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Inspector-General of Taxation

Statement by the Chief Executive Officer and Chief Finance Officer

In our opinion, the attached financial statements for the period ended 30 June 2009 have been prepared based on properly maintained financial records and give a true and fair view of the matters required by the Finance Minister's Orders made under the Financial Management and Accountability Act 1997, as amended.

[SIGNED]

Ali Noroozi
Inspector-General of Taxation
27 August 2009

[SIGNED]

Andrew McLoughlin
Chief Finance Officer
27 August 2009

Income statement

for the period ended 30 June 2009

Income statement for the period ended 30 June 2009

The above statement should be read in conjunction with the accompanying notes.

Balance sheet

as at 30 June 2009

Balance sheet as at 30 June 2009

The above statement should be read in conjunction with the accompanying notes.

Cash flow statement

for the period ended 30 June 2009

Cash flow statement for the period ended 30 June 2009

The above statement should be read in conjunction with the accompanying notes.

Statement of changes in equity

for the period ended 30 June 2009

Statement of changes in equity for the period ended 30 June 2009

The above statement should be read in conjunction with the accompanying notes.

Schedule of commitments

as at 30 June 2009

Schedule of commitments as at 30 June 2009

Commitments are GST inclusive where relevant.

Note Nature of lease General description of leasing arrangements
1 Leases for office accommodation The agreement allows annual fixed rental increases. There are no options to renew
1 A lease in relation to office equipment — photocopier The agreement is a fixed rate over the term.
Note Description General description of the agreement
2 Service Agreement for the provision of office services The agreement is at a fixed rate over the term.
3 Agreement for sub-lease of office accommodation The agreement allows annual fixed rental increases.

The above schedule should be read in conjunction with the accompanying notes.

Schedule of contingencies

as at 30 June 2009

Schedule of contingencies as at 30 June 2009

The above schedule should be read in conjunction with the accompanying notes.

Notes to and forming part of the financial statements
for the year ended 30 June 2009

Note 1: Summary of significant accounting policies

1.1 Objectives of the Inspector-General of Taxation

The Office of the IGT is an Australian Government controlled agency. The objective of the IGT is to improve the administration of the tax laws for the benefit of all taxpayers. The IGT has one outcome:

'Improved administration of tax laws for the benefit of all taxpayers'.

Agency activities contributing toward this outcome are classified as departmental. Departmental activities involve the use of assets, liabilities, revenues and expenses controlled or incurred by the agency in its own right.

The Inspector-General of Taxation Act 2003 (the Act) established an independent statutory agency on 7 August 2003 to review:

  • systems established by the Australian Taxation Office to administer the tax laws; and
  • systems established by tax laws in relation to administrative matters;

for the purpose of reporting and making recommendations to Government on how those systems could be improved.

IGT's departmental activities are identified under two Outputs relating to Outcome 1. Output 1.1.1, Identification of issues for review and prioritisation of work program and Output 1.1.2, the provision of independent advice to the Government on the administration of the tax laws.

The continued existence of the agency in its present form, and with its present programs, is dependent on government policy and on continuing appropriations by Parliament for the agency's administration and programs.

1.2 Basis of Preparation of Financial Statements

The financial statements and notes are required by section 49 of Schedule 1 of the Financial Management and Accountability Act 1997 and are a General Purpose Financial Report.

The Financial Statements and notes have been prepared in accordance with:

  • Finance Minister's Orders (FMOs) for reporting periods ending on or after July 2008; and
  • Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.

The financial report has been prepared on an accrual basis and is 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 report is presented in Australian dollars and values are expressed in whole dollars.

Unless an alternative treatment is specifically required by an Accounting Standard or the FMOs, assets and liabilities are recognised in the Balance Sheet when and only when it is probable that future economic benefits will flow to the Agency or a future sacrifice of economic benefits will be required and the amounts of assets or liabilities can be reliably measured. However, assets and liabilities arising under Agreements Equally Proportionally Unperformed are not recognised unless required by an Accounting Standard. Liabilities and assets that are unrecognised are reported in the Schedule of Commitments and the Schedule of Contingencies (other than unquantifiable or remote contingencies, which are reported at Note 10).

Unless alternative treatment is specifically required by an Accounting Standard, revenues and expenses are recognised in the Income Statement when and only when the flow, consumption or loss of economic benefits has occurred and can be reliably measured.

1.3 Significant accounting judgements and estimates

In the process of applying the accounting policies listed in this note, there are no judgements that have a significant impact on the amounts recorded in the financial statements.

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 accounting period.

