Statement by the Inspector-General of Taxation and
Chief Finance Officer
In our opinion, the attached financial statements for the year ended 30 June 2016 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.
Inspector-General of Taxation
20 September 2016
Chief Finance Officer
20 September 2016
Cash is recognised at its nominal amount. Cash and cash equivalents includes cash on hand, cash held with outsiders and demand deposits in bank accounts with an original maturity of three months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
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.
|s74 receipts received||494,365||644|
|Other cash received||6,058||-|
|Net GST received||98,738||56,829|
|Total cash received||5,617,179||2,586,375|
|Total cash used||5,627,635||2,517,562|
|Net cash from (used by) operating activities||4.3||(10,456)||68,813|
|Purchase of property, plant and equipment||511,296||256,098|
|Total cash used||511,296||256,098|
|Net cash from (used by) investing activities||(511,296)||(256,098)|
|Total cash received||516,983||256,098|
|Net cash from (used by) financing activities||516,983||256,098|
|Net increase (decrease) in cash held||(4,769)||68,813|
|Cash at the beginning of the reporting period||113,832||45,019|
|Cash at the end of the reporting period||109,063||113,832|
Objectives of the Inspector-General of Taxation
The Inspector-General of Taxation (IGT) is an Australian Government controlled entity. It is a not-for-profit entity. The objective of the IGT is to improve the administration of the tax laws for the benefit of all taxpayers. The IGT is structured to meet one outcome:
'Improved tax administration through investigation of complaints, conducting reviews, public reporting and independent advice to Government and its relevant entities'.
Entity activities contributing toward this outcome are classified as departmental. Departmental activities involve the use of assets, liabilities, income and expenses controlled or incurred by the entity in its own right.
The Inspector-General of Taxation Act 2003 as amended (the Act) established an independent statutory entity to:
- improve the administration of taxation laws for the benefit of all taxpayers, tax practitioners and other entities; and
- provide independent advice to the government on the administration of taxation laws; and
- investigate complaints by taxpayers, tax practitioners or other entities about the administration of taxation laws; and
- investigate administrative action taken under taxation laws, including systemic issues, that affect taxpayers, tax practitioners or other entities.
The IGT's departmental activities are identified under Outcome 1 by one program, Program 1.1 Inspector-General of Taxation. IGT has no administered activities.
The continued existence of the entity in its present form, and with its present program, is dependent on Government policy and on continuing funding by Parliament for the entity's administration and programs.
Basis of preparation of the financial statements
The financial statements are required by section 42 of the Public Governance, Performance and Accountability Act 2013 and are general purpose financial statements.
The financial statements and notes have been prepared in accordance with:
- Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FPR) for reporting periods ending on or after 1 July 2015; and
- Australian Accounting Standards and Interpretations 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 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 expressed in whole dollars.
Significant accounting judgements and estimates
In the process of applying the accounting policies listed in this note, 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 FFR 24 using the shorthand method.
- the employee provision has been determined with reference to standard parameters provided by the Department of Finance, expected tenure of staff, future salary movements and the future discount rates.
- 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.
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. There have been no new accounting standards, amendments to standards and interpretations issued prior to the signing of the statement and were applicable to the current period have had a material effect on the IGT's financial statements.
Future Australian Accounting Standard requirements
The following revised standards were issued by the Australian Accounting Standards Board prior to the signing of the statement by the accountable authority and chief finance officer, which are expected to have a material impact on the entity's financial statements for the future reporting period(s):
|Standard||Application date for the entity||Nature of impending changes in accounting policy and likely impact on initial application|
|AASB 124 – Related Party Disclosures & AASB 1049 – Whole of Government and General Government Sector Financial Reporting||1 July 2016||Extending related party disclosures to not-for-profit public sector entities. The amendments are applied prospectively as of the beginning of the annual reporting period in which the standard is initially applied.|
|AASB 9 – Financial Instruments||1 January 2018||Key changes are: - requirements for impairment of financial assets based on a three-stage 'expected loss' approach; - addition of a third measurement category for debt instruments 'fair value through other comprehensive income'; - expansion of disclosures required in relation to credit risk.|
|AASB 16 – Leases||1 January 2019||Requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months. Leases will be initially measured on a present value basis and includes non-cancellable lease payments.|
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.
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 payments from appropriations and testings have identified no payments were made in 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.
Accounting policies for employee related expenses are contained in Note 3: People and Relationships.
Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:
|Within 1 year||490,012||27,642|
|Between 1 to 5 years||122,503||-|
|Total operating lease commitments||612,515||27,642|
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.
|Note 1.1C: Finance costs|
|Unwinding of discount||-||5,814|
|Total finance costs||-||5,814|
All borrowing costs are expensed as incurred.
|Note 1.2A: Revenue from Government|
|Total revenue from Government||6,503,000||2,788,000|
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.
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
No indicators of impairment were found for leasehold improvements, plant and equipment or computer software.
No leasehold improvements, plant and equipment and computer software are expected to be sold or disposed of in the next 12 months.
All revaluations are independent and are conducted in accordance with the revaluation policy stated at Note 5.3.
|Note 2.2A: Reconciliation of the opening and closing balances of property, plant and equipment and intangibles (2015)|
|Plant and equipment||Leasehold improvements||Computer software||Total|
|As at 1 July 2014|
|Gross book value||34,382||156,274||-||190,656|
|Accumulated depreciation and impairment||(14,023)||(27,773)||-||(41,796)|
|Total as at 1 July 2014||20,359||128,501||-||148,860|
|Total as at 30 June 2015||13,664||44,948||247,561||306,173|
|Total as at 30 June 2014 represented by:|
|Gross book value||34,382||63,304||256,098||353,784|
|Accumulated depreciation and impairment||(20,718)||(18,356)||(8,537)||(47,611)|
|Total as at 30 June 2015||13,664||44,948||247,561||306,173|
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. Valuations were 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 at 30 June 2016 who confirmed that the carrying amount of non-financial assets has not materially changed since the last valuation.
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 revaluation date is 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:
|Property, plant and equipment||1-15 years||3-10 years|
|Leasehold improvements||Lease term||Lease term|
All assets were assessed for impairment as at 30 June 2016. 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 2016 (2015: 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 (2015: 5 years).
All software assets were assessed for indications of impairment at 30 June 2016. No indicators of impairment were identified as at 30 June 2016 (2015: none).
|Note 2.2B: Other non-financial assets|
|Total other non-financial assets||-||25,135|
|Note 2.3A: Suppliers|
|Note 2.3B: Other payables|
|Wages and salaries||9,420||49,067|
|Total other payables1||10,923||57,780|
|Note 2.4A: Other provisions|
|Provision for lease incentive||119,681||-|
|Total other provisions||119,681||-|
|Other provisions expected to be settled|
|No more than 12 months||95,745||-|
|More than 12 months||23,936|
|Total other provisions||119,681||-|
|Provision for restoration obligation|
|As at 1 July 2015||-||93,418|
|Re-statement of 'Make Good'||-||(99,232)|
|Unwinding of discount or change in discount rate||-||5,814|
|Total as at 30 June 2016||-||-|
This section describes a range of employment and post-employment benefits provided to our people and our relationships with other key people.
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.
|Short-term employee benefits|
|Total short-term employee benefits||820,486||784,033|
|Total post-employment benefits||96,961||92,289|
|Other long-term benefits|
|Annual leave accrued||97,254||69,314|
|Total other long-term benefits||131,167||109,017|
|Total senior executive remuneration expenses||1,048,614||985,339|
This section identifies the Inspector-General of Taxation funding structure.
|Annual appropriations for 2015|
|Appropriation Act||PGPA Act|
|Annual Appropriation||Section 74 Receipts||Section 75 Transfers||Total appropriation||Appropriation applied in 2015 (current and prior years)||Variance|
|Ordinary annual services||3,329,000||644||-||3,329,644||(2,460,089)||869,555|
1. Variance reflects the permanently withheld funding and lower than anticipated expenditure concerning the transfer of the Tax Complaints Handling function from the Commonwealth Ombudsman.
