Note 1 Reporting entity

Australian Rail Track Corporation (the parent) is a Company limited by shares incorporated in Australia located at 11 Sir Donald Bradman Drive, Keswick Terminal, South Australia. The consolidated financial statements of the Company as at and for the year ended 30 June 2019 comprise the Company and its subsidiaries together referred to as the “Group”. The Group is a Government Business Enterprise (GBE) and the ultimate controlling entity is the Commonwealth Government.

The financial report of ARTC for the year ended 30 June 2019 was authorised for issue in accordance with a resolution of the Directors on 28 August 2019.

Note 2 Basis of accounting

These general purpose financial statements have been prepared in accordance with Public Governance Performance and Accountability Act 2013 (PGPA Act), Australian Accounting Standards, the requirements of the Corporations Act 2001 and other authoritative pronouncements of the Australian Accounting Standards Board. Australian Rail Track Corporation Ltd is a for profit entity for the purpose of preparing the financial statements.

The consolidated financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Where necessary, comparative figures have been adjusted to conform to changes in the presentation of the Financial Statements in the current year.

The financial statements are prepared on a historical cost basis except for certain classes of plant and equipment, held for sale assets and derivatives which are measured at fair value.

Where applicable the significant accounting policies are contained in the notes to the financial statements to which they relate and Note20 (Other accounting policies)

The financial statements have been prepared on a going concern basis. See note 20(e).

Note 3 Functional and presentation currency

The financial statements are presented in Australian dollars and all values are rounded to the nearest thousand dollars ($'000) unless otherwise stated under the option available to the Group under ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191. The Group is an entity to which the Instrument applies.

Note 4 Significant accounting estimates and judgements

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that may have a significant risk of causing a material adjustment to the individual carrying amounts of assets and liabilities or may involve a higher degree of judgement or complexity within the next financial year are found in the following notes:

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

Note 5 Income and expenses

The Group has applied a modified retrospective approach to AASB 15 at 1 July 2018, the resulting prior year adjustment of $0.439 million net of $0.131 million tax adjustment, has been reflected in the Group's opening retained earnings.

Accounting Policy

ARTC generates access revenue through granting access to train paths to operators covered by an Interstate track access agreement, or a Hunter Valley coal network undertaking.

Under AASB 15, there is a distinct performance obligation in a contract for access to the Interstate or Hunter Valley networks. Revenue is considered variable in nature and transaction prices for access and usage are consistent with the standalone selling price. The Group assessed that the point at which the performance obligation is satisfied is over time using the output method and therefore revenue is recorded for the actual distance travelled. All access pricing is currently regulated by the ACCC. The Hunter Valley access revenue is determined on an expense recovery basis, within the parameters of the Hunter Valley Access Undertaking agreement.

The Group determined that the estimates of expense recovery are subject to a compliance assessment by the ACCC to ensure the amount recognised is within the guidelines of the Access Undertaking and have recognised a refund liability where applicable, being the estimated obligation to refund some or all of the consideration received (or receivable) from the customer and is constrained at the amount the Group ultimately expects it will have to return to the customer. The Group updates its estimates of refund liabilities at the end of each reporting period based on the outcomes of ACCC assessments.

(b) Employee benefits expenses

Accounting policy

Accounting policies for employee benefits refer to note 7(f) and 7(g).

(c) Infrastructure costs

Infrastructure costs expensed reflect Inland Rail and Port Botany project costs that are not capital in nature, e.g. including pre construction concept and feasibility work.

(d) Depreciation & Amortisation

Accounting policy

Depreciation and amortisation

Accounting policies for depreciation and amortisation refer to note 7(c).

(e) Net incident costs

Accounting policy

Recoveries and expenses associated with rail access related incidents

Income attributable to insurance or other recoveries arising from rail access related incidents is only recognised where a contractual agreement is in place and receipt of amounts outstanding is virtually certain. Costs of rectification are recognised when incurred.

Where the Group has suffered damage to its rail network due to other parties, the recourse is commercial negotiation and, if not successful, legal proceedings are initiated, as appropriate.

Potential liabilities and assets are reviewed throughout the year and finalised at reporting date for inclusion in the financial statements. Inclusion of liabilities or assets relating to rail access related incidents occurs where the Group can reliably measure costs or recoveries.

(f) Finance costs

Accounting policy

Finance costs

Borrowings are initially recognised at fair value, net of directly attributable transaction costs incurred and thereafter at amortised cost.

Borrowing costs on Bonds, including fees paid on establishment, are recognised as they accrue using the effective interest method. This is a method of calculating the amortised cost of a financial liability and allocating the interest and other costs over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash flows through the expected life of the financial liability to the net carrying amount of the financial liability.

