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H1 Income tax expense

NBN Co Group

30 June 2019

30 June 2018

For the year ended

$m

$m

(a) Income tax benefit/(expense)

Deferred tax

1

(1)

Total

1

(1)

(b) Numerical reconciliation of income tax expense to prima facie tax payable

Loss before income tax

(4,879)

(4,779)

Tax at the Australian tax rate of 30% (2018: 30%)

1,464

1,434

Current year tax losses not recognised

(1,271)

(1,214)

Temporary differences not recognised

(192)

(221)

Income tax benefit/(expense)

1

(1)

(c) Tax Losses

Unused tax losses for which no deferred tax asset has been recognised

(19,381)

(15,142)

Potential tax benefit @ 30%

(5,814)

(4,543)

(d) Unrecognised temporary differences

Deductible temporary differences relating to:

Property, plant and equipment and Intangible assets

2,512

1,926

Provisions and accruals

288

235

This is offset by:

Taxable temporary differences (deferred tax liabilities)

Cash flow hedges

(8)

(3)

Net temporary differences for which deferred tax assets have not been recognised

2,792

2,158

Unrecognised deferred tax asset relating to the above net deductible and taxable temporary differences

838

647

The cumulative amount of unrecognised tax losses of $19,381 million (2018: $15,142 million) may be available to offset against future income tax assessments when the Group generates taxable income.

Effective tax rate
The non-recognition of deferred tax assets for deductible temporary differences and tax losses has led to NBN Co having an Australian accounting effective tax rate (ETR) of 0 per cent. If deferred tax assets had been fully recognised for deductible temporary differences and tax losses, NBN Co’s Australian ETR would have been 30 per cent.

The above ETR has been calculated on the basis of income tax expense divided by accounting profit, in accordance with the requirements of the Board of Taxation’s Tax Transparency Code.

Tax consolidation legislation
NBN Co and its wholly-owned subsidiaries have formed a tax consolidated group. The head entity, NBN Co Limited, and the subsidiaries in the tax consolidated group account for their own current and deferred tax amounts arising from temporary differences. In addition, NBN Co Limited accounts for any deferred tax assets arising from unused tax losses and tax credits for all entities in the tax consolidated group.

Members of the tax consolidated group have not yet entered into tax funding or tax sharing arrangements. As at 30 June 2019, no contributions to subsidiaries’ equity accounts have been recognised for subsidiaries’ tax losses assumed by the head entity because no amounts of unused tax losses have been recognised as deferred tax assets (2018: nil).

Recognition and measurement
The income tax expense or benefit for the period is the tax payable or receivable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

The current income tax expense or benefit is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is recognised in other comprehensive income or directly in equity, respectively.