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  • Catherine Duffy: Okay, welcome back, so here are we to get started with step one of the

  • calculation for the current income tax expense. When we're doing tax accounting, we're essentially

  • looking for two different numbers. We're looking for the current tax expense for the year and

  • we're looking for the deferred tax expense for the year and both of those could be a

  • benefit, so if it ends up being a debit, it's going to be expense. If it's a credit, it's

  • a benefit through the income statement, so we're going to start with the first calculation,

  • being the calculation of the current tax. You could do the deferred tax first, but I'm

  • going to do the current tax expense calculation first.

  • I like to call this one usually step one. Okay, so step one is calculation of current

  • income tax expense. To calculate the current expense, so this is the tax that you actually

  • have to pay this year. We always start with our accounting income and adjust it, just

  • like we would on a tax return. Adjust it to the taxable income figure, which is the figure

  • that you're taxed, that you have to pay is based on. We'll start with that accounting

  • income for 2016 and that was 80,000, so that's our starting point. Then we're going to adjust

  • this just like you would on a tax return, you're going to adjust this for things that

  • are different between the accounting income and what the taxes are based on. There are

  • lots of things that are different in the tax act between accounting and tax and given the

  • facts that I gave you originally related to this situation, we've got a few different

  • things and we usually classify those in this rough calculation here, splitting it between

  • the permanent and the differences that are not permanent, or time indifferences.

  • Let's start with the permanent differences. In the facts that I gave you, there were three

  • things that happen to be permanent differences, they will never be taxed the same way they

  • are recorded for accounting. One of them is the dividend income, so we have dividend income

  • that we received from Canadian corporations of 8,000 dollars, so that's included in that

  • accounting income figure. We don't have to pay tax on that. The tax laws say we don't

  • have to pay tax on that. I could get into a long explanation of why we don't have to,

  • but just the fact is the tax law says we don't have to pay tax on that 8,000 dollars because

  • it's already been taxed in the corporation that paid the dividend.

  • We subtract that from the accounting income to lower how much we're going to have to pay

  • tax for this year because we don't have to pay tax on the 8,000 anymore. Another item

  • that is considered a permanent difference is fines that we expensed, so we paid some

  • pines and we expensed them in this 80,000 dollars this year, they were for 3,000 dollars

  • and the tax law says that you are not allowed to expense for taxes anyways. You can't deduct

  • those 3,000 dollars worth of fines. You're allowed to as legitimate business expense

  • because you did pay it, you're allowed to expense it for business, so it's okay that's

  • it's subtracted in the accounting income, but it's not okay for calculating your taxes

  • owning, so you add it back.

  • The other one in the example that I gave you was meals and entertainment expense, so M

  • and E for short. The tax law currently says that 50% of your meals and entertainment expense

  • are not allowed to be deducted for tax purposes. We had meals and entertainment expense of

  • 7,000 dollars I believe, so 3,500 dollars is not allowed to be expensed for tax, so

  • we'll add that back into that accounting income. Those are our three permanent differences.

  • Now there are other differences though that are different between accounting and tax,

  • but only in this particular year, so it's saying that it's something that's in this

  • accounting income or not in this accounting income, but should be in the taxes figure

  • for calculating the taxes that are owing, so a couple of examples of those and we'll

  • call those timing differences or temporary differences.

  • One of those is related to depreciation. There is depreciation that has been expensed of

  • 80,000 dollars in there. That is not a legitimate expense for tax purposes, however, for tax

  • purposes you're allowed to take capital cost allowance, or CCA. The CCA for this year for

  • 2016 works out to 3,000 dollars and that can be subtracted for tax purposes, so let's just

  • take a look at these numbers here, so this particular one was from the accounting net

  • book value where we depreciated 2,000 dollars per year. Whereas this was related to the

  • undepreciated capital cost allowance that ended the year last year, 2,500 dollars and

  • I think it had a tax class rate of 12%, so 2,500 dollars times 12% that was the amount

  • that was allowed deducted for tax purposes. Those two things will not be the same this

  • year, but eventually that whole asset that was purchased, the whole property, plant,

  • and equipment asset, eventually for accounting it will all have been expensed down to a net

  • book value of zero and eventually for tax, in theory anyways. It will eventually all

  • get deducted as CCA over many years to the point where it gets down to a class value

  • of zero.

