The Inspector-General of Taxation
Statement by the Inspector-General of Taxation and Chief Finance Officer
In our opinion, the attached financial statements for the year ended 30 June 2017 comply with subsection 42(2) of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), and are based on properly maintained financial records as per subsection 41(2) of the PGPA Act.
In our opinion, at the date of this statement, there are reasonable grounds to believe that the Inspector-General of Taxation will be able to pay its debts as and when they fall due.
Statement of Comprehensive Income
for the period ended 30 June 2017
Statement of Financial Position
as at 30 June 2017
Statement of Changes in Equity
for the period ended 30 June 2017
Amounts appropriated which are designated as ‘equity injections’ for a year (less any formal reductions) and Departmental Capital Budgets (DCBs) are recognised directly in contributed equity in that year.
Cash Flow Statement
for the period ended 30 June 2017
Basis of preparation of the financial statements
Statement of compliance
The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of section 42 of the Public Governance, Performance and Accountability Act 2013.
The Financial Statements have been prepared in accordance with:
- Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR) for the reporting periods ending on or after 1 July 2015;
- Australian Accounting Standards and interpretations – Reduced Disclosure Requirements issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.
The financial statements have been prepared on an accrual basis and are in accordance with the historical cost convention, except for certain assets 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. The financial report is rounded to the nearest dollar.
Significant accounting judgements and estimates
In the process of applying the accounting policies listed in this note, the Inspector-General of Taxation (IGT) has made the following judgements that have the most significant impact on the amounts recorded in the financial statements:
- the liability for long service leave has been determined by reference to FRR 24 Employee benefits, which allows the use of the shorthand method for entities with less than 1,000 full-time equivalent employees.
- the employee provision has been determined with reference to the IGT’s expected tenure of staff and future salary movements and standard parameters (future discount rates) provided by the Department of Finance.
- the fair value of leasehold improvements and property, plant and equipment has been taken to be the market value of similar properties or depreciated replacement value as determined by an independent valuer.
No accounting assumptions or estimates have been identified that have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next reporting period.
The entity is exempt from all forms of taxation except for Fringe Benefits Tax and Goods and Services Tax (GST). Revenues, expenses and assets are recognised net of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office, and except for receivables and payables.
Breach of Section 83 of the Constitution
Section 83 of the Constitution provides that no amount may be paid out of the Consolidated Revenue Fund except under an appropriation made by law. The Department of Finance provided information to all agencies in 2011 regarding the need for risk assessments in relation to compliance with statutory conditions on payments from special appropriations, including special accounts.
The IGT has continued to review its exposure to risks of not complying with statutory conditions on contravention of section 83 of the Constitution.
Events After the Reporting Period
There are no known events occurring after the reporting period that could impact on the financial statements.
1. Departmental Financial Performance
This section analyses the financial performance of the Inspector-General of Taxation for the year ended 2017.
Accounting policies for employee related expenses are contained in Note 3: People and Relationships.
Where an asset is acquired by means of a finance lease, the asset is capitalised at either the fair value of the leased property or, if lower, the present value of minimum lease payments at the inception of the contract and a liability is recognised at the same time and for the same amount.
The IGT does not currently hold any assets under finance lease.
Operating lease payments are expensed on a straight-line basis which is representative of the pattern of benefits derived from the leased assets.
Revenue from Government
Amounts appropriated for departmental appropriations for the year (adjusted for any formal additions and reductions) are recognised as Revenue from Government when the entity gains control of the appropriation, except for certain amounts that relate to activities that are reciprocal in nature, in which case revenue is recognised only when it has been earned.
Appropriations receivable are recognised at their nominal amounts.
Resources received free of charge
Resources received free of charge are recognised as gains when and only when a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense.
Resources received free of charge are recorded as either revenue or gains depending on their nature.
Contributions of assets at no cost of acquisition or for nominal consideration are recognised as gains at their fair value when the asset qualifies for recognition, unless received from another government entity as a consequence of a restructuring of administrative arrangements.
Sale of assets
Gains from disposal of non-current assets are recognised when control of the asset has passed to the buyer.
2. Departmental Financial Position
This section analyses the Inspector-General of Taxation assets used to generate financial performance and the operating liabilities incurred as a result.
Employee related information is disclosed in the People and Relationships section.
2.1. Financial Assets
Loan and Receivables
Trade receivables, loans and other receivables that have fixed or determinable payments and that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method less impairment.
2.2. Non-Financial Assets
Acquisition of assets
Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate.
Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and incomes at their fair value at the date of acquisition, unless acquired as a consequence of restructuring of administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amounts at which they were recognised in the transferor entity’s accounts immediately prior to the restructuring.
Asset recognition threshold
Purchases of property, plant and equipment are recognised initially at cost in the Statement of Financial Position, except for purchases costing less than $2,000 and computer equipment of less than $1,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).
The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located.
Following initial recognition at cost, property plant and equipment are carried at fair value less subsequent accumulated depreciation and accumulated impairment losses. Cost is considered an acceptable fair value proxy for assets under construction. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not differ materially with the assets’ fair values as at the reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets. A fair value review was undertaken by the independent valuer for make-good relating to leasehold improvements as at 30 June 2017.
Revaluation adjustments were made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised in the surplus or deficit. Revaluation decrements for a class of assets are recognised directly through surplus or deficit except to the extent that they reverse a previous revaluation increment for that class.
Any accumulated depreciation as at the last revaluation date was eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount.
