E.9 Share-Based Compensation

All excess tax benefits (e.g., tax deduction on the award is in excess of cumulative compensation for financial reporting) and tax deficiencies (e.g., tax deduction on the award is less than cumulative compensation for financial reporting) are recognized as income tax expense or benefit in the income statement in the period in which the amount of the deduction is determined (typically when an award vests or, in the case of options, is exercised or expires).

See Chapter 10 for additional guidance on the ASC 740 accounting for deferred taxes resulting from share-based payment awards.

Under IFRS Accounting Standards, for awards that ordinarily give rise to a tax deduction, the deferred tax is computed on the basis of the expected tax deduction for the share-based payments corresponding to the percentage earned to date (i.e., the intrinsic value of the award on the reporting date multiplied by the percentage vested). Therefore, changes in share price do affect the DTA at period-end and result in adjustments to the DTA. If the amount of the estimated future tax deduction for awards exceeds the amount of the tax effect of the related cumulative compensation expense for financial reporting purposes, a portion of the tax deduction is deemed to be related to an equity item. The excess of the associated deferred tax is therefore recognized directly in equity. If the tax deduction received is less than the compensation expense, the DTA is reversed to profit or loss. If, on the other hand, no tax deduction is anticipated (e.g., because the share price has declined), the DTA is reversed to profit or loss or equity, or both, as appropriate, depending on how the deferred tax benefit was originally recorded.