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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 (FRR); 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

    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 2017-18 financial statements.

    Changes in Accounting Estimates

    There have been no material changes in accounting estimates applied to departmental in the 2017-18 financial statements. One change has been made for administered in relation to the Research and Development Tax Incentive. Refer to the accounting policy at Note 13.

    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, assets and liability are recognised net of GST except:

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

    Departmental Prior Year Adjustments

    Legal costs awarded by courts

    Legal costs awarded by courts are recognised as departmental revenue. In 2016-17, only amounts collected were recognised in the financial statements. In 2017-18, processes were rectified to recognise the gross legal cost receivable amount (i.e. imposed but not collected), amounts collected, write-off expense and impairment allowance. Under AASB 108, this change is considered an error and prior year adjustments have been made as per adjustment below.

    Departmental prior year adjustments
    Schedule Item (2017-18) 2017$'000 Adjustment$'000 Restated 2017$'000
    Statement of comprehensive income
    Expenses
    Write-down and impairment of assets 2,273  10,366 12,639
    Own-source Income
    Rendering of services  107,188  12,012 119,200
    Statement of financial position
    Financial assets
    Trade and other receivables 431,755  10,537 442,292
    Equity
    Accumulated deficit (1,296,948  10,537 (1,286,411)
    Statement of changes in equity
    Retained earnings
    Adjusted opening balance (1,120,593)  8,890 (1,111,703)
     (Deficit) for the period (176,355)   1,647 (174,708)
    Closing balance as at 30 June (1,296,948)   10,537 (1,286,411)
    Note 1D: Write down and impairment of assets
    Other financial assets 12  10,366 10,378
    Note 2A: Rendering of services
    Rendering of services 107,188  12,012 119,200
    Note 3B: Trade and other receivables  
    Service receivable 28,726  29,244 57,970
     Less impairment allowance
    Services (143)  (18,707) (18,850)

    Reconciliation of the Impairment Allowance

    Movements in relation to 2017

    Schedule Item (2017-18)

     

    Goods and services 2017 $'000   Adjustment $'000   Restated 2017 $'000  

    Opening balance

    (90) 

    (14,755)

    (14,845)

    Amounts written off

    6,413

    6,414

    Amounts recovered and reversed

    20 

    -

    20

    (Increase)/decrease recognised in net surplus

    (74) 

     (10,365)

    (10,439)

    Closing balance

    (143) 

    (18,707)

    (18,850)

    Administered prior year adjustments

    Refunds for clients not required to lodge a tax return

    For the 2016-17 financial year, adjustments were made to multiple receivables, revenue and equity for refunds made to clients who were not required to lodge tax returns. These refunds were processed in a bespoke business system as a series of refunds without posting the reduction of liabilities. This was identified through a comprehensive reconciliation conducted in 2017-18. Under AASB 108, this change is considered an error and prior year adjustments have been made as per adjustment (a) in the table below.

    Receivables and payables adjustments

    For the 2016-17 financial year, adjustments were made to receivables and payables as the aggregate debt owing to taxpayers on the ATO’s business systems were not accurately recorded in the accounting system. This was identified through a comprehensive reconciliation conducted in 2017-18. Under AASB 108, this change is considered an error and prior year adjustments have been made as per adjustment (b) in the table below.

    Provision for credit amendment adjustment

    For the 2016-17 financial year, an adjustment was made to the allowance for credit amendments as a result of an error identified in the calculation of this provision. Prior year adjustments have been made as per adjustment (c) in the table below.

    Administered Prior Year Adjustments
    Schedule Item (2017-18) 2017$m Adjustment (a)$m Adjustment (b)$m Adjustment (c)$m Restated 2017$m
    Administered Schedule of Comprehensive Income
    Income Tax 281,683 (28) - (238) 281,417
    Indirect Tax 86,146 (6) - - 86,140
    Administered Schedule of Assets and Liabilities
    Financial assets
    Cash held in the OPA for special accounts 96 - (2) - 94
    Non-Financial Assets
    Taxation receivables 21,118 (304) (65) (238) 20,511
    Non-taxation receivables1 (41) - 55 - 14
    Liabilities
    Payables
    Personal benefits (1) - 24 - 23
    Superannuation guarantee charge 8 - (1) - 7
    Superannuation holding account 97 - (2) - 95
    Administered Reconciliation Schedule
    Opening assets less liabilities as at 1 July 22,852 (270) (33) - 22,549
    Net (cost of)/contribution by services
    Income 369,375 (34) - (238) 369,103
    Administered Cash Flow Statement
    Cash at the beginning of the reporting period 393 - (2) - 391
    Note 14A: Income tax
    Individuals and others withholding tax 197,386 (20) - - 197,366
    Companies 71,187 (6) - (238) 70,943
    Superannuation funds - contributions and earnings 8,212 (1) - - 8,211
    Fringe benefits tax 3,905 (1) - - 3,904
    Note 14B: Indirect tax
    Goods and services tax 62,727 (6) - - 62,721
    Note 15A – Taxation receivables
    Direct tax
    Individuals 18,522 (184) 83 - 18,421
    Company 8,798 (57) (75) - 8,666
    Superannuation 506 (8) (58) - 440
    Fringe benefits tax 350 (4) (13) - 333
    Indirect tax
    Goods and services tax 7,020 (50) - - 6,970
    Wine equalisation tax 100 (1) - - 99
    Other tax
    Superannuation guarantee charge 1,505 - 4 - 1,509
    Other 164 - (6) - 158
    Less: Allowance for credit amendments (2,537) - - (238) (2,775
    Note 15B: – Non-taxation receivables
    Unclaimed superannuation monies1   (41) - 55 - 14
    Note 19: Special accounts
    Superannuation holding account balance brought forward from previous period 93,396 - (1,738) - 91,658
    1 The receivable balance for unclaimed superannuation monies has been reallocated from taxation receivables to non-taxation receivables.

    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: 26 Oct 2018QC 57097