Adjusting from the result in the accounts to the business income for tax purposes
The Accounting Act and the Taxation Act have different ways of calculating values and determining income and deductions. When calculating the tax basis, you must adjust for these differences.
The differences can be either permanent or temporary.
Does this apply to me?
This applies to you if you're self-employed and have an accounting obligation.
Permanent differences
Permanent differences arise in the individual income year and are not corrected over time. Such differences may be tax-free income or costs that do not entitle you to a deduction.
Example: Differences that reduce the tax basis:
In the accounts, the company has entered dividend on shares as income. If the dividend falls under the tax exemption method, only 3 percent shall be included in the tax basis. The tax-related income must therefore be reduced by 97 percent of the dividend.
Example: Differences that increase the tax basis:
In the accounts, the company has entered the taxes as costs. The company is not entitled to a tax deduction for these costs and must therefore enter them into the tax basis.
Temporary differences
Temporary differences arise due to different rules for when incomes and costs must be entered as income or deductions. Such differences even out over time and are therefore only temporary.
There is a separate method for how to convert the accounting result to the tax result. Then you must look at the differences between the accounting and the tax values at the beginning of the year and at the end of the year.
Positive difference
A positive difference arises when the tax value is lower than the accounting value. This means that the company is entitled to a tax deduction for a cost at an earlier date than what it enters in the accounts. A positive difference also arises if the company receives tax-related income later than what is entered in the accounts.
Negative difference
A negative difference arises when the tax value is higher than the accounting value. This means that the company receives a tax deduction later than what it is entered in the accounts. A negative difference also arises if the company receives tax-related income at an earlier date than what is entered in the accounts.
Adjust for changes in differences to determine the tax basis
When you’re adjusting the accounting result to the tax result, you must add or deduct the changes in the differences from the beginning of the year to the end of it.
If the positive difference is greater, then you’ll receive a deduction for this difference. If the positive difference is smaller, then you must add the change to the income.
If the negative difference is greater (even more negative), then you must add the change to the income. If the positive difference is smaller (even less negative), then you’ll receive a deduction for this difference.
You depreciate a fixed asset in the accounts at a lower amount than the deduction you can claim for tax purposes. This extra depreciation must be deducted from the tax basis. The increase in the difference from the beginning of the year to the difference at the end of the year reduces the tax basis.
Example:
If you depreciate a car with NOK 10,000 in the accounts and you claim a depreciation for tax purposes for NOK 30,000, the difference you deduct from the tax basis is NOK 20,000.
Example when buying a fixed asset (pdf) (in Norwegian only)
Example when selling a fixed asset (pdf) (in Norwegian only)
Depreciation of fixed assets
You depreciate a fixed asset in the accounts at a higher amount than the deduction you can claim for tax purposes. The lower depreciation must therefore reduce the tax deduction. The decrease in the difference from the beginning of the year to the difference at the end of the year increases the tax basis.
Example:
If you have a commercial property that you depreciate with NOK 200,000 in the accounts, but you only claim a depreciation for tax purposes for NOK 150,000, the difference you add to the tax basis is NOK 50,000.
Write-down of stock that results in a negative difference
You write-down the value of the stock in the accounts. This reduction has increased the company’s accounting cost of goods. However, the cost of goods relating to the write-down cannot be deducted from the tax-related income. When the tax value of the goods is higher than the accounting value, a negative difference arises. The change to the negative difference from the beginning of the year to a greater negative difference at the end of the year increases the tax basis.
Example:
A company has bought goods for resale for NOK 1,000,000. Half has been sold during the year, so that the company as at 31 December has a stock amounting to NOK 500,000 for tax purposes and a stock cost of NOK 500,000 for tax purposes. The value of the goods has decreased during the year and the company has depreciated the goods at the end of the year with NOK 200,000. The accounting stock now has a value of NOK 300,000 and the accounting stock cost is NOK 700,000.
1 January 31 December Change Accounting value 0 300,000 Tax value 0 500,000 Difference 0 - - 200,000 200,000 Deductions in the accounts: - NOK 700,000
Change to the difference: NOK 200,000
Tax deductions: - NOK 500,000
Adjusting deductions for loss when the customer has not paid (loss on a receivable)
Detailed example of how to adjust for different assessments of deductions for losses on receivables (pdf) (in Norwegian only)
You sell a commercial property at a profit. The accounting profit is entered in its entirety as income in the accounts. When you’re adjusting to tax-related income of the profit, you must first adjust for the difference between tax and accounting profits.
In addition, you can enter the tax profit as income over several years using a profit and loss account. In the year of sale, the part of the taxable profit that is not to be recognised as income in that year will reduce the tax basis.
In later years, you’ll not enter any profit in the accounts. The change in the size of the profit and loss account from the beginning of the year to the end of the year will then increase the tax basis.
Example: Sale of commercial property that is transferred to the profit and loss account
A company sells a commercial property for NOK 7,000,000. In the accounts, the value is depreciated to NOK 5,000,000. The company therefore enters a profit of NOK 2,000,000 in the accounts.
In accordance with the tax rules, the property has been depreciated to NOK 4,000,000, so that the tax profit is NOK 3,000,000.
The company wants to transfer the tax profit to the profit and loss account, where they enter NOK 600,000 as income the first year. The remaining tax profit of NOK 2,400,000 is entered as income in subsequent income years.
A detailed overview of the example for year 1 and 2 (pdf) (in Norwegian only)