Accounting profit is determined at the consolidated entity level. Accordingly, determining the accounting profit for an entity’s Australian operations where the Australian operations comprise a subset of the consolidated group, will require adjustments to ensure the company tax expense numerator is consistent with the accounting profit denominator. For example, transactions with entities’ within ‘foreign the accounting consolidated group should not be eliminated from the calculation of accounting profit for Australian operations if company income tax is determined with these transactions included. Entities should clearly explain any adjustments made to the consolidated accounting profit to determine the profit for the Australian operations. Information about an entity’s TTC ETR may help users better understand an entity’s income taxes position relative to the company tax rate/s. There are a number of reasons why an entity’s TTC ETR may be low relative to the Australian corporate income tax rate. In such cases, disclosure of the contextual information underpinning the numerical disclosure provides useful information to users as it assists in understanding the TTC ETR. Illustrative example 2 sets out an example of how an entity present information about the TTC ETRs. How does the TTC ETR compare with accounting ETR? Australian Accounting Standard AASB 112 defines ETR (the Income Taxes, accounting ETR) as: average effective tax rate is the tax expense (income) divided by the accounting “The profit.” The table below sets out when the accounting and TTC ETRs will be the same. Differences have presentation implications that are discussed in paragraph . Table 2: Differences between the accounting and TTC ETRs Calculation element TTC ETR Accounting ETR TTC and accounting ETR equal when Numerator tax Company tax expense Broader definition, Not subject to taxes – expense only including taxes based on other than income profit such as Petroleum taxes, no material under Resource Rent Tax or over statements, interest, penalties or refunds related to prior years Denominator Accounting profit per the Accounting profit per Accounting profit as – accounting profit accounting standards, or accounting standards defined by the alternative measures such accounting standards as underlying earnings adopted as the denominator for the TTC ETR
Accounting profit is determined at the consolidated entity level. Accordingly, determining the accounting profit for an entity’s Australian operations where the Australian operations comprise a subset of the consolidated group, will require adjustments to ensure the company tax expense numerator is consistent with the accounting profit denominator. For example, transactions with ‘foreign entities’ within the accounting consolidated group should not be eliminated from the calculation of accounting profit for Australian operations if company income tax is determined with these transactions included. Entities should clearly explain any adjustments made to the consolidated accounting profit to determine the profit for the Australian operations. Information about an entity’s TTC ETR may help users better understand an entity’s income taxes position relative to the company tax rate/s. There are a number of reasons why an entity’s TTC ETR may be low relative to the Australian corporate income tax rate. In such cases, disclosure of the contextual information underpinning the numerical disclosure provides useful information to users as it assists in understanding the TTC ETR. Illustrative example 2 sets out an example of how an entity present information about the TTC ETRs. How does the TTC ETR compare with accounting ETR? Australian Accounting Standard AASB 112 Income Taxes, defines ETR (the accounting ETR) as: “The average effective tax rate is the tax expense (income) divided by the accounting profit.” The table below sets out when the accounting and TTC ETRs will be the same. Differences have presentation implications that are discussed in paragraph . Table 2: Differences between the accounting and TTC ETRs Calculation element TTC ETR Accounting ETR TTC and accounting ETR equal when Numerator – tax expense Company tax expense only Broader definition, including taxes based on profit such as Petroleum Resource Rent Tax Not subject to taxes other than income taxes, no material under or over statements, interest, penalties or refunds related to prior years Denominator – accounting profit Accounting profit per the accounting standards, or alternative measures such as underlying earnings Accounting profit per accounting standards Accounting profit as defined by the accounting standards adopted as the denominator for the TTC ETR
DRAFT-voluntary-TTC-AASB-draft-guidance-material.docx