2. The original budget provided for increased funding ($0.7 million) associated with the transfer of the Tax Complaints Handling function from the Commonwealth Ombudsman. As at 30 June 2015, the legislation required to effect this change had not passed Parliament and as a result, the associated funding was permanently withheld ($0.5 million).
|Note 4.1B: Unspent annual appropriations|
|Appropriation Act (No. 1) 2012-13||-||30,000|
|Appropriation Act (No. 1) 2013-14 2||1,000||1,477,226|
|Appropriation Act (No. 1) 2014-151,3||541,000||2,803,930|
|Appropriation Act (No. 3) 2014-15||-||551,902|
|Appropriation Act (No. 6) 2014-15||124,919||-|
|Appropriation Act (No. 1) 2015-16 1||5,159,370||-|
|Appropriation Act (No. 1) 2015-16 (DCB)||29,000||-|
|Appropriation Act (No. 2) 2015-16||198,000||-|
1. Cash held amounts (2016: $109,063, 2015:$113,832) are included in Appropriation Act (No. 1) for the relevant year.
2. Includes quarantined funds of $1,000.
3. Includes funds of $541,000 that have been permanently withheld under s51 of the PGPA Act.
1. From 2010-11, the Government introduced net cash appropriation arrangements, where revenue appropriations for depreciation/amortisation expenses ceased. Entities now receive a separate capital budget provided through equity appropriations. Capital budgets are to be appropriated in the period when cash payment for capital expenditure is required.
This section analyses how the Inspector-General of Taxation manages financial risks within its operating environment.
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.
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).
|Note 5.2C: Credit risk|
|The agency is exposed to minimal credit risk as financial assets only include cash and trade receivables. The maximum exposure to credit risk is the risk that arises from potential default of a debtor. This amount is equal to the total amount of trade receivables (2016: $0 and 2015: $0). The agency has assessed the risk of default on payment and has made no allocations to doubtful debts in 2016 (2015: $0).|
|The following table illustrates the entity's gross exposure to credit risk, excluding any collateral or credit enhancements|
|Financial assets carried at amount not best representing maximum exposure to credit risk|
|Cash and cash equivalents||109,063||113,832|
|Total financial assets carried at amount not best representing maximum exposure to credit risk||109,063||113,832|
|Financial liabilities carried at amount not best representing maximum exposure to credit risk|
|Total financial liabilities carried at amount not best representing maximum exposure to credit risk||35,192||71,306|
|Maturities for non-derivative financial liabilities 2016|
|On||Within 1||1 to 2||2 to 5||> 5|
|Liabilities at amortised cost|
|Payables - suppliers||-||35,192||-||-||-||35,192|
|Maturities for non-derivative financial liabilities 2015|
|On||Within 1||1 to 2||2 to 5||> 5|
|Liabilities at amortised cost|
|Payables - suppliers||-||71,306||-||-||-||71,306|
|Note 5.2E: Market risk|
|IGT holds basic financial instruments that do not expose the agency to certain market risks. The agency is not exposed to currency risk, other price risk, or interest rate risk.|
1. Valuations are based on advice from independent certified practicing valuers. There has been no change in this method from prior years.
2. There have been transfers of plant and equipment and leasehold improvements assets into level 2 during the year. This is due to a change in their valuation technique from depreciated replacement cost to the market approach.
3. A reconciliation of movements in leasehold improvements and plant and equipment has been included in Note 2.2A: Non-Financial Assets.
|Note 5.3B: Reconciliation for recurring Level 3 fair value measurements|
|Recurring Level 3 fair value measurements - reconciliation for assets|
|Plant and equipment||Leasehold improvements||Total|
|Transfers out of Level 3||(28,250)||-||(28,250)|
Fair value measurements - valuation processes
IGT engaged the service of the Australian Valuation Solutions (AVS) to conduct a detailed external valuation of all non-financial assets at 30 June 2016 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 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.
|Explanations of major variances||Affected line items|
|The original budget provided for increased funding associated with the Tax Complaints Handling function. A phased approach to implementing the function resulted in lower than anticipated employee numbers as at 30 June 2016.||Employee benefits|
|Increased supplier expenditure in 2015-16 related to a focus on enhancing IGT's capabilities and operational efficacy throughout the year.||Supplier expenses|
|Increased expenditure on infrastructure to implement and operate the tax complaints handling function resulted in higher than anticipated depreciation for the year.||Depreciation and amortisation|
|Statement of Financial Position|
|as at 30 June 2016|
|Cash and cash equivalents||109,063||45,000||64,063|
|Trade and other receivables||5,417,003||3,376,000||2,041,003|
|Total financial assets||5,526,066||3,421,000||2,105,066|
|Land and Buildings||169,276||217,000||(47,724)|
|Infrastructure, plant and equipment||169,050||937,000||(767,950)|
|Other non-financial assets||-||38,000||(38,000)|
|Total non-financial assets||587,024||1,192,000||(604,976)|