Syndicated Debt Facility borrowing costs are recognised as they accrue using the effective interest method; however the fees and interest applicable have different durations to the facility and the variable rates are linked to the market. As a result the shorter period is utilised to undertake the recognition of the individual components of the borrowing costs. As the duration is generally shorter than a year, there is generally no difference between effective interest method and straight line recognition.

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of funds.

From time to time the Group may undertake short term borrowings such as bridging facilities for contingency or other purposes, and to the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment and amortised over the period of the facility to which it relates.

(g) Income tax expense/(benefit)

Reconciliation of Tax Expense to Income Tax Payable

The tax law and accounting standards contain different rules around the timing of when amounts may be assessable or deductible. These differences give rise to temporary differences which are recognised in deferred tax expense.

The deductible temporary differences in relation to property, plant and equipment exist as a result of ARTC’s ability to claim tax depreciation on its leased assets in NSW under Division 58 of the Income Tax Assessment Act (1997) in addition to the cumulative impact of impairments and fair value reductions to the accounting value of infrastructure assets.

Accounting policy

Income tax

Accounting policies related to income tax refer to note 7(e).

Numerical reconciliation of income tax expense/(benefit) to prima facie tax payable

	Consolidated
	2019 $'000	2018 $'000
Total income tax expense/(benefit)	34,620	47,925
Less movements in temporary differences recognised in deferred tax expense:
Property, plant and equipment	(61,893)	(45,146)
Other amounts accrued	(3,886)	(1,114)
Recognition/(utilisation) tax losses and offset	31,159	(1,665)
Total movements in temporary differences recognised in deferred tax expense	(34,620)	(47,925)
Income tax payable in respect of financial year	-	-

The Group's current tax expense for the year ended 30 June 2019 is nil (2018: nil) due to the existence of tax deductions available to the Group as a result of the Group’s ability to claim tax depreciation on NSW lease assets utilising Division 58 of the Income Tax Assessment Act 1997 and to utilise offsets generated in previous years.

ARTC had an Effective Tax Rate (ETR) of -8.4% as a result of the deferred tax asset recognition. Excluding the deferred tax asset recognition, the normalised ETR is 30.2%.

Amounts charged or credited directly to equity

	Consolidated
	2019 $000	2018 $'000
Deferred income tax related to items charged directly to equity
Net (loss)/gain on net revaluation of infrastructure assets	(58,296)	13,431
Net (loss)/gain on defined benefit plan	(1,063)	326
Net (loss)/gain on foreign exchange hedge	-	4
	(59,359)	13,761
Deferred income tax charge included in equity comprises:
(Decrease)/increase in deferred tax liabilities	6,693	23,888
(Increase)/decrease in deferred tax assets	(66,052)	(10,127)
	(59,359)	13,761

The income tax charged directly to equity of $58.3m (2018: $13.4m) is the tax effect of the net revaluations of $194.3m (2018: $44.8m), see note 7(c) .The income tax charged directly to equity of $1.1m (2018:$0.3m) is the tax effect of the defined benefit amount included in other comprehensive income $3.5m (2018: $1.1m), see note 7(g).

(h) Recognition/(reversal) of impairment

Accounting policy

Impairment

Accounting policies for impairment refer to note 7(c).

(i) Reconciliation EBITDAI and EBIT to Income Statement

Note 6 Financial assets and financial liabilities

(a) Cash and cash equivalents

Cash at bank earns interest at floating rates based on daily bank deposit rates. The "funds on deposit" at balance date reflects funds available to the Group that have been placed on deposit with major Australian banking institutions over various periods not exceeding 180 days consistent with the Group's Treasury Policy. The carrying amount of cash and cash equivalents equates to the fair value. The Group's exposure to interest rate, credit risk and rates earned for the above is set out in note 11.

(b) Trade and other receivables

An amount of $0.935m that specifically relates to rental on property has been reclassified in 2018 from Other receivables to Trade receivables.

Information on credit risk, impairment and fair value of trade and other receivables can be found in note 11.

The group's application of AASB 15 at 1 July 2018 resulted in an adjustment to the opening balance of Trade receivables of ($0.439) million (refer Note 5 (a)).

(c) Trade and other payables

Information about the Group's exposure to financial risk is set out in note 11.

Accounting policy

Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid and are measured at amortised cost. The amounts are unsecured and are usually paid within 30 days of recognition.

(d) Interest bearing liabilities

The cashflow movement of $85.5m (2018: $149.6m) differs from the variance between the balances above due to the impact of effective interest.

(e) Other liabilities

Other liabilities is primarily comprised of a refund liability in respect of the over recovery of constrained network coal revenue arising from Compliance Assessments which remain open pending final ACCC determination. See note 5(a).

Significant accounting estimate and judgements

Access Revenue - Hunter Valley Coal liability

As at 30 June 2019 provision has again been made for the ACCC Compliance Assessments which remain open i.e. relating to Calendar Years 2016-8 and to 30 June 2019 for the 2019 calendar year assessment (which is not due for lodgement until 2020).

