CCP credit corp group limited

Tax effect accounting

  1. 55 Posts.
    lightbulb Created with Sketch. 2
    Piou,

    Your thoughtful posts are much appreciated.

    As you have gone to some trouble to describe the accounting for loan books and PDLs, I want to raise the subject of tax effect accounting. The shareholders' equity of CCP is $180m. Fully 10% of that is represented by Deferred tax assets of $18m. If CCP starts making losses, that asset might go up in smoke, resulting in a further write off.

    In your post of 5 August you suggest making provisions for bad debts helps delay tax payments. Not so.

    I think I am right in saying that CCP (like other taxpayers) only gets the tax saving when CCP assesses that the debt has gone bad, which would be in a later financial year.

    You say CCP makes a bad debt provision of 20% on its loan book. That must be because its experience is that up to 20% might go bad. CCP is to be commended for such conservative accounting. However CCP does not know in advance which debts will go bad, so it cannot write off any of the debts at that time. And therefore it cannot claim the tax deduction at that time and does not get the tax saving in cash at that time. But all is not lost. While it cannot reduce its tax liability when making the bad debt provision, it can instead raise an equal amount as an asset.

    In the expectation that it will continue to make profits in Australia and have tax to pay on those profits, it can raise an asset in its books at the time it make the bad debt provision, the asset being the tax it will save in future as and when specific debts do go bad. That asset is called a Deferred tax asset and is described in note 13 of the accounts as the tax attributable to "provision for expected loan losses" $6m. Something similar seems to be going on in "Other accruals not tax deductible until expense incurred" $8m.

    One of the risks of holding CCP is that, as well as not collecting cash when debts go bad, it may also not get cash back from tax overpaid if it starts making tax losses.

    Tricky, eh?
 
Add to My Watchlist
What is My Watchlist?
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)
Last
$15.44
Change
0.170(1.11%)
Mkt cap ! $1.050B
Open High Low Value Volume
$15.19 $15.45 $15.10 $4.694M 305.5K

Buyers (Bids)

No. Vol. Price($)
1 1665 $15.01
 

Sellers (Offers)

Price($) Vol. No.
$15.46 1668 1
View Market Depth
Last trade - 16.10pm 31/07/2025 (20 minute delay) ?
CCP (ASX) Chart
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.