Telstra 2009 Annual Report Download - page 41

26
Telstra Corporation Limited and controlled entities
Full year results and operations review - June 2009
Australian dollar floating rate position and is due to the
following factors:
• an increase in our long term borrowing margins;
• a reduction in base market rates;
• a reduction in the number of future interest flows as we
approach maturity of the financial instrument; and
• the discount factor unwinding as the time to maturity
shortens.
The movement in the (gain)/loss of transactions not in or
de-designated from hedge relationships of $262 million
(moving from a loss to a gain) relates to a number of
borrowings denominated in Euro, British pounds and United
States dollars that are either not in a designated hedge
relationship or were previously designated in a hedge
relationship and no longer qualify for hedge accounting.
Notwithstanding that these borrowings and the related
derivative instruments do not satisfy the requirements for
hedge accounting they are in effective economic relationships
based on contractual face value amounts and cash flows over
the life of the transaction. The gain mainly comprises the
following movements:
• the valuation impacts described above for fair value
hedges; and
• the different measurement bases of the borrowings
(measured at amortised cost) and the associated
derivatives (measured at fair value), resulting in some
disparity attributable to the discounting impact of future
cash flows in the derivatives.
It is important to note that our intention is to hold our
borrowings and associated derivative instruments to maturity
and accordingly revaluation gains and losses will be
recognised in our finance costs over the life of the financial
instrument and will progressively unwind out to nil at
maturity.
Income tax expense and franking account
• Income tax expense increased mainly due to the 10.1% increase in our profit before tax
• Our effective tax rate of 28.0% is lower than the Australian company tax rate due to tax effect adjustments which included a
deduction for an investment allowance
Income tax expense increased by 10.7% to $1,582 million while
profit before income tax increased by 10.1% to $5,658 million.
This increase in tax expense was mainly attributable to the
following factors:
• the tax effect of the increase in profit before tax of $518
million added $155 million to the expense;
• the effects of different rates of tax on overseas income
increased the expense by $33 million;
• an increase of $12 million resulting from a decrease in
non assessable profit on sale of investments from the
prior year; offset by
• a decrease of $64 million due to the impact of the Federal
Government’s investment allowance this fiscal year.
The effective tax rate was 28.0% for the year which was
relatively consistent with the prior year rate of 27.8%, and is
2.0% lower than the Australian company tax rate of 30.0%. This
represents a difference of $115 million to the notional income
tax expense and was largely as a result of the following tax
effect adjustments:
• an investment allowance deduction of $211 million with
a tax effect reduction of $64 million; and
• correction of prior year income tax expense with a
true-up reduction of $35 million.
During the current year, we have paid a total of $1,636 million
of tax instalments for the Telstra tax consolidated group
relating to the last quarter of fiscal 2008 and the first three
quarters of fiscal 2009. Franking credits of $1,493 million were
used when we paid our final 2008 dividend and 2009 interim
dividend. In addition, the 2008 income tax return refund has
resulted in a further reduction in our franking credits of $36
million.
Following the overall movements in our franking account
during the year, our franking account balance was $178 million
at the end of fiscal 2009. Our exempting account balance at
year end is $24 million, however there are statutory
restrictions placed on the distribution of credits from this
account. Consequently, it is unlikely that we will be able to
distribute our exempting credits. We believe our current
balance of franking credits combined with the franking credits
that will arise on tax instalments expected to be paid during
fiscal 2010, will be sufficient to cover the franking debits arising
from our final dividend.
Year ended 30 June
2009 2008 Change Change
$m $m $m %
Income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,582 1,429 153 10.7%
Effective tax rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.0% 27.8% 0.2