Sporter Enterprises has incurred a tax loss in the current period. Under tax law, which of the following statements is not correct?
A) A deferred tax asset can be recognised if it is probable that Sporter will earn taxable income in the future.
B) Assuming all relevant tax laws have been adhered to, Sporter can carry the loss forward to reduce taxable income in future periods.
C) A deferred tax liability is created, as Sporter will have to pay tax on taxable income in the future.
D) Sporter cannot carry the loss forward as a deferred tax asset if it is probable that future taxable income will not be earned.

Question

Quizplus · Accepted Answer

A deferred tax liability is not created by incurring a tax loss. Instead, a deferred tax asset may be recognized if it is probable that future taxable income will be available against which the loss can be utilized. Deferred tax liabilities relate to taxable temporary differences, not to tax losses.

Sporter Enterprises Has Incurred a Tax Loss in the Current