Red Bubble Annual Report 2022

7. Income tax continued Deferred tax Deferred tax is provided on temporary differences which are determined by comparing the carrying amounts of tax bases of assets and liabilities to the carrying amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets are recognised for all deductible temporary differences and unused tax losses to the extent: • it is probable that future taxable profits will be available against which the deductible temporary differences and losses can be utilised; • the likelihood of achieving appropriate continuity of ownership levels and continuing to meet the relevant definitions of “same business” are met; and • there are no changes in tax legislation that adversely affect the ability to realise the deferred tax asset benefits. Deferred tax assets and liabilities are offset where they relate to income taxes levied by the same taxation authority and the intention is to realise the assets and settle the liabilities simultaneously in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. Critical accounting estimates and judgements Current and deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue, expense and equity items, the incurrence of tax losses and entitlement to non-refundable tax offsets. In evaluating the Group’s ability to recover deferred tax assets within the jurisdiction from which they arise, the Group considers all available positive and negative evidence, including probability of achieving appropriate continuity of ownership levels, likelihood of meeting relevant definitions of “same business”, expected reversals of temporary differences, projected future taxable income and results of recent operations. This evaluation requires significant management estimates and judgments. The Group has in aggregate $123.4 million (2021: $92.4 million) of unrecognised losses and $10.6 million (2021: $9.6 million) of unrecognised R&D tax offsets. An unrecognised deferred tax asset of $47.7 million exists as at 30 June 2022 (2021: $37.3 million), in relation to these items. These losses will be recognised at a future point in time when sustainable taxable income can be reliably estimated. (a) Income tax expense / (benefit) recorded in the Statement of Comprehensive Income Recorded in the Statement of Comprehensive Income 2022 $’000 2021 $’000 Current tax Current tax expense/(benefit) 605 9,902 Under/(over) provision in prior years 191 (24) Deferred tax Deferred tax expense/(benefit) 1,479 (2,076) Under/(over) provision in prior years 40 54 Total income tax expense/(benefit) recorded in the Statement of Comprehensive Income 2,315 7,856 (b) Current tax assets/(liabilities) The current tax asset is comprised of the following 2022 $’000 2021 $’000 Current tax expense recorded in the Statement of Comprehensive Income (605) (9,902) Tax benefit recorded in equity(1) 2,153 9,900 Tax instalments made and refunds due for prior years 678 1,272 Total current tax asset 2,226 1,270 (1) T he tax effect of share based payment awards granted is recognised in current income tax expense, except to the extent that the total tax deductions exceed the cumulative remuneration expense. The excess of the associated current or deferred tax is recognised in equity and forms part of the treasury shares reserve. Notes to the Consolidated Financial Statements continued For the Year Ended 30 June 2022 (c) Numerical reconciliation of income tax expense/(benefit) to prima facie tax payable 2022 $’000 2021 $’000 Profit/(loss) from ordinary activities before income tax expense/(benefit) (22,273) 39,103 Income tax calculated @ 30% (6,682) 11,730 Tax effect of amounts that are not deductible/(taxable) in calculating income tax: Tax effect of foreign jurisdictions’ different tax rates 210 (270) US income tax benefit due to exercise/disposition of employee stock options (375) (3,335) Net Australian income tax benefit from funding the employee share trust (1,964) (12,222) Tax effect of share based payment deduction recognised in equity 2,153 9,900 Research and development (120) (99) Other non-deductible/non-assessable items (1,426) (647) Effect of movements in foreign exchange 67 (352) Under/(Over) provision in prior year 231 30 Unrecognised tax losses and R&D tax offsets 10,221 3,121 Income tax expense/(benefit) attributable to loss from ordinary activities 2,315 7,856 (d) Deferred tax asset/(liability) The balance comprises temporary differences attributable to: 2022 $’000 2021 $’000 Amounts recognised in profit or loss: Employee benefits 501 1,039 Property, plant, equipment (200) (249) Lease assets and liabilities 286 332 Unrealised FX 3,331 1,203 Intangible assets (3,205) (2,142) US Carried Forward Tax Losses 848 2,781 Other items (160) (247) Net deferred tax (liability)/assets 1,401 2,717 Movements: Opening balance at 1 July 2,717 617 Credited/(debited) to the consolidated statement of comprehensive income (1,519) 2,022 Exchange differences 203 78 Closing balance at 30 June 1,401 2,717 (1) D eferred tax assets (DTAs) are recognised in relation to temporary differences that arise in jurisdictions where the Group is generating taxable income as it is probable that the tax benefit associated with these DTAs will be realised. As noted above, the Group has unrecognised DTAs for tax losses which remain available for use but for which recognition is not currently supportable. These DTAs may be recognised at a future point in time when there is sustainable evidence of taxable income in the relevant jurisdiction. 67 Redbubble – Annual Report 2022 66 Redbubble – Annual Report 2022