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Recognition Of Deferred Tax Assets Relating To Tax Losses

Deferred tax assets relating to tax losses are to be recognized?

A history of accounting losses or the existence of unused tax losses provides evidence that future taxable profits are unlikely to be available for the utilization of deductible temporary differences. In these circumstances, the recognition of deferred tax assets would require the existence of either sufficient taxable temporary differences or convincing evidence that future taxable profits will be earned. In assessing the likelihood that tax losses will be utilized, the entity should consider whether:

  •  future budgets indicate that there will be sufficient taxable income derived in the foreseeable future
  •  the losses arise from causes that are unlikely to recur in the foreseeable future
  •  actions can be taken to create taxable amounts in the future
  •  there are existing contracts or sales backlogs which will produce taxable amounts
  •  there are new developments or favorable opportunities likely to give rise to taxable amounts
  •  there is a strong earnings history other than those giving rise to the loss and the loss was an aberration and not a continuing condition.

Where, on the balance of the evidence available, it is not probable that deductible temporary differences will not be utilized in the future no deferred tax asset is recognized. This probability assessment must also be applied to deferred tax assets.

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