(f) Changes in liabilities

Note 7 Non-financial assets and liabilities

Accounting policy

Inventories

Inventories are valued at lower of cost and net realisable value. Cost is assigned on a first in first out basis.

(b) Held for sale

Property held for sale last year settled in July 2018. Current held for sale assets relate to rail with a formal sale plan expected to be sold within the next 12 months. Gains and losses on the sale of the assets are recognised in the consolidated income statement under profit/(loss) on sale of assets.

On transfer to held for sale assets the assets were reviewed for impairment and subsequently impaired by $4.3m.

(c) Property, plant and equipment

Non - Current Assets

Consolidated	Construction in progress $'000	Freehold land $'000	Freehold buildings $'000	Leasehold buildings $'000	Leasehold Improvements -infrastructure $'000	Plant & Equipment -Infrastructure $'000	Plant & Equipment -Other $'000	Total $'000
At 1 July 2017
Cost or fair value	289,046	16,434	17,903	18,077	3,483,778	731,880	92,496	4,649,614
Accumulated depreciation	-	-	(5,267)	(4,761)	(250,786)	(55,716)	(43,234)	(359,764)
Net book amount	289,046	16,434	12,636	13,316	3,232,992	676,164	49,262	4,289,850
Year ended 30 June 2018
Opening net book amount	289,046	16,434	12,636	13,316	3,232,992	676,164	49,262	4,289,850
Additions	-	69	474	391	108,515	99,827	5,627	214,903
Impairment expense	(7,882)	-	-	-	(10,920)	(769)	-	(19,571)
Borrowing costs capitalised	1,929	-	-	-	-	-	-	1,929
Additions into capital works in progress	288,116	-	-	-	-	-	-	288,116
Depreciation charge	-	-	(535)	(563)	(137,464)	(30,496)	(8,430)	(177,488)
Transfers out of capital work in progress	(214,903)	-	-	-	-	-	-	(214,903)
Written down value of assets disposed	-	-	-	-	-	(2,105)	(96)	(2,201)
Reversal of revaluation of assets	-	-	-	-	(21,982)	(12,873)	-	(34,855)
Revaluation of assets	-	-	-	-	79,627	-	-	79,627
Closing net book amount	356,306	16,503	12,575	13,144	3,250,768	729,748	46,363	4,425,407
At 30 June 2018
Cost or fair value	356,306	16,503	18,378	18,467	3,521,538	786,303	96,800	4,814,295
Accumulated depreciation	-	-	(5,803)	(5,323)	(270,770)	(56,555)	(50,437)	(388,888)
Net book amount	356,306	16,503	12,575	13,144	3,250,768	729,748	46,363	4,425,407

(i) Basis of valuation

Property, plant and equipment, excluding construction in progress, is recognised at cost of acquisition, and subsequently carried at fair value less depreciation and impairment. At 30 June 2019 the Group undertook a fair value assessment using an income method approach as there are no similar market quoted assets. The net present value of the cash flows for each business unit is compared with the current carrying value. Gains on revaluation are recognised in the revaluation reserve, while revaluation decrements are reversed out of the revaluation reserve to the extent available, after which, decrements are recognised as an impairment expense in the Consolidated income statement. Property, plant and equipment discount cash flow reviews are undertaken annually to ensure significant movements are identified and accounted for.

The 30 June 2019 assessment resulted in an downward revaluation of the Interstate business unit's assets. The result of this year's assessment is a $504.6m valuation decrement of which $216.6m has been reversed out of the available revaluation reserve (2018: $34.9m), with the balance of $288.0m, being recognised as an impairment expense in the Consolidated income statement (2018: $9.5m).

The Hunter Valley business unit assets were previously revalued. The result of this year's assessment is a $22.3m valuation increment (2018: $79.6m valuation increment) recognised through the revaluation reserve. For further details on the calculation refer to note 11(d).

If infrastructure assets were stated on the historical cost basis less impairment, the amounts would be as follows:

	Consolidated
	2019 $'000	2018 $'000
Infrastructure assets
Plant & Equipment
Cost	1,057,207	918,363
Accumulated depreciation	(280,471)	(261,787)
Net book amount	776,736	656,576
Leasehold Improvements
Cost	3,958,496	3,822,782
Accumulated depreciation	(980,903)	(845,641)
Net book amount	2,977,593	2,977,141

Construction in progress assets are carried at cost less impairment. The group assesses at the end of each reporting period whether there is any indication that an asset may be impaired, and if such indicators exist, the Group performs an assessment to determine the recoverable amount of an asset. At 30 June 2019 the Group undertook an impairment assessment on the assets and capital works in progress directly related to the Inland Rail project. The expenditure has been assessed on an individual asset basis in accordance with each identifiable assets highest and best use and compared to market values where available. Where market values were not available the Group determined the recoverable amount of assets using the income approach. While the project is expected to make an operating profit on completion, capital recovery will take a significant period of time, as such this assessment has resulted in an impairment of $158.4m for 30 June 2019 (2018: $10.0m).

