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7. Income tax

Income tax recognised in the Consolidated Statement of Profit or Loss

The major components of income tax expense are:

2020
$m

2019
$m

Current tax

Current tax expense in respect of the current year

219

265

Deferred tax

Relating to the origination and reversal of temporary differences

191

109

Total income tax expense

410

374

Numerical reconciliation between tax expense and pre-tax accounting profit

The prima facie income tax expense on pre-tax accounting profit reconciles to the income tax expense in the financial statements as follows:

2020
$m

2019
$m

Profit before tax

1,425

1,279

Income tax expense calculated at the Australian tax rate of 30% (30 June 2019: 30%)

428

384

Non-deductible capital losses on disposal and impairment

-

5

Non-deductible expenses

2

1

Recognition of previously derecognised capital losses

-

(2)

Adjustments in relation to current tax of prior years

(15)

(12)

Other

(5)

(2)

Total income tax expense

410

374

Income tax recognised in other comprehensive income

2020
$m

2019
$m

Deferred tax

Cash flow hedges

(21)

30

Remeasurement gain/(loss) on defined benefit plans

4

(27)

Fair value gain on the revaluation of equity instrument financial assets

-

4

Total income tax recognised in other comprehensive income

(17)

7

Deferred income tax recognised in the Consolidated Statement of Profit or Loss

2020
$m

2019
$m

Temporary differences

Tax losses

94

149

Provisions, payables and accruals

(7)

2

Allowance for expected credit losses

(6)

17

Defined benefit superannuation plans

(7)

(6)

Borrowings

1

(3)

Derivative financial instruments

93

(59)

Property, plant and equipment and intangible assets

22

7

Other

1

2

Total deferred income tax recognised in profit or loss

191

109

Current tax balances

2020
$m

2019
$m

Current tax assets

Income tax refund receivable

99

89

Current tax liabilities

Income tax payable

25

27

Deferred tax balances

2020
$m

2019
$m

Deferred tax assets/(liabilities) arise from the following:

Tax losses

306

395

Provisions, payables and accruals

197

188

Allowance for expected credit losses

58

53

Defined benefit superannuation plans

46

43

Borrowings

40

40

Derivative financial instruments

(40)

31

Property, plant and equipment and intangible assets

(607)

(578)

Trade and other receivables

(12)

-

Other

(9)

(8)

Net deferred tax (liabilities)/assets1

(21)

164

Recognised in the Consolidated Statement of Financial Position as follows:

Deferred tax assets

252

261

Deferred tax liabilities

(273)

(97)

Net deferred tax (liabilities)/assets

(21)

164

  1. 1 A deferred tax liability of $10 million was recognised on acquisition of Perth Energy Holdings Pty Ltd and Southern Phone Company Limited.

Deferred tax assets of $25 million (2019: $25 million) remain unrecognised.

AGL has adopted the voluntary Tax Transparency Code as endorsed by the Board of Taxation and the Australian Taxation Office.

ACCOUNTING POLICY

Income tax

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

Current tax payable is based on taxable profit for the year and any adjustments in respect of prior years. AGL’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which AGL expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if AGL has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either:

  • the same taxable entity; or
  • different taxable entities that intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Current and deferred tax for the period

Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items recognised outside profit or loss (whether in other comprehensive income or directly in equity) or a business combination.

Tax consolidation

AGL Energy Limited (the Parent Entity) and its wholly-owned Australian resident subsidiaries formed a tax-consolidated group pursuant to Australian taxation law with effect from 25 October 2006 and are therefore taxed as a single entity from that date. AGL Energy Limited is the head entity in the tax-consolidated group.

On 23 July 2012, AGL Generation Holdco Pty Ltd, a subsidiary 99.99% owned by AGL, and AGL Generation Pty Ltd elected to form a tax-consolidated group with Loy Yang Marketing Holdings Pty Limited and its wholly-owned subsidiary, in addition to the existing group. On 27 July 2012, Great Energy Alliance Corporation Pty Limited (GEAC) and its wholly-owned subsidiaries joined the new tax-consolidated group. AGL Generation Holdco Pty Ltd is the head entity in the new tax-consolidated group.

Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘standalone taxpayer’ approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the tax-consolidated group are recognised by the head entity in each tax consolidated group.

The members of the tax-consolidated group have entered into a tax sharing and tax funding agreement. The tax funding agreement requires payments to/from the head entity equal to the current tax liability/asset assumed by the head entity and any tax loss deferred tax asset assumed by the head entity. The payments are recorded as intercompany receivables/payables.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

Deferred tax assets relating to tax losses

AGL recognises a deferred tax asset relating to tax losses incurred by a subsidiary. The recoverability of this deferred tax asset is dependent on the generation of sufficient taxable income, by the subsidiary, to utilise those tax losses. Management judgements and estimates are required in the assessment of this recoverability, including forecasting sufficient future taxable income.

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