Depreciable property, plant and equipment assets are written off to their estimated residual values over their estimated useful lives to the entity using, in all cases, the straight-line method of depreciation. Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease.
Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate. Depreciation rates applying to each class of depreciable asset are based on the following useful lives:
All assets were assessed for impairment as at 30 June 2017. Where indications of impairment exist, the asset’s recoverable amount is estimated and an impairment adjustment made if the asset’s recoverable amount is less than its carrying amount. No indicators of impairment were found for non-financial assets as at 30 June 2017 (2016: nil).
The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if the IGT were deprived of the asset, its value in use is taken to be its depreciated replacement cost.
The IGT’s intangibles comprise purchased software for internal use. These assets are carried at cost less accumulated amortisation and any accumulated impairment losses.
Software is amortised on a straight-line basis over its anticipated useful life, being 5 years (2016: 5 years).
All software assets were assessed for indications of impairment at 30 June 2017. No indicators of impairment were identified as at 30 June 2017 (2016: none).
3. People and Relationships
This section describes a range of employment and post-employment benefits provided to our people and our relationships with other key people.
3.1. Employee Provisions
Liabilities for termination benefits due within twelve months of the end of the reporting period are measured at their nominal amounts. The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.
Other employee benefits are measured as the net total of the present value of the defined benefit obligation at the end of the reporting period, minus the fair value at the end of the reporting period of plan assets (if any) out of which the obligations are to be settled directly.
The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of the entity is estimated to be less than the annual entitlement for sick leave.
The leave liabilities are calculated on the basis of employees’ remuneration at the estimated salary rates that will be applied at the time the leave is taken, including the entity’s employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination.
The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.
Separation and redundancy
Provision is made for separation and redundancy benefit payments. The entity recognises a provision for termination when it has developed a detailed formal plan for the terminations and has informed those employees affected that it will carry out the terminations.
Staff of the entity in general are members of the Public Sector Superannuation Scheme (PSS) or the PSS accumulation plan (PSSap).
The PSS is a defined benefit scheme for the Australian Government. The PSSap is a defined contribution scheme.
The liability for defined benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course. This liability is reported by the Department of Finance’s administered schedules and notes.
The entity makes employer contributions to the employees’ superannuation scheme at rates determined by an actuary to be sufficient to meet the cost to the Government. The entity accounts for the contributions as if they were contributions to defined contribution plans.
The liability for superannuation recognised as at 30 June represents outstanding contributions for the final fortnight of the year.
3.2. Key Management Personnel Remuneration
Key management personnel (KMP) are those having authority and responsibility for planning, directing and controlling the activities, directly or indirectly, of IGT. The IGT has determined the key management personnel to be the Portfolio Ministers, Inspector-General of Taxation and Deputy Inspector-General of Taxation. Key management personnel remuneration is reported in the table below:
3.3. Related Party Disclosures
Related party relationships:
The IGT is an Australian Government controlled entity. Related parties to the IGT are key management personnel including the Portfolio Minister and Executive, and other Australian Government entities.
Transactions with related parties:
Given the breadth of Government activities, related parties may transact with the government sector in the same capacity as ordinary citizens. Such transactions include the payment or refund of taxes, receipt of a Medicare rebate or higher education loans. These transactions have not been separately disclosed in this note.
Significant transactions with related parties can include:
- the payments of grants or loans;
- purchases of goods and services;
- asset purchases, sales transfers or leases;
- debts forgiven; and
Giving consideration to relationships with related entities, and transactions entered into during the reporting period by the IGT, it has been determined that there are no related party transactions to be separately disclosed.
This section identifies the Inspector-General of Taxation funding structure.
4.2. Net Cash Appropriation Arrangements
5. Managing Uncertainties
This section analyses how the Inspector-General of Taxation manages financial risks within its operating environment.
5.1. Contingent Assets and Liabilities
There were no quantifiable contingent assets or liabilities in 2017 (2016: $0).
Contingent liabilities and contingent assets are not recognised in the Statement of Financial Position but are reported in the relevant schedules and notes. They may arise from uncertainty as to the existence of a liability or asset, or represent an asset or liability in respect of which the amount cannot be reliably measured. Contingent assets are disclosed when settlement is probable but not virtually certain, and contingent liabilities are recognised when settlement is greater than remote.
5.2. Financial Instruments
The IGT classifies its financial assets as loans and receivables.
The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets are recognised and derecognised upon ‘trade date’.
Loans and receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate.
Impairment of financial assets
Financial assets are assessed for impairment at each balance date.
Financial assets held at amortised cost — If there is objective evidence that an impairment loss has been incurred for loans and receivables, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount is reduced by way of an allowance account. The loss is recognised in the Statement of Comprehensive Income.
Financial liabilities are classified as other financial liabilities. Financial liabilities are recognised and derecognised upon ‘trade date’.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).
5.3. Fair Value Measurement
Fair value measurements – valuation processes
The IGT engaged the service of the Australian Valuation Solutions Pty Limited (AVS) to conduct a fair value confirmation of all non-financial assets at 30 June 2017 and has relied upon those outcomes to establish carrying amounts. An annual assessment is undertaken to determine whether the carrying amount of the assets is materially different from the fair value. Comprehensive valuations are carried out at least once every three years. AVS has provided written assurance to the IGT that the models developed are in compliance with AASB 13.
Fair value measurement
The entity deems transfers between levels of the fair value hierarchy to have occurred at the end of the reporting period.
6. Budgetary Reports and Explanation of Major Variances
6.1. Departmental Budgetary Reports