Significant accounting estimates and judgements

Fair Value

In order to comply with relevant accounting standards the Group undertook a fair value assessment of its infrastructure assets, the results of which are detailed in this note and note 11(d)(iii). Key assumptions when completing the assessment are: forecast data including revenue, expense and capital cash flows and the discount rate used. Therefore, management has reviewed the cash flow to account for any known variables and to ensure a market participant would view the positions taken as reasonable. In addition, the discount rate used is compiled with the support of an external specialist. Note [11(d)(iv)] and ([v]) contains further detail on the process and valuation technique.

Accounting policy

Property, plant and equipment

Infrastructure is valued on a fair value basis while all non-infrastructure is on a cost basis and therefore is subject to an impairment/revaluation assessment at each reporting date.

Fair Value

The fair value for infrastructure assets is calculated using the income method approach taking into account the characteristics of the asset that market participants would consider, whereby the measurement reflects current market expectations of future cashflows discounted to their present value for each asset grouping that would be considered reasonable by a normal market participant. The estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects an expert's assessment of current market assessments of the time value of money and the business risk.

Fair value assessments are not applied to non-infrastructure assets on the basis that these assets such as motor vehicles, information technology and other non-infrastructure assets are transferable within the Group and have a short life and a ready market. The written down value of these assets is in line with their fair value.

All other property, plant and equipment are stated at historical cost less accumulated depreciation, and any accumulated impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Revaluation

The Group’s infrastructure assets are revalued each year end as a result of the fair value assessment. Infrastructure assets are shown at fair value (inclusive of revaluations and impairments) less accumulated depreciation. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.

Any revaluation increment is credited to the asset revaluation reserve included in the equity section of the consolidated balance sheet, except to the extent that it reverses a revaluation decrement of the same asset previously recognised in the consolidated income statement, in which case the increase is recognised in the consolidated income statement (net of tax). Revaluation increments and decrements recognised are allocated to the infrastructure asset carrying amounts within the asset grouping on a pro rata basis.

At the commencement of the application of Australian International Financial Reporting Standards the Group elected that the deemed cost of assets on hand at 30 June 2005 was the revalued amount of those assets. Any accumulated depreciation as at the revaluation date was eliminated against the gross carrying amount of the asset and the net amount was restated to the revalued amount of the asset. Items of property, plant and equipment are either derecognised on disposal or when no further future economic benefits are expected from its use. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the consolidated income statement. Upon disposal or derecognition, any revaluation reserve relating to the asset is transferred to retained earnings.

Impairment

The carrying amounts of the Group’s non-financial assets, other than inventories, deferred tax assets and infrastructure assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any indication exists, then the asset’s recoverable amount is estimated. An impairment expense is recognised if the carrying amount of an asset or cash generating unit (CGU) exceeds it recoverable amount.

The recoverable amount of non - infrastructure assets is determined based on the fair value less costs to sell.

Cost

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred.

Accounting policy

Depreciation

Land is not depreciated. The cost of improvements to or on leasehold properties is amortised over the expected lease term or the estimated useful life of the improvement to the Group, whichever is the shorter. Depreciation on other assets is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows:

Maximum Economic Useful Life*

Infrastructure assets

Ballast 60 years

Bridges 100 years

Culverts 100 years

Rail 110 years

Sleepers 70 years

Signals & Communications 30 years

Turnouts 60 years

Tunnels 100 years

Non-Infrastructure assets

Buildings 50 years

IT & Other equipment 4 years

Motor vehicles 5 years

Other equipment 40 years

* Depending on the age and location of particular assets, the economic life may vary. The maximum economic useful lives are reviewed at the end of each financial year end and adjusted if required.

Capital work in progress and capitalisation

Work in progress comprises expenditure on incomplete capital works. Expenditure on the acquisition of new infrastructure assets is capitalised when these new assets increase the net present value of future cash flows.

Infrastructure assets in the course of construction are classified as capital work in progress. Capital works in progress are recorded at cost including borrowing costs capitalised where applicable and are not depreciated until they have been completed and the assets are ready for economic use.

(d) Intangible assets

Accounting policy

Intangible assets

Computer software has a finite useful life and is carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method to allocate the cost of computer software over its estimated useful life of four years.

ARTC recognises land usage rights when costs are incurred to obtain land which ARTC does not retain title but through leasing rights has the ability to utilise the land. Under lease arrangements, ARTC may provide funds to other government bodies to acquire additional land holdings to enable the infrastructure to be expanded. ARTC is not entitled to be reimbursed for this expenditure but has the right to use the land. The land rights have a finite useful life expiring in conjunction with the relevant lease and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method to allocate the cost of land rights over its estimated useful life.

