Tax base
The tax base of an asset or liability is the amount attributed to it for tax purposes; it determines the temporary difference that gives rise to deferred tax by comparing it with the accounting carrying amount.
What it is
See it move
Equipment is carried at €60,000 in the accounts but has only €40,000 of remaining tax allowance — its tax base. Subtracting the tax base from the carrying amount gives a taxable temporary difference of €20,000. At a 25 per cent tax rate, that difference generates a deferred tax liability of €20,000 times 25%, or €5,000, recognised alongside the asset.
The formula
Variables
- Balance-sheet value of the asset or liability in the financial statements (€)
- Amount attributed to the asset or liability for tax purposes (€)
For an asset, a positive result is a taxable temporary difference, giving rise to a deferred tax liability; a negative result is a deductible temporary difference, giving rise to a deferred tax asset.
Variables
- Carrying amount minus tax base (€)
- Applicable tax rate (decimal)
The deferred tax balance arising from a given temporary difference; errors in identifying the tax base compound directly into this figure.