AASB 15 Revenues from Contracts with Customers is the new revenue recognition accounting standard that could affect the way companies account for revenue from 1 January 2018.

Its reach is potentially broad. If you derive revenue from contracts with customers (service and/or product-based), this article will be of particular interest to you if you also have a role in managing and planning for tax in your organisation.

We expect AASB 15 to have a material impact on the telecommunications, software and building & construction industries, but other sectors will also need to consider the application of AASB 15 and possible interactions with tax.

• A five-step model is applied to determine when to recognise revenue, and at what amount.
• Depending on whether certain criteria are met, revenue is recognised either over time, in a manner that best reflects the company’s performance, or at a point in time, when control of the goods or services is transferred to the customer.
• Certain costs to fulfill a contract or incremental costs of obtaining a contract may qualify for capitalisation under the new standard.
• On transition to the new standard, depending on the transition option elected, revenues could be double counted or bypass the income statement (i.e. be recognised in opening retained earnings).

Quite possibly you should be thinking about:

• It is likely that your accounting team will be unpacking contracts to identify specific elements for the accounting standards. If you have been waiting to do a more rigorous review of ‘derivation’, for tax purposes, now may be the right time to achieve synergies of reviewing documentation in detail with your accounting and/or legal team.
• If contracts are being rewritten, you will no doubt want to have a seat at the table for income tax, GST and possibly customs.
• The treatment adopted during the transition period may give rise to double counting of income or capitalised costs.
• The recognition of additional deferred tax balances may have other implications (e.g. short term incentives, thin capitalisation, banking covenants etc.).
• In some cases there is a requirement to capitalise contract acquisition costs. This may not necessarily match the appropriate tax treatment and could give rise to new deferred tax balances.
• The adoption of the new standard may impact future profits, and therefore dividends and utilisation of franking credits (keeping in mind the ongoing debate in relation to the corporate tax rate).