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Tax

3.2 Share option schemes

Share option schemes are recognised as an expense in profit or loss over the vesting
period. Tax relief is not usually granted until the exercise date.

This delayed tax relief is a deductible temporary difference.

The following proforma can be used to calculate the deferred tax asset:

$m $m
Carrying amount of share- Nil
based payment
Tax base of share-based X
payment***

––––
Temporary difference X ––––

Deferred tax asset (Temporary difference × tax rate %) X
––––

*** = expected future tax relief (normally based on the intrinsic value of the options)
that has accrued by the reporting date

If the estimated future tax deduction exceeds the accumulated
remuneration expense, the tax deduction is said to relate partly to the
remuneration expense and partly to equity. Therefore, the deferred tax
is also recognised partly in profit or loss and partly in equity.

Illustrations and further practice

Now try TYU question 5 from Chapter 12

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