Tellurian Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Jun. 30, 2014

Note 8 - Income Taxes

The domestic and foreign components of our income (loss) from continuing operations are as follows for the fiscal years ended:



	June 30,
	2014			2013
	(In thousands)
United States	$	4,262		$	(9,449	)
Australia	(11,563		)	(3,333		)
United Kingdom	(2,741		)	(4,047		)
Loss from continuing operations	$	(10,042	)	$	(16,829	)

The following reconciles the Company's effective tax rate to the federal statutory tax rate for the fiscal years ended:



	June 30,
	2014			2013
	(In thousands)
Tax provision computed per federal statutory rate	$	(3,013	)	$	(5,048	)
State taxes, net of federal benefit	549			(40		)
Foreign rate differential	417			(60		)
Non taxable Australian revenue	(3,144		)	288
Goodwill write off	(58		)	—
Decreases related to lapse of applicable statute of limitations	—			685
Change in valuation allowance	3,476			999
Taxable dividends from subsidiaries, net of foreign tax credits	3,586			(1,053		)
Foreign tax credit adjustment	(761		)	787
Capital loss adjustment	73			309
Impact of rate change	291			140
Foreign currency translation differential	(434		)	2,912
Contingent consideration payable write off	(710		)	(45		)
Other items	(272		)	126
Consolidated income tax expense (benefit)	$	—		$	—

The following summarizes components of our income tax provision for the fiscal years ended:



	June 30,
	2014			2013
	(In thousands)
Consolidated current income tax provision	—			—
Consolidated deferred income tax provision	—			—
Consolidated income tax provision	$	—		$	—

The consolidated income tax provision is summarized as follows:
Continuing operations	$	—		$	—
Discontinued operations	$	7,217		$	(1,267	)

Effective tax rate for continuing operations	—		%	—		%

Significant components of the Company's deferred tax assets and liabilities can be summarized as follows for the fiscal years ended:



	June 30,
	2014			2013
	(In thousands)
Deferred tax liabilities:
Land, buildings and equipment	$	(4,030	)	$	(2,946	)
Other items	(157		)	(124		)
Total deferred tax liabilities	(4,187		)	(3,070		)

Deferred tax assets:
Asset retirement obligations	923			817
Net operating losses, capital losses, and foreign tax credit carry forwards	13,891			10,342
United Kingdom exploration costs and net operating losses	3,851			3,555
Investments	2,378			32
Stock option compensation	2,839			1,971
Australian capitalized legal costs	143			258
Other items	141			219
Total deferred tax asset	24,166			17,194
Valuation allowance	(19,979		)	(14,124		)
Net long term deferred tax asset	$	—		$	—

For the fiscal year ended June 30, 2014, the valuation allowance increased by $5.9 million, primarily due to additional book losses on continuing operations. Of the $5.9 million increase, $2.3 million was recorded to other comprehensive income and is related to the unrealized loss on Central shares.

During fiscal year 2014 the Company sold its Amadeus Basin assets held by MPA, which is reported under discontinued operations. The current year reduction in gain reported in discontinued operations of $7.2 million is related to the disposal of the Australian Petroleum Resource Rent Tax deferred tax asset, refer Note 3.

The US gross deferred tax assets and liabilities as of June 30, 2014, and 2013, respectively, consist primarily of foreign tax credits, property, plant and equipment, and stock options. The Australian deferred tax assets and liabilities from continuing operations as of June 30, 2014 consist primarily of unrealized capital loss, and net operating loss carry forwards. As of June 30, 2013, the Australian deferred tax assets from continuing operations consisted primarily of legal expenses. The Australian capital loss and net operating losses are carried forward indefinitely. The UK deferred tax assets and liabilities as of June 30, 2014, and 2013, respectively, consist primarily of capital allowance carry forwards which are carried forward indefinitely.

After reviewing all positive and negative evidence, a valuation allowance is recorded against all the net deferred tax assets in the US, Australia and the UK. As a result, the Company has recorded no deferred tax assets as of June 30, 2014.

As of June 30, 2014, the Company remains subject to examination in the following major tax jurisdictions for the tax years indicated below:



Jurisdiction		Tax Years Subject to Examination:
US Federal		2011 - 2013
Colorado		2011 - 2013
Connecticut		2010
Maine		2011 - 2013
Montana		2010 - 2013
Australia		2010 - 2013
United Kingdom		2010 - 2013

At June 30, 2014, the Company had net operating loss and foreign tax credit carry forwards for US Federal and State Income Tax purposes, respectively, which are scheduled to expire periodically as follows:



	State Net Operating Losses		Federal Foreign Tax Credit
	(In thousands)
Expires:
2017	$	7	$	310
2018	—		—
2019	—		1,411
2020	399		624
2021	176		1,443
2022	—		3,655
2023 and thereafter	—		2,716
Total	$	582	$	10,159

There are no uncertain tax positions that would meet the more-likely-than-not recognition threshold for the fiscal years ended June 30, 2014, or 2013.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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