1.4 Changes in Australian Accounting Standards

Adoption of new Australian Accounting Standard requirements

No accounting standard has been adopted earlier than the application date as stated in the standard. No new accounting standards, amendments to standards and interpretations issued by the Australian Accounting Standards Board that are applicable to the current period, have had a material financial impact on the Office of the IGT.

Future Australian Accounting Standard requirements

No new standards, amendments to standards or interpretations that have been issued by the Australian Accounting Standards Board and are effective for future reporting periods, are expected to have a material financial impact on the Office of the IGT.

Revenue from Government

Amounts appropriated for departmental outputs appropriations for the year (adjusted for any formal additions and reductions) are recognised as revenue when the Agency 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.

Other types of revenue

Revenue from rendering of services is recognised by reference to the stage of completion of contracts at the reporting date. The revenue is recognised when:

  • the amount of revenue, stage of completion and transaction costs incurred can be reliably measured; and
  • the probable economic benefits with the transaction will flow to the agency.

Receivables for services, which have 30 day terms, are recognised at the nominal amounts due, less any provision for bad and doubtful debts. Collectability of debts is reviewed at balance date. Provisions are made when collectability of the debt is no longer probable.

1.5 Gains

Other 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.

Sale of assets

Gains from disposal of non-current assets are recognised when control of the asset has passed to the buyer.

1.6 Transactions by the Government as owner

Equity injections

Amounts appropriated are designated as 'equity injections' for that year (less any formal reductions) and are recognised directly in Contributed Equity in that year.

1.7 Employee benefits

Liabilities for services rendered by employees are recognised at the reporting date to the extent that they have not been settled.

Liabilities for 'short-term employee benefits' (as defined in AASB 119) and termination benefits due within twelve months of balance date 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.

All other employee benefit liabilities are measured as the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date.

Leave

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 agency is estimated to be less than the annual entitlement for sick leave.

The leave liabilities are calculated on the basis of employees' remuneration, including the agency'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 liability for long service leave has been determined by reference to the work of an actuary as at 30 June 2009. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.

Superannuation

Staff of the agency in general are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS) or the PSS accumulation plan (PSSap).

The CSS and PSS are defined benefit schemes 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.

IGT makes employer contributions to the Employee Superannuation Scheme at rates determined by an actuary to be sufficient to meet the cost to the Government of the superannuation entitlements of the agency's employees.

From 1 July 2005, new employees are eligible to join the PSSap scheme.

The liability for superannuation recognised as at 30 June represents outstanding contributions for the final fortnight of the year.

1.8 Leases

A distinction is made between finance leases and operating leases. Finance leases effectively transfer from the lessor to the lessee substantially all the risks and rewards incidental to ownership of leased non-current assets. An operating lease is a lease that is not a finance lease. In operating leases, the lessor effectively retains substantially all such risks and benefits.

Where a non-current asset is acquired by means of a finance lease, the asset is capitalised at either the fair value of the lease property or, if lower, the present value of minimum lease payments at the inception of the contract and a liability recognised at the same time and for the same amount.

The discount rate used is the interest rate implicit in the lease. Leased assets are amortised over the period of the lease. Lease payments are allocated between the principal component and the interest expense.

Operating lease payments are expensed on a straight line basis which is representative of the pattern of benefits derived from the leased assets.

1.9 Finance costs

All finance costs are expensed as incurred. Finance costs arise as a result of the unwinding of the discount applied to the provision for 'make good' required under the premises lease.

1.10 Cash

Cash and cash equivalents includes deposits in bank accounts with an original maturity of 3 months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Cash is recognised at its nominal amount.

1.11 Financial assets

IGT classifies its financial assets in the following categories:

  • financial assets as 'at fair value through profit or loss'; and
  • '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'. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are measured at nominal amounts.

Impairment of financial assets

Financial assets are assessed for impairment at each balance date.

IGT's activities expose it to normal commercial financial risk. As a result of the nature of IGT's business and internal and Australian Government policies, dealing with the management of financial risk, IGT's exposure to market, credit, liquidity and cash flow and fair value interest rate risk is considered to be low.

1.12 Financial liabilities

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.

Supplier and other payables

Supplier and other payables are recognised at nominal amounts. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

1.13 Contingent liabilities and contingent assets

Contingent liabilities and contingent assets are not recognised in the Balance Sheet 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 existing liability or asset in respect of which settlement is not probable or the amount cannot be reliably measured. Remote contingencies are part of this disclosure. Contingent assets are reported when settlement is probable, and contingent liabilities are recognised when settlement is greater than remote.

1.14 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.

1.15 Property, plant and equipment (PP&E)

Asset recognition threshold

Purchases of property, plant and equipment are recognised initially at cost in the Balance Sheet, 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. This is particularly relevant to 'make good' provisions in property leases taken up by IGT where there exists an obligation to restore the property to its original condition. These costs are included in the value of IGT's leasehold improvements with a corresponding provision for the 'make good' taken up.

