2 OCTOBER

NEW ZEALAND GAZETTE

TRANSALTA NEW ZEALAND LIMITED

Notes to and forming part of the Financial Statements (Continued)
For the Year Ended 31 March 1998

Note: 4 Taxation

Current Period Tax Expense

Operating surplus before tax | 31,419 | 20,023 | (455) | 1,684 |
Prima facie taxation at 33% | 10,368 | 6,608 | (150) | 556 |
Plus tax effect of permanent differences | 1,257 | 677 | (18) | 469 |
Tax expense | 11,625 | 7,285 | (168) | 1,025 |

The tax expense is represented by:

Current tax | 11,346 | 3,284 | (43) | 1,087 |
Deferred tax | 279 | 4,001 | (125) | (62) |
| 11,625 | 7,285 | (168) | 1,025 |

Deferred Tax Reconciliation

Balance at beginning of period | 525 | 4,526 | 293 | 231 |
Movements during the period | (279) | (4,001) | 125 | 62 |
Balance at end of period | 246 | 525 | 418 | 293 |

Deferred tax liabilities are not provided for if there is a reasonable probability that the deferred tax liability will not be payable in the foreseeable future.

Note: 5 Share Capital and Capital Notes

Share capital | 41,081 | 75,464 | 20,434 | 46,249 |
Capital notes | 97,543 | 96,091 | - | 1,452 |

Capital Notes
The Capital Notes were issued under a Trust Deed between the company and The New Zealand Guardian Trust Company Limited as trustee. The Capital Notes are unsecured, subordinated, fixed interest securities of the parent company issued at a face value of $1.00 (the “Principal Value”). The Notes are subject to early redemption or conversion at the option of the company on 1 October each year prior to 1 October 2001 (the “Maturity Date”). Noteholders may be required to convert their Capital Notes into ordinary shares of the company on the “Maturity Date” at a value equal to the Principal Value plus accrued and unpaid interest on the Capital Notes. For this purpose, ordinary shares will be valued at 98% average sell price quoted on the New Zealand Stock Exchange at the close of trading for the 10 business days prior to conversion.

Alternatively, the company may elect to purchase, redeem, or extend the terms of the Capital Notes on the Maturity Date. Noteholders can trade their Capital Notes on the New Zealand Stock Exchange. The interest rate on the Capital Notes is 9.84% per annum, payable semi-annually in arrears on 1 April and 1 October each year, beginning 1 April 1997.

The information disclosed in the 1998 Information Disclosure package issued by TransAlta New Zealand Limited has been prepared solely for the purposes of the Electricity (Information Disclosure) Regulations 1994.

The information should not be used for any other purpose than that intended under the regulations.