L. LEASES
The majority of leases entered into are operating leases, where the lessor retains substantially all the risks and benefits of ownership
of the leased items. The majority of the lease arrangements are entered into as lessee for which the lease payments are recognised
as an expense on a straight line basis over the term of the lease. Certain sublease arrangements are entered into as the lessor for
which the lease payments are recognised as revenue on a straight line basis over the term of the lease.
Lease incentives relating to the agreement of a new or renewed operating lease are recognised as an integral part of the net
consideration agreed for the use of the leased asset. Operating lease incentives received are initially recognised as a liability, are
presented as trade and other payables, and are subsequently reduced through recognition in profit or loss as an integral part of the
total lease expense (lease payments are allocated between rental expense and reduction of the liability) on a straight line basis over
the period of the lease.
M. TAXATION
I. Income tax
Income tax expense for a reporting year comprises current and deferred tax. Income tax is recognised in profit or loss except to the
extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates for each jurisdiction, and any
adjustment to tax payable in respect of previous financial periods. Deferred tax expense is the change in deferred tax assets and
liabilities between the reporting years.
Deferred tax assets and liabilities are recognised using the balance sheet method for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except in the following
circumstances when no deferred tax asset or liability is recognised:
temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not
affect either accounting profit or taxable profit or loss;
temporary differences between the carrying amount and tax bases of investments in subsidiaries where it is probable that the
differences will not reverse in the foreseeable future; and
temporary differences relating to the initial recognition of goodwill.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at reporting date. Deferred tax assets are recognised only to the extent
that it is probable that future taxable profits will be available against which the asset can be utilised.
II. Tax consolidation
IAG and its Australian resident wholly owned subsidiaries adopted the tax consolidation legislation with effect from 1 July 2002 and are
therefore taxed as a single entity from that date. IAG is the head entity within the tax-consolidated group.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries are assumed by the
head entity in the tax-consolidated group and are recognised as amounts receivable/(payable) from/(to) other entities in the tax-
consolidated group in conjunction with any tax funding arrangement amounts. Any difference between these amounts is recognised by
IAG as an equity contribution or distribution.
All entities in the tax-consolidated group have entered into a tax sharing agreement which, in the opinion of the Directors, limits the
joint and several liabilities of the wholly owned entities in the case of a default by the head entity. The entities have also entered into a
tax funding agreement under which the wholly owned entities fully compensate the Company for any current tax payable assumed.
III. GST
Revenue, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable.
In these circumstances GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense.
Receivables and payables are stated inclusive of GST. Cash flows are included in the cash flow statement on a gross basis.
N. INVESTMENTS
Investments comprise assets held to back insurance liabilities (also referred to as technical reserves) and assets that represent
shareholders' funds. All investments are managed and performance evaluated on a fair value basis for both external and internal
reporting purposes in accordance with a documented risk management strategy. The carrying values of investments are considered
identical to the fair value.
All investments are designated as fair value through profit or loss upon initial recognition. They are initially recorded at fair value
(being the cost of acquisition excluding transaction costs) and are subsequently remeasured to fair value at each reporting date.
Changes in the fair value are recognised as realised or unrealised investment gains or losses in profit or loss. The Group recognises
transfers into and transfers out of fair value hierarchy levels as at the end of the reporting year. Purchases and sales of investments
are recognised on a trade date basis, being the date on which a commitment is made to purchase or sell the asset. Transaction costs
for purchases of investments are expensed as incurred. Investments are derecognised when the rights to receive future cash flows
from the assets have expired, or have been transferred, and substantially all the risks and rewards of ownership have transferred.
46 IAG ANNUAL REPORT 2015
