AASB 112 - Income Taxes - August 2015

What this Standard does:

AASB 112 sets the rules for how Australian companies must account for income taxes in their financial statements. It deals with two main things:

1. Current tax — the tax you actually owe right now based on this year's taxable profit
2. Deferred tax — future tax consequences that arise because accounting rules and tax rules treat the same transactions differently

The core problem it solves:

Companies often record income and expenses at different times for accounting purposes versus tax purposes. For example:

• You might claim depreciation faster for tax than for your books
• You might recognise revenue when you deliver goods, but only pay tax when you're paid

These timing differences create temporary differences between what's on your balance sheet and what the tax office recognises. AASB 112 requires companies to recognise deferred tax assets (future tax savings) or deferred tax liabilities (future tax bills) for these differences.

Who it affects:

• All Australian entities preparing financial statements under Australian Accounting Standards
• Both for-profit and not-for-profit entities (with some specific Australian modifications)