Tax base of an asset! HELP

[rodra333]

Hi,
I have a question that is really eating my mind.
According to the tax base of an assets if their economics benefits will not be taxable, the tax base of the asset is equal to its carrying amount.
Looking at the following example : “Dividends receivable from a subsidiary have a carrying amount of 100. The dividends are not taxable. In substance, the entire carrying amount of the asset is deductible against the economic benefits. Consequently, the tax base of the dividends receivable is 100.”
Would no better to have a tax base of 0, so I wont get take away any of the dividens I am receiving.
I probably have understood it wrong, but from my point of view if I have tax base of an asset which is positive (like hundred in this example) I will pay money to the tax authorities.
But, since dividends are not taxable why is not their tax base 0?
Please HELP.

 

[Marwen Eltaief]

Not taxable means that they are deductible… tax base is the amount that will be deductible in the future , so 100 (in your example) will be entirely deductible so taht’s ur tax base.
Carrying amont is 100 hence temporary diff is 0

 

[MrSmart]

Maybe tax base is different from taxable income.
Tax base calculates the fair value under taxation rules. Either that, or there was a typo. As far as I know, dividends are always taxable. The dividends recieved from a subsidary are subtracted from the subsidary’s account on the asset side of the BS, but that should be a level II topic.

 

[S2000magician]

MrSmart wrote:Tax base calculates the fair value under taxation rules.

It’s not the fair value; it’s the book value, which is used to determine any capital gain or loss when you sell the asset (presumably at its fair value).

 

[MrSmart]

S2000magician wrote:

MrSmart wrote:Tax base calculates the fair value under taxation rules.

It’s not the fair value; it’s the book value, which is used to determine any capital gain or loss when you sell the asset (presumably at its fair value).

But book value should be irrelevent here when it comes to taxation. Since tax authorities have different accounting treatments for valuing assets, which might differ from a company’s accounting framework. In this case, isn’t fair value the correct term to use (from the government’s point of view)?
This is of course assuming that the taxation rules of asset valuation falls under the EMH, and that the fair value under their standings equals the actual market price.
I’m just splitting hairs, a company generally has two versions of their financials, the other being book values under tax accounting rules.

 

[S2000magician]

MrSmart wrote:

S2000magician wrote:

MrSmart wrote:Tax base calculates the fair value under taxation rules.

It’s not the fair value; it’s the book value, which is used to determine any capital gain or loss when you sell the asset (presumably at its fair value).

But book value should be irrelevent here when it comes to taxation. Since tax authorities have different accounting treatments for valuing assets, which might differ from a company’s accounting framework. In this case, isn’t fair value the correct term to use (from the government’s point of view)?
This is of course assuming that the taxation rules of asset valuation falls under the EMH, and that the fair value under their standings equals the actual market price.
I’m just splitting hairs, a company generally has two versions of their financials, the other being book values under tax accounting rules.

It’s the tax book value (properly known as the tax basis), not the accounting book value. It’s created in a manner analogous to accounting book value (cost less depreciation/amortization), so referring to it as a book value makes a good deal of sense.
It’s not a fair value, which is determined by the market.
Perhaps you’re thinking of situations where financial assets are marked to market (for accounting purposes). If so, the unrealized gains/losses that arise from that accounting treatment are generally not recognized for tax purposes, so they have nothing to do with the tax basis.

 

[rodra333]

I just got back to that topic and I think I got it.
Thank you very much to all of youg guys.
S2000 magicia thank you so much to be such an active member on this forum. You really help a lot.

 

[MrSmart]

rodra333 wrote:
I just got back to that topic and I think I got it.
Thank you very much to all of youg guys.
S2000 magicia thank you so much to be such an active member on this forum. You really help a lot.

You can say that again!

 

[S2000magician]

rodra333 wrote:I just got back to that topic and I think I got it.
Thank you very much to all of youg guys.
S2000 magicia thank you so much to be such an active member on this forum. You really help a lot.

My pleasure.

 

[S2000magician]

MrSmart wrote:

rodra333 wrote:I just got back to that topic and I think I got it.
Thank you very much to all of youg guys.
S2000 magicia thank you so much to be such an active member on this forum. You really help a lot.

You can say that again!

I deleted the evidence, so now only you and I will get the joke.