Other intangible assets relate to contractual rights in relation to a wholesale access agreement which provides a pricing cap over the third party infrastructure asset between Kalgoorlie and Perth which completes track access between the east and west coast of Australia. These rights have a finite useful life and amortisation is calculated using the straight line method to allocate cost over the estimated useful life.

Annual impairment considerations are undertaken through the fair value less cost to sell approach as these assets are part of the asset grouping in the highest and best use assessments.

(e) Deferred tax balances

(i) Deferred tax assets

At 30 June 2019, the Group has unrecognised deferred tax assets in relation to temporary differences of $424.1m (2018: $264.6m) associated with the Group's ability to claim tax depreciation on NSW lease assets utilising Division 58 of the Income Tax Assessment Act 1997 and also due to the cumulative impacts of impairment of assets on the North South corridor within the Interstate rail network.

The Group has an unrecognised deferred tax asset in relation to a carried forward capital loss of $1.3m (2018: $0.7m). It is not recognised on the basis that there are no forecast future capital gains against which the loss could be utilised.

(ii) Deferred tax liabilities

Tax Strategy, Risk Management and Governance

ARTC has developed a Board approved Tax Governance Policy to guide the way in which the Group manages its tax obligations and is consistent with the Group’s corporate governance framework reflecting the ASX “Corporate Governance Principles and Recommendations” and the Group’s low risk appetite.

The Policy is supported by tax related procedures and processes which ensure ARTC effectively manages its tax risk.

ARTC’s approach to taxation aligns with the Group’s business strategy, code of conduct and values. As a Government Business Enterprise, ARTC is governed by the Public Governance, Performance and Accountability Act (2013) [PGPA Act] and Government Business Enterprise [GBE] Guidelines. ARTC considers the interests of its Shareholder in the adoption of low risk tax strategies and avoidance of non-compliant tax practices.

ARTC seeks to uphold the reputation of the Group and its Shareholder by giving due consideration to its social and corporate responsibility to pay the right amount of tax, at the right time, in the right jurisdiction and be transparent in the conduct of its tax affairs.

Tax Planning and Relationship with Tax Authorities

ARTC does not undertake transactions of a contrived or artificial nature for the purpose of obtaining a tax benefit. All transactions are undertaken in the context of the commercial needs of the company, which are of primary importance.

ARTC engages in Tax Planning in order to legitimately achieve the best after tax outcomes, that is, through claiming available deductions, tax rebates, offsets and credits. ARTC is committed to observing all applicable tax laws, rulings and regulations in meeting its tax compliance obligations in all jurisdictions where ARTC operates.

Professional opinions are obtained from reputable external advisors on matters where the amount of the tax involved is significant and the tax treatment is complex or relates to non-routine transactions. Where management considers it appropriate, ARTC engages with the tax authorities to obtain formal guidance (including private binding rulings) in relation to the taxation consequences of complex or non-routine transactions or where there is uncertainty in the application of the tax laws.

Significant accounting estimates and judgements

Deferred tax recognition

The Group has recognised a net deferred tax asset as set out in this note in relation to deductible temporary differences to the extent that a deferred tax liability exists in relation to taxable temporary differences, which are expected to reverse over the same periods. In addition, an excess deferred tax asset has been recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. The recognition of the net deferred tax asset is considered appropriate following an assessment of the overall forecast accounting profit and tax payable position of the Group.

Accounting policy

Income tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current periods taxable income and any adjustments in respect of prior years. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Deferred tax liabilities (DTLs) are recognised for all taxable temporary differences between the carrying amount of assets and liabilities for financial reporting and the amounts used for taxation purposes.

Deferred tax assets (DTAs) are recognised for all deductible temporary differences, carry forward of unused tax offsets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the unused tax offsets and losses can be utilised.

Division 58 of the Income Tax Assessment Act 1997 (“Division 58"), has entitled the Group to value certain assets, for taxation purposes, using pre-existing audited book values or the notional written down values of the assets as appropriate. This effectively means the tax depreciable value of these rail infrastructure and related assets significantly exceeds the carrying value. Accordingly, Division 58 results in significant deductible temporary differences and potential DTAs. The carrying amount of DTAs is reviewed at each reporting date and adjusted to the extent that it is probable that sufficient taxable profit will be available to allow the deferred tax asset to be utilised.

DTAs and DTLs are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. DTAs and DTLs are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the DTAs and DTLs relate to the same taxable entity and the same taxation authority.

Tax consolidation

Australian Rail Track Corporation Ltd and its wholly owned Australian controlled entities consolidated for income tax purposes as of 1 July 2003.

The head entity, Australian Rail Track Corporation Ltd, and the controlled entities in the income tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the stand alone taxpayer approach, consistent with the requirements of Interpretation 1052, in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the income tax consolidated group. In addition to its own current and deferred tax amounts, Australian Rail Track Corporation Ltd also recognises the current tax liabilities (or assets) and the DTAs arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group.

Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities.

(f) Provisions

(i) Information about individual provisions and significant estimates

The incident provision recognises the Group's estimate of the liability with respect to costs associated with damage caused by incidents such as derailments, which occurred whilst using the Group's rail infrastructure.

Significant accounting estimates and judgements

Incident recognition

The provision for incidents recognises the Group’s estimated liability with respect to costs associated with damage caused by incidents such as force majeure, derailments, including the potential for third party and/or insurance recoveries.

(ii) Movements in provisions

Movements in each class of provision during the financial year are set out below:

2019	Employee benefits $'000	Incident $'000	Total $'000
Carrying amount at 1 July	47,586	14,549	62,135
Additional provisions recognised	31,742	24,624	56,366
Amounts used during the year	(27,474)	(22,434)	(49,908)
Carrying amount at 30 June	51,854	16,739	68,593

Accounting policy

Employee benefits

(i) Short term obligations

Liabilities for wages and salaries, including non-monetary benefits expected to be settled within twelve months of the reporting date are recognised in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.

(ii) Long term obligations

The liability for long service leave and associated on-costs is accumulated from the date of commencement. They are measured at the amounts expected to be paid when the liabilities are settled and discounted to determine their present value. Consideration is given to expected future wage and salary levels with an allowance for expected future increases.

As not all annual leave is expected to be taken within twelve months of the respective service being provided, annual leave obligations are classified as long term employee benefits in their entirety. Annual leave is measured on a discounted basis utilising the high quality corporate bond rates when discounting employee benefit liabilities.

Provisions

Provisions for legal claims and incident provisions, service warranties and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the obligation at the reporting date.

(g) Non-current liabilities - Defined benefit plans

(i) Consolidated Balance Sheet amounts

The amounts recognised in the balance sheet and the movements in the net defined benefit obligation over the year as follows:

(ii) Superannuation plan

On commencement on 5 September 2004 of the 60 year lease with the NSW Government to operate the NSW interstate main lines, the Hunter Valley business unit and dedicated metropolitan freight lines to the Sydney Ports, employees previously employed by Rail Infrastructure Corporation/State Rail Authority and now currently employed by ARTC, are members of the three defined benefit funds listed below. As part of that arrangement ARTC is required to make an annual contribution that covers all three schemes to assure that the schemes are sufficiently funded.

State Authorities Superannuation Scheme (SASS)

SASS is a split benefit scheme, which means it is made up of an accumulation style contributor financed benefit and a defined benefit style employer financed benefit. Employees can elect to contribute between 1% and 9% of their salary to SASS and can vary their contribution rate each year. Generally, each percentage of salary that a member contributes each year buys the member one benefit point which is used in the calculation of the employer financed benefit.

State Superannuation Scheme (SSS)

SSS is a defined benefit scheme which means that benefits are based on a specified formula, and as such are not affected by investment returns. SSS members contribute towards units of fortnightly pension throughout their membership.

State Authorities Non-Contributory Superannuation Scheme (SANCS)

SANCS is a productivity type superannuation benefit accrued by SASS members in addition to their contributory scheme benefits. Calculated at 3% of final average salary or final salary, depending on the mode of exit, for each year of service from 1 April 1988. It is fully employer financed.

All the schemes are closed to new members.

The schemes in the Pooled Fund are established and governed by the following NSW legislation: Superannuation Act 1916, State Authorities Superannuation Act 1987, Police Regulation (Superannuation) Act 1906, State Authorities Non-contributory Superannuation Scheme Act 1987, and their associated regulations.

Under a Heads of Government agreement, the New South Wales Government undertakes to ensure that the Pooled Fund will conform to the principles of the Commonwealth’s retirement incomes policy relating to preservation, vesting and reporting to members and that member benefits are adequately protected.

An actuarial investigation of the Pooled fund is performed every three years. The last actuarial triennial review was performed as at 30 June 2018.

The Fund's Trustee is responsible for the governance of the Fund. The Trustee has a legal obligation to act solely in the best interests of fund beneficiaries. The Trustee has the following roles:

• Administration of the fund and payment to the beneficiaries from fund assets when required in accordance with the fund rules;
• Management and investment of the fund assets; and
• Compliance with other applicable regulations.

(iii) Categories of plan assets

The asset recognised does not exceed the present value of any economic benefits available in the form of reductions in future contributions to the plan.

All Pooled Fund assets are invested by SASS Trustee Corporation at arm’s length through independent fund managers, assets are not separately invested for each entity and it is not possible or appropriate to disaggregate and attribute fund assets to individual entities. As such, the disclosures below relate to total assets of the Pooled Fund and therefore will not match the balance of ARTC fair value of plan assets as disclosed in g(i).

