Tax in Arrear Example

Tax in Arrear Example

Tax in arrear means that tax is paid next year. Normally tax is levied in one year and paid in next year. This arrangement is very logical because tax is paid on profit and profit is calculated at the year end and then tax is calculated and paid on the profit for the year.

Tax in Arrear Example

A company reported the following results for the year ended 31 December, 2015.

Profit for the year	150,000
Tax rate 40%
Tax paid in arrear

Solution

1.    Calculate Tax payable

Profit for the year	$ 150,000
Tax Payable $ 150,000 @ 40%	$ 60,000

2.    Tax Paid in Arrear

Tax will be paid in 2016.

Tax Payable 2015	$ 60,000
Tax paid 2016	$ 60,000