Document ID: chunk:federal_register_of_legislation:F2023C00930:reg:5:p41
Version: federal_register_of_legislation:F2023C00930
Segment Type: reg
Provision Reference: reg 5 (pt 41/61)
Character Range: 129966–132900

create taxable income in subsequent years. The entity's statement of comprehensive income includes the following:
                               Year
                               1         2         3         4         5

Income                         2,000     2,000     2,000     2,000     2,000
Depreciation                   2,000     2,000     2,000     2,000     2,000
Profit before tax              0         0         0         0         0
Current tax expense (income)   (200)     (200)     (200)     (200)     800
Deferred tax expense (income)  200       200       200       200       (800)
Total tax expense (income)     0         0         0         0         0
Profit for the period          0         0         0         0         0

Example 2 – Deferred tax assets and liabilities
The example deals with an entity over the two-year period, X5 and X6. In X5 the enacted income tax rate was 40% of taxable profit. In X6 the enacted income tax rate was 35% of taxable profit.
Charitable donations are recognised as an expense when they are paid and are not deductible for tax purposes.
In X5, the entity was notified by the relevant authorities that they intend to pursue an action against the entity with respect to sulphur emissions. Although as at December X6 the action had not yet come to court the entity recognised a liability of 700 in X5 being its best estimate of the fine arising from the action. Fines are not deductible for tax purposes.
In X2, the entity incurred 1,250 of costs in relation to the development of a new product. These costs were deducted for tax purposes in X2. For accounting purposes, the entity capitalised this expenditure and amortised it on the straight-line basis over five years. At 31/12/X4, the unamortised balance of these product development costs was 500.
In X5, the entity entered into an agreement with its existing employees to provide healthcare benefits to retirees. The entity recognises as an expense the cost of this plan as employees provide service. No payments to retirees were made for such benefits in X5 or X6. Healthcare costs are deductible for tax purposes when payments are made to retirees. The entity has determined that it is probable that taxable profit will be available against which any resulting deferred tax asset can be utilised.
Buildings are depreciated for accounting purposes at 5% a year on a straight-line basis and at 10% a year on a straight-line basis for tax purposes. Motor vehicles are depreciated for accounting purposes at 20% a year on a straight-line basis and at 25% a year on a straight-line basis for tax purposes. A full year's depreciation is charged for accounting purposes in the year that an asset is acquired.
At 1/1/X6, the building was revalued to 65,000 and the entity estimated that the remaining useful life of the building was 20 years from the date of the revaluation. The revaluation did not affect taxable profit