Tax
in
Tax paid in arrears means
that tax is paid in next year. Tax in arrear payment concept is very logical because the tax is calculated on profit for the year. Therefore it is technically not
possible to pay the tax in same year and therefore tax is normally paid in next
year.
Tax
in Arrears Example
ABC & company earned a
profit during the year $ 50,000. Tax for the year is 30%. Calculate and explain
the tax payment impact on cash flows.
Solution
1. Calculate Tax payable
|
Profit
for the year
|
$
50,000
|
|
Tax
Payable $ 50,000 @ 30%
|
$
15,000
|
2. Tax implication on cash flows
Because tax shall be paid
in arrear, it means the tax of 2001 will be paid in 2002.
|
Tax
year 2001
|
Payment
Year 2002
|
|
Tax
payable $ 15,000
|
Tax
Paid : $ 15,000
|
|
|
|
