Deferred tax assets and liabilities must be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. This calculation must be based on tax rates and tax laws that have been enacted (US GAAP) or substantively enacted (IFRS) by the end of the reporting period.

Deferred tax balances cannot be measured using simple historical or current year flat rates if legislative shifts are locked into law for future years. When tax rates change, all existing deferred tax assets and liabilities must be re-measured in the period of enactment.

Adjustment Gain / Loss = Temporary Difference × (New Enacted Rate − Old Rate)

The resulting adjustments to deferred tax balances are recognized as a non-cash tax component in the income statement’s continuing operations, even if the temporary differences were originally recognized outside of profit or loss.