Deferred tax asset
In one sentenceIncome tax the business will save in future years because of expenses or losses recorded in the accounts that are only deductible for tax later.
Simply put
Some provisions are recorded as an expense in your books today, but tax rules only allow them to be deducted when actually paid. So you pay more tax now and recover it later through lower tax in that year, and this expected saving is an asset.
The asset is recorded only if it is probable that the business will make enough taxable profits in the future to benefit from it.
Worked example
A company subject to income tax recorded a provision of 50,000 SAR that is only deductible for tax when paid, assuming a tax rate of 20% for illustration.
Deductible temporary difference50,000 SAR
Tax rate (assumed)20%
Deferred tax asset: 50,000 × 20%10,000 SAR
Don't confuse it with
Deferred tax liabilityThe liability is tax whose payment is deferred, while the asset is a future tax benefit (tax paid in advance or losses that reduce future tax).