McConnell Dowell 2018 Annual Review

22 All figures are in A$ 000’s Note 2018 2017 6. Taxation Current income tax: Current tax expense 2,544 1,977 Adjustment in respect of current year income tax of previous year 752 (1,899) Deferred tax: Relating to origination, reversal and impairment of temporary differences 251 21,960 INCOME TAX EXPENSE REPORTED IN STATEMENT OF PROFIT OR LOSS 3,547 22,038 A tax credit (in whole dollars) of $442,000 (2017: tax credit of $148,000) was recognised directly in equity during the year (see note 24). A reconciliation of income tax expense applicable to accounting profit before income tax at the statutory income tax rate to income tax expense at the Group's effective income tax rate for the years ended 30 June 2018 and 2017 is as follows: - Accounting profit / (loss) before income tax 11,523 (447,876) Income tax expense at the statutory income tax rate of 30% (2017: 30%) 3,457 (134,363) Adjusted for: Permanent differences and Non-assessable income (1,497) 115 Share of (profit) / loss of associates 191 (460) Withholding tax expensed 1,182 1,535 Utilisation of previously unrecognised losses (3,146) - Tax losses not recognised 4,353 119,523 Adjustment in respect of current income tax of previous year (1,431) 2,995 Effects of lower rates of tax on overseas income 145 (420) Non deductible expenses - - Non deductible expenses - impairment of deferred tax asset - 33,250 Other items 293 (137) INCOME TAX EXPENSE REPORTED IN STATEMENT OF PROFIT OR LOSS 3,547 22,038 Tax consolidation McConnell Dowell Corporation Limited and its wholly owned Australian entities are members of the Aveng Australia Holdings Pty Ltd tax consolidated group with effect from the 12 May 2005. Members of the Group have entered into a tax sharing agreement (TSA) that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of the TSA on the basis that the possibility of default is remote. Tax effect accounting by members of the Aveng Australia Holdings Pty Ltd consolidated tax group Measurement method adopted under AASB Interpretation 1052 Tax Consolidation Accounting. The head entity and the controlled entities in the tax consolidation group continue to account for their own current and deferred tax amounts. The Group has applied The Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidation group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the principles in AASB 112 Income Taxes. The nature of the tax funding agreement is discussed further below. Members of the tax consolidated group have entered into a tax funding agreement. The agreement provides for the allocation of current taxes to members of the tax consolidated group in accordance with their accounting profit for the period, while deferred taxes are allocated to members of the consolidated group in accordance with the principles of AASB 112 Income Taxes. Nature of tax funding agreement The Group has applied the “group allocation” approach in determining the appropriate amount of current taxes to allocate to members of the tax consolidated group. This approach is based on a modified stand alone method, where the group measures its current and deferred taxes as if it continued to be a separate taxable entity adjusted for inter-group dividends and capital gains / (losses). The tax funding agreement require 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, resulting in the head entity recognising an inter-company receivable / (payable) equal in amount to the tax liability / (asset) assumed. The inter-company receivable / (payable) is at call. The Australian consolidated tax group elected to adopt (i.e. 1 July 2009 onwards) into the new Taxation of Financial Arrangements (“TOFA”) regime for financial instruments. The TOFA aims to align the tax and accounting treatment of financial arrangements. The election made is irrevocable. A transitional election was made to bring pre-existing arrangements into TOFA. Consolidated Notes to the Annual Financial Statements (continued) For the year ended 30 June 2018