Key takeaways
- Deferred tax in condos arises because accounting and tax timing do not match, but it must be analysed from the carrying amount and the tax base
- Commission that is an asset for accounting purposes but already deducted for tax gives rise to a DTL, not a DTA
- SBT is not an income tax, so it falls outside the scope of TAS 12 even though it affects cash flow
- The tax treatment of key items should be confirmed before the project starts
Introduction
In condo-for-sale projects, a common question is why the profit in the financial statements differs from the profit used to calculate tax. One answer is deferred tax, which reflects temporary differences between accounting and tax.
1. Basic principles
For accounting, TFRS applies, for example TFRS 15 for revenue. For tax, the Revenue Code applies, which generally uses the accrual basis but has specific rules. Deferred tax arises when the carrying amount of an asset or liability differs from its tax base.
- A DTA is the future tax benefit from differences that will be deductible
- A DTL is the additional tax payable in future when the difference reverses
2. Main cases in condo projects
2.1 Brokerage fees
For accounting, commission paid to obtain a contract, if it meets the conditions, must be recorded as a cost to obtain a contract under TFRS 15 and amortised when revenue is recognised. For tax, the actual ruling on the item must be checked.
Correcting a common misunderstanding: If the expense has already been deducted for tax but is still treated as an asset for accounting, the carrying amount is higher than the tax base, so a DTL arises, not a DTA, even though current tax is lower.
Example
Assume commission of THB 100 million is paid in year 1, all units are transferred in year 3, CIT is 20%, and the amount is assumed to be tax-deductible in year 1.
| Year | Accounting | Tax | Deferred Tax |
|---|---|---|---|
| Year 1 | Contract cost asset 100 | Deduct 100 | DTL 20 and deferred tax expense 20 |
| Year 3 | Amortise 100 on transfer | No further deduction | Reverse DTL 20 and recognise deferred tax income 20 |
If tax rules require the deduction to wait until revenue is recognised, this item gives rise to no difference. The tax treatment must therefore be confirmed before recording.
2.2 Deposits and down payments
For accounting, these are recorded as a contract liability until control is transferred. Receiving the money does not in itself mean revenue is recognised. If income tax recognises them at the same time as the accounts, no deferred tax arises from this item.
SBT is a specific business tax, not an income tax, so it falls outside the scope of TAS 12, although it affects cash flow and can lead to retrospective tax. The timing of SBT liability on deposits depends on the facts and should be discussed with a tax adviser.
2.3 Depreciation, capitalised costs and exchange rates
- Depreciation of assets used in the project: If the accounts include it in project cost but tax deducts it period by period, a temporary difference arises and must be checked item by item.
- IDC: TAS 23 requires capitalisation when the conditions are met. For tax, the facts and the ruling must be checked. Any difference that reverses is temporary.
- Exchange rates: Section 65 bis (5) of the Revenue Code sets out the translation of foreign currency at the period end, so the rates used for accounting and for tax must be compared before concluding that a difference arises.
3. Presentation in the financial statements
A DTA or DTL is shown under non-current items. The income statement shows deferred tax expense separately from current income tax. The notes should reconcile the ETR to the 20% CIT rate and explain the items that cause the tax to deviate.
4. Handling in the accounting system
- Set up a chart of accounts that separates DTA and DTL
- Prepare a deferred tax schedule listing each difference, the year it is expected to reverse and the amount reversing each year
- Disclose in the notes in accordance with TAS 12
- Prepare an ETR reconciliation with explanations
- Consult a tax adviser from the project planning stage, especially on SBT, selling expenses and deposits
5. Conclusion
Deferred tax is not merely a technical item. It helps management see tax timing in projects with long cycles. Condo developers should know that cash tax and the tax expense in the financial statements are two different things, and should lock in the rulings on key items before sales begin.