Accounting for income tax background

• Income taxation law in Australia ostensibly governed by ATO, through the ITAA (1936)
• Individuals and/or taxable entities must pay income tax (not all organisational structures are taxable entities)
• Different rules exist for residents and non-residents
• Income tax may be assessed and paid on aconsolidated group basis – if all subsidiaries are resident and 100 per cent owned
• Individuals and taxable entities typically “self assess”
  their taxation obligations and send in annual tax
  returns to the ATO
• The “rules” for assessing taxation in Australia are very
  complicated
• Taxation laws and accounting standards differ
  on the manner in which taxation expenses
  (obligations) are determined …. Hence we have an
  accounting standard specifically dealing with income
  taxes
• An Australian accounting standard, AASB 1020 was introduced
  in 1989 and dealt with “tax effect” accounting, whereby the
  emphasis was on the profit and loss statement
• In 1999, a revised AASB 1020 was introduced which emphasised
  a “balance sheet” approach. While companies were able to
  ”early adopt” this standard, the implementation date was
  continually delayed …. and hence mandatory compliance with this
  standard was never required before AASB 112 was introduced
• AASB 112 also emphasises a “balance sheet” approach to
  accounting for income tax
• “For all intents and purposes”, AASB 112 is equivalent to the
  International Standard, IAS 12. Entities that comply with the
  former will simultaneously be in compliance with the latter
  

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