Revaluations

Fair values for each class of asset are determined as shown below:

Asset class Fair value measured at
Leasehold improvements Depreciated replacement cost
Plant and equipment Market price

Following initial recognition at cost, property plant and equipment are carried at fair value less accumulated depreciation and accumulated impairment losses. 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.

Revaluation adjustments are 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 through profit and loss. Revaluation decrements for a class of assets are recognised directly through profit and loss except to the extent that they reverse a previous revaluation increment for that class.

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount.

Depreciation

Depreciable property, plant and equipment assets are written off to their estimated residual values over their estimated useful lives to the agency 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:

  2008-09 2007-08
Infrastructure, plant and equipment 3-10 years 3-10 years
Leasehold improvements Lease term Lease term

The aggregate amount of depreciation allocated for each class of asset during the reporting period is disclosed in Note 4D.

Impairment

All assets are assessed for impairment at 30 June. 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.

The recoverable amount of an asset is the higher of its fair value less costs to sell 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 IGT were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

No indicators of impairment were found for assets at fair value.

1.16 Taxation

The agency 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.

Note 2: Events occurring after reporting date

The agency is not aware of any significant events that have occurred since balance date that warrant disclosure in these statements.

Note 3: Income

Note 3: Income

Note 4: Expenses

Note 4: Expenses

Note 5: Financial assets

Note 5: Financial assets

Note 6: Non-financial assets

Note 6: Non-financial assets

All property, plant and equipment are at valuation as at 30 June 2009 in accordance with the agency's revaluation policy (note 1.15). In 2009, assets were assessed for indications of impairment. No indications of impairment were found.

Note 6: Non-financial assets (continued)

Note 6: Non-financial assets (continued)

Note 6: Non-financial assets (continued)

Note 6: Non-financial assets (continued)

Note 6: Non-financial assets (continued)

All other non-financial assets are current assets.

No indicators of impairment were found for other non-financial assets.

Note 7: Payables

Note 7: Payables

All other payables are current liabilities.

Note 8: Provisions

Note 8: Provisions

The agency has renewed the agreement for the leasing of premises which has a provision requiring the agency to restore the premises to their original condition at the conclusion of the term.

The agency has made a provision to reflect the present value of this obligation.

All other provisions are non-current liabilities.

Note 9: Cash flow reconciliation

Note 9: Cash flow reconciliation

Note 10: Contingent liabilities and assets

There are no unquantifiable or remote contingencies.

Note 11: Executive remuneration

The number of senior executives who received or were due to receive total remuneration of $130,000 or more:

Note 11: Executive remuneration

Note 12: Remuneration of auditors

Note 12: Remuneration of auditors

No other services were provided by the Auditor-General.

Note 13: Financial instruments

Note 13: Financial instruments

As all financial liabilities are at fair value, there is no interest expense arising through the profit and loss in the year ending 2009. (2008: NIL).

Note 13: Financial instruments (continued)

Note 13: Financial instruments (continued)

Note 13: Financial instruments (continued)

Note 13: Financial instruments (continued)

Note 14: Appropriations

Table A: Acquittal of Authority to Draw Cash from the Consolidated Revenue Fund (CRF) for Ordinary Annual Services Appropriations

Note 14: Appropriations: Table A: Acquittal of Authority to Draw Cash from the Consolidated Revenue Fund (CRF) for Ordinary Annual Services Appropriations

Note 15: Compensation and debt relief

Note 15: Compensation and debt relief

Note 16: Reporting of outcomes

The IGT has one outcome:

'Improved administration of tax laws for the benefit of all taxpayers'.

Note 16A: Net cost of outcome delivery

Note 16: Reporting of outcomes: Note 16A: Net cost of outcome delivery

Note 16B: Major classes of departmental revenues and expenses by output groups and outputs

The agency has two outputs (Output Group 1.1):

Output 1.1.1 — Identification of issues for review and prioritisation of the work program

Output 1.1.2 — Provision of independent advice to the government on the administration of the tax laws

The basis of attribution in the table below is consistent with the basis used for the 2009-10 Budget, which estimated the proportion of agency activities to be assigned to each of the outputs. This basis was evaluated during 2008-09 through monitoring of agency activities and no adjustment was considered necessary.

Note 16B: Major classes of departmental revenues and expenses by output groups and outputs (continued)

Note 16: Reporting of outcomes: Note 16B: Major classes of departmental revenues and expenses by output groups and outputs (continued)

Outcome 1 is described in Note 1.1. Net costs shown include intra-government costs that are eliminated in calculating the actual Budget outcome.