(iv) Actuarial assumptions and sensitivity

Actuarial assessment undertaken by Mercer as at 30 June 2019 contains the following significant independent actuarial assumptions (expressed as weighted averages):

	Consolidated
	2019	2018
Discount rate	3.0%	4.2%
Rate of CPI increase	2.3%	2.5%
Future salary increases	3.2%	3.2%

Scenarios related to changes to the discount rate (effectively investment return), salary growth rate and rate of CPI increase relate to sensitivity of the total defined benefit obligation to economic assumptions, and scenarios related to pensioner mortality relate to sensitivity to demographic assumptions. The assumption as to the expected rate of return on assets is determined by weighing the expected long term return for each asset class by the target allocation of assets to each class. The returns used for each class are net of investment tax and investment fees.

The sensitivity of the total defined benefit obligation as at 30 June 2019 under several scenarios is shown below.

				Impact on defined benefit obligation
	Change in assumption		Increase in assumption		Decrease in assumption
			2019	2018	2019	2018
			$'000	$'000	$'000	$'000
Discount rate	1.0%		5,541	4,700	(4,485)	(3,840)
Salary growth rate	0.5%		908	908	(875)	(874)
Rate of CPI increase	0.5%		1,585	1,228	(1,443)	(1,222)
Pensioner mortality rate	Higher mortality** /Lower mortality *		600	435	(276)	(204)

*Assumes the short term pensioner mortality improvement factors for years 2019-2023 also apply for years after 2023

**Assumes the long term pensioner mortality improvement factors for years post 2023 also apply for years 2019 to 2023

The defined benefit obligation has been recalculated by changing the assumptions as outlined above, whilst retaining all other assumptions.

(v) Risk Exposure

There are a number of risks to which the Fund exposes the Employer. The more significant risks relating to the defined benefits are:

• Investment risk - The risk that investment returns will be lower than assumed and the Employer will need to increase contributions to offset this shortfall.
• Longevity risk - The risk that pensioners live longer than assumed, increasing future pensions.
• Pension indexation risk - The risk that pensions will increase at a rate greater than assumed, increasing future pensions.
• Salary growth risk - The risk that wages or salaries (on which future benefit amounts for active members will be based) will rise more rapidly than assumed, increasing defined benefit amounts and thereby requiring additional employer contributions.
• Legislative risk - The risk is that legislative changes could be made which increase the cost of providing the defined benefits.

The defined benefit fund assets are invested with independent fund managers and have a diversified asset mix. The Fund has no significant concentration of investment risk or liquidity risk.

(vi) Defined benefit liability and employer contributions

In accordance with the Occupational Superannuation Standards Regulations and Australian Accounting Standard AASB 1056 "Superannuation Entities" funding arrangements are reviewed at least every three years following the release of the triennial actuarial review and was last reviewed following completion of the triennial review as at 30 June 2018. Contribution rates are set after discussions between the employer, STC and NSW Treasury.

The next triennial review is at 30 June 2021, the report is expected to be released by the end of 2021.

Funding positions are reviewed annually and funding arrangements may be adjusted as required after each annual review.

Expected contributions to defined benefit plans for the year ending 30 June 2019 are $1.4m. Following the triennial review of the Defined Benefit Fund as at 30 June 2018 it was determined that ARTC employer contribution would remain at $1.4m p.a. for each of the 3 years and be subject to ongoing review.

The weighted average duration of the defined benefit obligation is 12.6 years (2018: 13.1 years).

(vii) Amounts recognised in consolidated income statement

The amounts recognised in the consolidated income statement in employee benefits expense are as follows:

Significant accounting estimates and judgements

Defined benefit plan

Various actuarial assumptions are required when determining the Group's defined benefit obligations that are highlighted in this note above.

Accounting policy

Defined benefit plan

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, in other comprehensive income. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss.

The defined benefit asset or liability recognised in the consolidated balance sheet represents the present value of the defined benefit obligation, less the fair value of the plan assets. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the plan.

The high quality corporate bond rates have been utilised when discounting employee benefit liabilities as of 30 June 2019.

(h) Liabilities - Deferred income government grants

The grants received primarily arise from rail projects delivered under the Infrastructure Investment Programme, including the Inland Rail Project, to improve efficiency and safety of the National Land Transport Network. Previously the Company has been awarded other grants from the Government of Victoria and other state funded projects.

Accounting policy

Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Where the grants have attached conditions and/or are project specific, they are recognised at their fair value and initially credited to deferred income upon receipt, then recognised in the consolidated income statement over the period necessary to match them with the costs that they are intended to compensate. Where those grants relate to expenditure that is to be capitalised, they are credited to the consolidated income statement on a straight line basis over the expected lives of the related assets from the date of commissioning. Grants that compensate the Group for expenses incurred are recognised in the income statement on a systematic basis in the periods in which expenses are recognised e.g. Inland Rail Project.

