Deferred Tax and Share-based payment

Sir,

This is example# 4 from the Technical article IFRS 2 (https://www.accaglobal.com/uk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/ifrs2.html):

“A company operates in a country where it receives a tax deduction equal to the intrinsic value of the share options at the exercise date. The company grants share options to its employees with a fair value of $4.8m at the grant date. The company receives a tax allowance based on the intrinsic value of the options which is $4.2m. The tax rate applicable to the company is 30% and the share options vest in three-years’ time.

Answer
A deferred tax asset would be recognised of:

$4.2m @ 30% tax rate x 1 year / 3 years = $420,000

The deferred tax will only be recognised if there are sufficient future taxable profits available.”

Now from what I understand of share-based payment transactions, the company should have recognised an expense equal to $4.8m(assuming all will vest as we do not have any other info.) and an equal amount in the equity of the company.

so why is the carrying value taken as zero?

It is specifically noted in the technical article’s explanation under the heading “Deferred Tax” in the article that “A deferred tax asset will therefore arise which represents the difference between a tax base of the employee’s services received to date and the carrying amount, which will effectively normally be zero.”