  • Eventually they both do get fully expensed, both for accounting and for tax, but in any

  • given year, there can be differences. In this year, you can see that there is a difference

  • of a 1,000 dollars, where you can have more deduction for tax than you can for accounting

  • of an additional 1,000 dollars. Another timing difference was the warranty. This year we

  • actually spent 8,500 dollars repairing some products that we had sold in prior years and

  • we had accrued as a warranty liability. The entry when we did this, when we paid for these

  • repairs to these products would have been a debit to the warranty liability and a credit

  • to cash or accounts payable or whatever inventory that we had, so 8,500 dollars. You can see

  • neither, this entry didn't do anything to our income statement, so it had no effect

  • on our accounting net income. The entire warranty had been expensed in the prior years, but

  • this year when we actually spent some money, we just drew down the liability.

  • Well for tax purposes, you're only allowed to deduct this when you actually pay the warranty

  • and I almost had a little mistake here, can't forget the brackets. You are allowed to subtract

  • this or deduct the warranty when you actually pay it, so this is the actual amount spent,

  • so this can be deducted for tax purposes this year. Okay, so that's warranty.

  • Another item we had was our restructuring liability. This accrual that we made of 10,000

  • dollars, so that restructuring liability, why are we adding it back? We're adding it

  • back because when we recorded this liability, we would have expensed it, so debit the expense,

  • credit the liability. That expense is therefore in that net income calculation, but the tax

  • laws say that you can't expense for tax purposes a liability that's just an accrual and hasn't

  • actually been incurred. We're going to add it back this year and then in the future years,

  • next year or whenever we do get around to restructuring the plant, then we'll deduct

  • what we actually spent, so it's very similar to this warranty situation, so we'll add back

  • this expense. We've expensed for accounting for now, but in future years we're going to

  • deduct it.

  • Then the last one that we had that was a timing difference was related to the rental income

  • that we had accrued, so we had accrued 6,000 dollars worth of rental income. The journal

  • entry when we accrued the rental income was a debit to some type of receivable, so it

  • could be rent receivable or something, I'll just say accounts receivable, for simplicity.

  • The entry we recorded in 2016 was a debit to the accounts receivable and a credit to

  • rental income, 6,000 dollars, so this rental income value is included in this net income

  • of 80,000 dollars, but we haven't yet received the money for it. The tax laws says that we

  • don't have to pay tax on this 6,000 dollars until we actually get the money from our customer,

  • even though for accounting we needed to accrue it, we don't have to pay the tax on it.

  • We're going to subtract it this year and then next year when we do collect this accounts

  • receivable, then we're going to have to add it back to include it in our income for tax

  • purposes. These are all the total permanent and timing differences, when you do this calculation,

  • technically you don't need to split it up between the permanent and the timing differences.

  • The two categories there, this is just rough work. The reason it's a good idea to split

  • things between permanent and timing differences because we're going to use these timing differences,

  • these are going to help give us a clue when we get onto the next stage, step two where

  • we do the deferred tax accounting calculation, these are going to give us a clue of the kinds

  • of things that we've got floating around that will affect our deferred taxes, so after you've

  • identified all of your permanent differences and timing differences, anything that is different

  • between accounting income and taxable income for this year, you're going to add them all

  • up. You get your taxable income for this fiscal year, and that taxable income will likely

  • be, and hopefully will be the same taxable income you get when you do get around to doing

  • your tax return.

  • Usually you're doing the accounting for taxes well before you get around to actually doing

  • the formal tax return, but our expectations are that this is what going to be what your

  • taxes payable for this year is based on, going to be based on this taxable income figure

  • of 73,000 dollars and you multiply that by the current year's tax rate, so whatever the

  • legislation says you have to pay tax on this year and we'll just make an assumption of

  • a simple 20% rate times a 73,000 dollars taxable income, this is your current tax expense.

  • It's not the whole tax expense for accounting purposes, it's just the current portion, so

  • you'll debit that tax expense of 14,600 and you'll credit a current income tax payable

  • liability that you have to pay to the government.

  • Okay, so that was the competition of the current tax calculation for 2016, we'll have another

  • video a little bit later that will summarize all of the journal entries for tax accounting,

  • but for now we're finished this calculation and whenever you're ready you can move on

  • to the step two calculations of deferred taxes.

Catherine Duffy: Okay, welcome back, so here are we to get started with step one of the

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所得稅會計(IFRS)|計算當期所得稅費用 - 第二部分,共4頁 (Income Tax Accounting (IFRS) | Calculating Current Income Tax Expense - Part 2 of 4)

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