter  Quarter  Quarter
Tax expense  2,500    2,500    2,500    2,500    10,000

10,000 of tax is expected to be payable for the full year on 40,000 of pre-tax income.
B16 As another illustration, an entity reports quarterly, earns 15,000 pre-tax profit in the first quarter but expects to incur losses of 5,000 in each of the three remaining quarters (thus having zero income for the year), and operates in a jurisdiction in which its estimated average annual income tax rate is expected to be 20 per cent. The following table shows the amount of income tax expense that is reported in each quarter:

             1st      2nd      3rd      4th      Annual
             Quarter  Quarter  Quarter  Quarter
Tax expense  3,000    (1,000)  (1,000)  (1,000)  0

Difference in financial reporting year and tax year
B17 If the financial reporting year and the income tax year differ, income tax expense for the interim periods of that financial reporting year is measured using separate weighted average estimated effective tax rates for each of the income tax years applied to the portion of pre-tax income earned in each of those income tax years.
B18 To illustrate, an entity's financial reporting year ends 30 June and it reports quarterly. Its taxable year ends 31 December. For the financial year that begins 1 July, Year 1 and ends 30 June, Year 2, the entity earns 10,000 pre-tax each quarter. The estimated average annual income tax rate is 30 per cent in Year 1 and 40 per cent in Year 2.

             Quarter ending 30 Sept  Quarter ending 31 Dec  Quarter ending 31 Mar  Quarter ending 30 June  Year ending 30 June
             Year 1                  Year 1                 Year 2                 Year 2                  Year 2
Tax expense  3,000                   3,000                  4,000                  4,000                   14,000

Tax credits
B19 Some tax jurisdictions give taxpayers credits against the tax payable based on amounts of capital expenditures, exports, research and development expenditures, or other bases. Anticipated tax benefits of this type for the full year are generally reflected in computing the estimated annual effective income tax rate, because those credits are granted and calculated on an annual basis under most tax laws and regulations. On the other hand, tax benefits that relate to a one-off event are recognised in computing income tax expense in that interim period, in the same way that special tax rates applicable to particular categories of income are not blended into a single effective annual tax rate. Moreover, in some jurisdictions tax benefits or credits, including those related to capital expenditures and levels of exports, while reported on the income tax return, are more similar