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  • Notes to and forming part of the financial statements

    Overview

    Basis of Preparation of the Financial Statements

    The financial statements are general purpose financial statements and are required by section 42 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act). The financial statements have been prepared in accordance with:

    • Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (the FRR) for reporting periods ending on or after 1 July 2015; and
    • Australian Accounting Standards and Interpretations - Reduced Disclosure Requirements issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.

    The ATO’s financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

    The financial statements are presented in Australian dollars and values are rounded to the nearest thousand (departmental) or the nearest million (administered), unless disclosure of the full amount is required.

    Unless an alternate treatment is required by an accounting standard or the FRRs, assets and liabilities are recognised in the Statement of Financial Position when, and only when, it is probable that economic benefits will flow to the ATO or a future sacrifice of economic benefits will be required and the amount can be reliably measured. However, assets and liabilities arising under executory contracts are not recognised unless required by an accounting standard. Unrecognised liabilities are reported in the Contingent Liabilities note.

    Unless an alternate treatment is required by an accounting standard, income and expenses are recognised in the Statement of Comprehensive Income when, and only when, the flow, consumption or loss of economic benefits has occurred and can be reliably measured.

    The ATO Reporting Entity

    Included in the financial statements of the ATO are the operations of the Australian Charities and Not-for-profit (ACNC) through the ACNC Special Account, and the operations of the Australian Business Register (ABR) and Tax Practitioners Board (TPB).

    Reporting of Administered Activities

    The Administered Schedules of Comprehensive Income, Assets and Liabilities, Administered Reconciliation Schedule and Administered Cash Flow Statement reflect the Government’s transactions, through the ATO, with parties outside the Government.

    A commitment note is not required for administered financial statements due to the nature of the items reported being legislated and not contractual arrangements.

    Significant Accounting Judgements and Estimates for Departmental Items
    Significant accounting estimate / judgement Note
    The fair value of leasehold improvements is determined by estimating the depreciated replacement cost taking the useful life and remaining useful life of the asset into consideration. 5
    The fair value of plant and equipment is determined based on the market value for items of similar type and age or, where there is no active or comparable market, by estimating depreciation replacement cost. 5

    No accounting assumptions or estimates have been identified that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting period.

    Significant Accounting Judgements and Estimates for Administered Items
    Significant accounting estimate / judgement Note
    Taxation revenue items reported under the economic transaction method 14
    General Interest Charge (GIC) revenue and remission expense that have not as yet been posted to taxpayers’ accounts 14
    Penalties and interest charges and settlements 14
    Allowance for impairment losses 15
    Allowance for credit amendments and provision for refunds – key assumptions and methodologies used 15

    New Accounting Standards

    The ATO adopted AASB 124 Related Party Disclosures for the first time in 2016-17. There is no financial impact on the ATO following this adoption.

    No accounting standard has been adopted earlier than the application date as stated in the standard.

    All other standards, revised standards, interpretations and amending standards issued by the Australian Accounting Standards Board prior to the signing of the statements by the Commissioner of Taxation and the Chief Finance Officer, did not have a material financial impact on the ATO’s 2016-17 financial statements. They are not expected to have a material future financial impact.

    Changes in Accounting Estimates

    There have been no material changes in accounting estimates applied to departmental in the 2016-17 financial statements. One change has been made for administered. Refer to the disclosure in the accrued revenues policy at Note 15.

    Taxation/Competitive Neutrality

    The ATO is exempt from all forms of taxation except Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST).

    Revenues, expenses and assets are recognised net of GST except:

    • where the amount of GST incurred is not recoverable under the applicable legislation; and
    • for receivables and payables.

    Administered Prior Year Adjustments

    Cash flow adjustment

    For the 2015-16 financial year, the following adjustments were made to the Cash flow statement:

    a) reclassification of categories within the cash flow, with the most significant change being that taxation refunds is no longer separately disclosed. The cash flow now most accurately reflects the primary operating activities of the ATO, being tax collection, with tax refunds being a subset of this activity. In addition, reporting the cash collected by our primary activities is more beneficial for the users of the financial statements in understanding the business of the ATO. Under AASB 108, this is a change in accounting policy as the ATO has redefined its principles to present a more reliable and relevant cash flow for the users. Amounts prior to 30 June 2016 have not been disclosed as there is no impact on the net cash from operating activities. Refer to adjustment (a) in the table below.

    b) removal of equity transfers. Under AASB 108, this change is considered an error. Refer to adjustment (b) in the table below.

    Cash held in the OPA for special accounts

    c) In 2016-17, the Financial Reporting Rule was modified so that any credit amounts held within the OPA for special accounts were to be disclosed as cash held in the OPA in the financial statements. As a result, the ATO has incorporated this change as a voluntary change in accounting policy under AASB 108 and prior year adjustments have been made as per adjustment (c) below. No further retrospective application prior to 2016 has been made as it is impracticable to do so.

    Provisions adjustment

    d) For the 2015-16 financial year, adjustments were made to the percentages used in the provision for credit amendments and provision for refunds. Refer to adjustment (d) in the table below.

    Administered Prior Year Adjustments
    Schedule Item (2016-17) 2016$m Adjustment (a)$m Adjustment (b)$m Adjustment (c)$m Adjustment (d)$m Restated 2016 $m
    Administered Schedule of Comprehensive Income
    Income Tax 265,430       143 265,573
    Indirect Tax 83,441       (11) 83,430
    Administered Schedule of Assets and Liabilities
    Financial Assets
    Cash held in the OPA for special accounts -     93   93
    Non-Financial Assets
    Taxation Receivables 18,301       182 18,483
    Provisions
    Income taxation refunds provided for 2,044       (135) 1,909
    Indirect taxation refunds provided for 236       (4) 232
    Administered Reconciliation Schedule
    Opening assets less liabilities as at 1 July 20,326     72 189 20,587
    Net (cost of)/contribution by services
    Income 350,269       132 350,401
    Special appropriations (unlimited) 102,177     21   102,198
    Administered Cash Flow Statement
    Income tax 302,624 (40,910) 138     261,852
    Indirect tax 130,816 (50,289)  -     80,527
    Other 1,502 (242)  -     1,260
    Taxation refunds 91,441 (91,441)  -     -
    FTB Equity Transfer 52  - (52)     -
    HELP Equity Transfer 85  - (85)     -
    SFSS Equity Transfer 1  - (1)     -
    Cash at the beginning of the reporting period 315     72   387
    Cash from OPA – Special accounts 33     21   54
    Note 14A – Income Tax
    Individuals and others withholding tax 189,990       3 189,993
    Companies 63,280       116 63,396
    Superannuation funds – contributions and earnings 6,826       5 6,831
    Fringe benefits tax 4,453       6 4,459
    Resources rent tax 877       13 890
    Note 14B – Indirect Tax
    Goods and services tax 60,312       (11) 60,301
    Note 15A – Taxation receivables
    Allowance for credit amendments 2,946       (182) 2,764

    Events after the Reporting Period

    There was no subsequent event that had the potential to significantly affect the ongoing structure and financial activities of the ATO.

    Last modified: 30 Oct 2017QC 53669