Abstract:
In the past, South African companies did not recognise an asset for
unused STC credits. AC 501, Accounting for ‘Secondary Tax on
Companies (STC)’, which is effective for annual accounting periods
beginning on or after 1 January 2004, now requires South African
companies to recognise a deferred tax asset for unused STC credits to
the extent that it is probable that an entity will declare dividends of its
own against which the unused STC credits can be utilised. This change
in the accounting treatment for unused STC credits has come in for
some criticism, as accounting commentators do not all agree on the
treatment enforced by AC 501. The objective of this study is to consider
the soundness of this requirement in AC 501 by comparison with the
International Financial Reporting Standard on income taxes, IAS 12,
Income Taxes. The results of the conceptual analysis of AC 501 and IAS
12 were tested with reference to expert opinions of academics and
practitioners in the field. This study concludes that recognising a
deferred tax asset for unused STC credits contradicts IAS 12, which
requires deferred tax assets and liabilities to be measured at the
undistributed rate.
