Deferred tax assets and deferred tax liaDeferred tax assets and deferred tax liabilities

Deferred tax assets and deferred tax liabilities

1. An ADI must net from Tier 1 capital the amount of its:

(a) deferred tax assets, except for any deferred tax assets associated with collective provisions eligible to be included in the General Reserve for Credit Losses (refer to Guidance Note 220.2 Impairment, Provisioning and the General Reserve for Credit Losses); and

(b) deferred tax liabilities, except for any amounts associated with surpluses in any ADI (or other group member) employer-sponsored superannuation funds.

An ADI must net these items on a consistent basis for the purposes of this Prudential Standard. In the event that deferred tax liabilities exceed the amount of deferred tax assets, the excess cannot be added to Tier 1 capital (i.e. the net deduction is zero).

2. Netting of deferred tax assets and deferred tax liabilities must only be applied where:

(a) an ADI or member of a group which the ADI heads has a legally enforceable right to set-off current tax assets against current tax liabilities where they relate to income taxes levied by the same taxation authority and the taxation authority permits the ADI or group members to make or receive a single net payment; and

(b) the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same authority on either:

(i) the same taxable member of a group; or

(ii) different taxable members of a group for which group policies and procedures have been established that provide for the relevant group members to settle current tax assets and liabilities on a net basis, or to realise the assets and liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are to be settled or recovered; and

(iii) for direct or indirect subsidiaries of the ADI incorporated outside Australia for which:

(A) it is claimed current tax assets and liabilities will be settled on a net basis; and

(B) netting may have a material impact on any amount of deferred tax assets an ADI may be required to deduct from its capital

the group headed by the ADI must have written opinions from relevant external auditors and legal advisors that the relevant tax authorities allow, or would allow, netting of deferred tax assets and deferred tax liabilities. An ADI must be able to provide relevant written auditor or legal opinions to APRA, if requested.

3. An ADI must:

(a) have procedures in place to monitor changes in relevant laws and taxation practices that may affect the written opinions it is required to have covering netting of deferred tax assets and deferred tax liabilities; and

(b) ensure that the written opinions are updated in the event of changes in laws or taxation practices overseas that could materially impact on overseas taxation authorities continuing to allow netting of deferred tax assets and deferred tax liabilities.