Temporary difference

A temporary difference is the difference between the carrying amount of an asset or liability in the balance sheet and its tax base. A temporary difference can be either of the following:

  • Deductible. A deductible temporary difference is a temporary difference that will yield amounts that can be deducted in the future when determining taxable profit or loss.
  • Taxable. A taxable temporary difference is a temporary difference that will yield taxable amounts in the future when determining taxable profit or loss.

In both cases, the differences are settled when the carrying amount of the asset or liability is recovered or settled.

Because of temporary differences, the expense that an entity incurs in a reporting period usually comprises both current tax expense or income, and deferred tax expense or income.