IAS12

A temporary difference could apply for both incomes and expenses.

Where the government has declared (passed law) that says investment income shall be taxed on a receipts basis, that means that although the entity may be due to receive some loan interest (for example) but has not received it by the end of the accounting period, then we have a temporary difference.

The entity will show in the financial statements investment income on an accruals basis but the taxman won’t include any investment income not yet received in the taxman’s version of the tax computation

And it’s the taxman’s version that is more important than the entity’s own calculations

Similarly with loan interest payable. The interest may be payable in May and November each year but, if the entity’s accounting period ends on 31 January, that means that there are 2 months (December and January) of accrued loan interest not payable until April

The entity will include that 2 months’ worth of interest payable as a deduction in arriving at profit before tax. But the taxman says “Oh no! You can’t claim that as a deduction until you have actually paid it”

The meaning of deductible is that (for an expense) it is deductible by the entity in arriving at profit before tax. But, as illustrated above, the taxman may say “No, that’s not deductible yet. Not until next year”

“Taxable” simply refers to the profits calculation but sometimes the taxman will say “You have to include that as income” or “You have to exclude that expense”

After all the negotiations have finished, the taxman and the entity’s tax advisor arrive at a figure that they can both agree on and that figure is then the “taxable profits”

Is that better?

You’re welcome