Tax bases of assets The economic benefits embodied in an asset are normally taxable when recovered by an entity through

the use or sale of that asset. The entity may then be able to deduct all or part of the cost or carrying amount of the asset against those taxable amounts when determining taxable profits. Par. 7 of PAS 12 describes the tax base of an asset as the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset. If those economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount. In the table, future taxable amounts are equal to carrying amounts unless economic benefits have already been included in taxable profit. The formula for calculating the tax base of an asset can be rearranged as follows: Carrying amount tax base = Future taxable amounts future deductible amounts In other words, a temporary difference (the difference between the carrying amount and the tax base) occurs when the future taxable amount is different from the future deductible amount.

Tax bases of liabilities Liabilities, other than those relating to unearned revenue, do not create taxable amounts. Instead, settlement gives rise to deductible items. Par. 8 of PAS 12 describes the tax base of a liability as its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future periods. In the case of revenue received in advance, the tax base of the resulting liability is its carrying amount, less any amount of the revenue that will not be taxable in future periods.