This free, guided checker walks your finance team through the key decision points for IAS 12 and IAS 20 Investment Tax Credits. Answer a few questions to see the likely treatment and the evidence to document.
Answer a few quick questions below. It is private - nothing is submitted or stored - and takes about a minute.
This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Investment tax credits, capital allowances, and similar incentives are linked to qualifying capital expenditure and may reduce tax payable, increase the tax base, or be received in cash for programmes such as clean energy, research, or regional investment. Identify every programme the entity participates in and the qualifying spend it relates to. The trap is overlooking allowances embedded in the tax computation that never appear as a separate cash receipt.
No qualifying incentives exist, so the IAS 12 and IAS 20 investment tax credit workflow does not apply (IAS 12.4).
Official guidance: IFRS issued standards
IAS 20 applies to government grants - transfers of resources in return for compliance with conditions - while IAS 20.2(b) and IAS 12.4 scope out benefits available only in determining taxable profit or based on income tax liability, which fall under IAS 12. Test whether the benefit is delivered through the tax system or as a separate grant. Classifying an investment tax credit as an IAS 20 grant when it is really a tax attribute is a common error.
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Official guidance: IFRS issued standards
IAS 20.24 permits grants related to assets to be presented either as deferred income (gross method, IAS 20.26) or as a deduction from the asset's carrying amount (net method, IAS 20.27). The choice is an accounting policy applied consistently and it changes depreciation and the size of temporary differences. Weigh comparability with peers and the effect on the deferred tax computation before electing.
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Official guidance: IFRS issued standards
A tax credit that reduces tax payable is recognised in the period the entitlement arises and included in income tax in profit or loss (IAS 12.12; IAS 12.58). Confirm the credit is matched to the correct period and is not deferred like a grant unless it is genuinely an IAS 20 item. Recognising a current-year credit in a later period, or in equity, misstates the tax charge.
Recognise the credit reducing tax payable in the period the entitlement arises, within income tax in profit or loss (IAS 12.12; IAS 12.58).
Official guidance: IFRS issued standards
A temporary difference arises when the tax base of the credit-related asset differs from its carrying amount (IAS 12.5; IAS 12.7). Compare the asset's carrying amount, after any net-method grant deduction, to the amount deductible for tax in future periods. Where the credit accelerates tax deductions or reduces the tax base, a taxable temporary difference and a deferred tax liability typically follow.
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Official guidance: IFRS issued standards
IAS 12 requires deferred tax on taxable temporary differences (IAS 12.15) and, where recoverable, on deductible temporary differences (IAS 12.24), measured at the rate expected on reversal (IAS 12.47). Investment credits rarely qualify for the initial recognition exemption on the related asset. Confirm the rate used is enacted or substantively enacted and reflects the expected manner of recovery.
Recognise deferred tax on the credit-related temporary differences at the expected reversal rate (IAS 12.15; IAS 12.24; IAS 12.47).
Official guidance: IFRS issued standards
Under the net method the grant reduces the asset's carrying amount, so the temporary difference is the difference between that reduced carrying amount and the tax base (IAS 20.27; IAS 12.7). Reconcile both bases carefully so the grant benefit is captured only once. Deducting the grant from the carrying amount and again from the tax base double-counts the benefit and understates deferred tax.
Recompute the temporary difference on the reduced carrying amount so the grant benefit is captured only once (IAS 20.27; IAS 12.7).
Official guidance: IFRS issued standards
IAS 20.32 requires a grant that becomes repayable to be accounted for as a change in accounting estimate, adjusting grant income, any deferred income balance, and the related deferred tax (IAS 20.34). Track performance, employment, or retention conditions that could trigger clawback. The trap is treating a clawback retrospectively or ignoring its deferred tax consequences.
Implement monitoring so that any grant repayment is accounted for as a change in accounting estimate, with its deferred tax effect (IAS 20.32; IAS 20.34).
Official guidance: IFRS issued standards
A refundable or cash credit is recognised only when there is reasonable assurance that the entity will comply with the attaching conditions and that the credit will be received (IAS 20.7); grants related to income follow IAS 20.20. Gather evidence of eligibility, approval status, and condition compliance. Recognising the credit before assurance exists overstates income.
Defer recognition of the refundable credit until there is reasonable assurance of compliance and receipt (IAS 20.7).
Official guidance: IFRS issued standards
IAS 12.81(c) requires a numerical reconciliation between the tax expense and accounting profit at the applicable rate, with investment tax credit and grant effects shown on the appropriate line. Separate permanent rate effects from temporary differences already captured in deferred tax. A net-versus-gross presentation choice changes which reconciling category the effect appears in.
Add the investment tax credit and grant effects as separate reconciling items in the tax rate reconciliation (IAS 12.81(c)).
Official guidance: IFRS issued standards
IAS 20.39 requires disclosure of the accounting policy and presentation method for grants, the nature and extent of grants recognised, and unfulfilled conditions or contingencies; IAS 12.81 requires the related tax disclosures. Confirm the note explains the net or gross method and any conditions still to be met. Omitting unfulfilled conditions is a frequent gap.
Draft the government assistance note covering policy, nature and extent, and unfulfilled conditions (IAS 20.39; IAS 12.81).
Official guidance: IFRS issued standards
Maintain a rollforward linking credit approval, asset capitalisation, grant amortisation or deferred income release, tax credit utilisation, and deferred tax movements, reconciled to the general ledger. This supports the IAS 20.39 disclosures and the tax provision. Unreconciled registers are a common source of period-end error.
Investment tax credits and related tax effects are accounted for under IAS 20 and IAS 12 with the register reconciled to the disclosures (IAS 20.39). Complete the grant and credit rollforward and reconcile it to asset, deferred income, and tax balances before authorisation (IAS 20.39).
Official guidance: IFRS issued standards
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