As per IAS 12 Income Taxes, there are exemptions on initial recognition relating to deferred tax assets and liabilities.

From 1 January 2023, a requirement has been added in IAS 12 to state that an asset or liability in a transaction, which is not a business combination, does not affect accounting or taxable income at the time of the transaction and gives rise to equal taxable and deductible temporary difference at the time of the transaction are exempt for deferred tax purposes.

For example, when an entity enters into a lease under IFRS 16, the initial lease liability and right of use asset results in the same deferred tax asset and liability amount to be raised at inception of the lease.

However, as the movement within the lease liability and right of use asset does not result in the same taxable and deductible temporary difference over time until settlement of the lease, the exemption does not apply. Deferred tax will still need to be raised on the lease liabilities and right of use assets.

All applications of the amended requirements for IAS 12 need to be applied retrospectively and earlier adoption is permitted.