E-Business

PURPOSE OF THE REPORT

Different activities in a company can affect the performance to a different extent. Therefore in our analysis, we will investigate the impact to Telstra in 2010 from the different areas whichinclude income tax, leases, pension and intercorporate investments. Moreover, an analysis on the future performance that is affected by these areas will be conducted separately as well.

ANALYSIS OF INCOME TAX

Telstra’s profit before income tax expense was slightly decreased by 2.1% from $5,658 million in 2009 to $5,538 million in 2010. However, the income tax expense in 2010 increased by 1% to $1,598 million. This increase was caused by a deferred tax liability generatedfrom the change in accounting policy of Telstra TradingPost, an increase in the impairment of goodwill anda reduction in the investment allowance which were off set by an increase in the tax refund which related to research and development in 2007 and 2008 (Telstra 2010, p.24).

Effective tax rate

In 2010, Telstra applied an effective tax rate of 28.9% (=Income tax expense/profit before income tax expense = $1,598million/$5,538million). This rate was 1.1% lower than the statutory tax rate of 30% and resulted in lower income tax expense by $63 million. The difference was due tax effect adjustments during 2010 that mainly derived from the effect of different tax rates on overseas income of $36 million and amended assessments of $148 million that were off set by permanent differences (non-assessable and non-deductible items) of $74 million and under provision of tax in the prior years of $47million (Note 9, Telstra 2010 p.108).

Deferred tax

According to Telstra accounting policy, deferred tax assets and deferred tax liabilities are netted within the tax-consolidated group, since they are regulated under the same taxation authority (Note 2 Telstra 2010, p.93).

In 2010 statement of financial position, Telstra recorded $3 million of deferred tax asset and $1,927 million of deferred tax...