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Statement: Interest expense accrued but included in taxable profit on a cash basis should be classified under deductible temporary differences.
Hi sir could you explain the above statement to me ? How will the tax base exceed the carrying value ?
Where the country’s tax rules state that interest expense is deductible only in the period when it is actually PAID rather than the period to which it relates (accruals basis) then that gives rise to a temporary timing difference
Taxman will allow the entity to claim as a tax deductible amount the interest only against the profits of the year in which that interest is paid so that’s how the tax base can exceed the carrying amount
OK?
okay. Let’s take for example dividends receivable from a subsidiary have a carrying amount of 100. The dividends are not taxable. In substance, the entire carrying amount of the asset is deductible against the economic benefits. Consequently, the tax base of the dividends receivable is 100.
Am I right sir ? Does this treatment apply to all dividends or it varies with situations? All dividends are not taxable and in substance the entire carrying amount of the asset is deductible against the economic benefits, therefore the tax base – Carrying value ?
I don’t know much about taxation on dividends but in so far as I can remember the UK rules, dividends are taxed at source and so would be added in to the taxable profits at a grossed up amount, overall tax computed, and then the withholding tax on the dividend would be deducted from that tax amount payable
And, again in so far as I remember, dividends are taxed on a receipts basis
So in a company’s tax computation – you’ll need to speak to Tax Tutor on F6 if you want a definitive answer – investment income would be included with profit before tax at a grossed up amount (and this would be grossed up and included within the profits chargeable to corporation tax for the year in which the dividend was actually received)
In this respect, I’m not sure whether there’s a deferred tax implication because tax is already deducted by way of withholding tax at source
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