Note 8 Equity

Equity injections for Inland Rail of $194.7m (2018: $83.43m) and Adelaide to Tarcoola Re-Railing Project of $96.0m (2018: $60.0m) have been received throughout the year.

(ii) Ordinary shares

On a show of hands every holder of ordinary shares present at a meeting in person, or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held.

Accounting policy

Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(i) Asset revaluation reserve

The property, plant and equipment revaluation reserve is used to record increments and decrements on the revaluation of infrastructure assets.

(ii) Profit reserve

The profit reserve is used to preserve current profits for the purpose of paying dividends in future years.

(iii) Hedge reserve - cash flow hedges

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. Amounts are reclassified to the consolidated income statement when the associated hedged transaction settles.

(c) Retained earnings

Movements in retained earnings were as follows:

The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers. This resulted in an adjustment of $0.025 million to retained earnings (nil tax impact) as at 1 July 2018, being the cumulative effect on initial application of the AASB 9 (refer to Note 11(b)(ii)).

AASB 15 was adopted on modified retrospective basis resulting in an adjustment of $0.439 million to retained earnings (tax impact of $0.131m) as at 1 July 2018, being the cumulative effect on initial application of AASB 15 (refer to Note 5(a)).

The comparative results for the year ended 30 June 2018 are not restated as permitted by the standards.

Note 9 Cash flow information

Note 10 Capital management

(a) Risk management

The Group's objectives when managing capital are to:

• safeguard the ability to continue as a going concern (refer to note 20(e)), so that it can continue to provide returns for shareholders and benefits for other stakeholders; and
• maintain an optimal capital structure to reduce the cost of capital

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

During 2019 the Group's objective was to maintain a gearing ratio under 40% (2018: 40%). The gearing ratios were as follows:

		Consolidated
	Notes	2019 $'000	2018 $'000
Total Borrowings	6(c), 6(d)	592,657	474,125
Less cash and cash equivalents	6(a)	(21,852)	(61,554)
Adjusted net debt		570,805	412,571
Total equity		3,313,909	3,678,746
Adjusted equity		3,884,714	4,091,317
Net debt to adjusted equity ratio		14.7%	10.1%

Total borrowings include trade and other payables and the impact of amortised interest and fees. Adjusted equity equates to equity as reported plus adjusted net debt as calculated above.

Note 11 Financial risk management

The Group's principal financial instruments comprise receivables, payables, bonds, banking facilities, cash, short term deposits and derivatives. The carrying amount equates to the fair value of the financial instruments.

Risk management framework

The Group's Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Treasury Committee, a committee reporting to the CEO, is responsible for reviewing, monitoring and endorsing funding and risk management strategies. Treasury identifies, evaluates and monitors compliance and manages financial risks in accordance with the Treasury Policy and Strategy. Treasury provides updates to the Audit and Compliance Committee which oversees adequacy, quality and effectiveness of governance and financial risk management.

The Group's activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. Note the Group’s current activities do not expose it to price risk. The Group's overall financial risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses fixed rate debt instruments, derivative financial instruments such as foreign exchange contracts and interest rate swaps to hedge cash flow risk exposures. Derivative financial instruments are exclusively used for hedging purposes, that is, not as trading or other speculative instruments. The Group uses different methods to identify and measure various different types of risk to which it is exposed.

(a) Market risk

(i) Foreign exchange risk

Foreign exchange risk arises from future commercial transactions such as purchases of equipment and supplies from overseas. All significant non - Australian dollar denominated payments require Treasury to assess and mitigate the Group's foreign exchange risk.

Forward contracts are generally used to manage foreign exchange risk predominantly in USD purchases. Treasury is responsible for managing the Group's exposures in each foreign currency by using external foreign currency instruments in accordance with Board approved Treasury Policy.

The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the cash flows occur, the Group adjusts the initial measurement of the component recognised in the consolidated income statement by the related amount deferred in equity.

During the year ended 30 June 2019 there were no reclassifications of cash flow hedge from equity to the income statement (2018: $(0.054m)) due to the maturing of the hedges. There was no hedge ineffectiveness in the current year expensed to the income statement (2018: $0.019m).

(ii) Interest rate risk

The Group’s policy is to invest its available cash reserves with due regard to the timing and magnitude of operational cash flow requirements. The Group manages its interest rate risk by entering into and designating interest rate related authorised hedging instruments as hedges. As at the reporting date, cash reserves are being held as cash and short term investments.

The gain or loss from re-measuring the hedging instruments at fair value is recognised in other comprehensive income and deferred in equity in the hedging reserve, to the extent that the hedge is effective. It is reclassified into the income statement when the hedged interest expense is recognised. For the year ended 30 June 2019 there were no interest rate hedges established, therefore, there was no impact on the financial statements. Refer to the accounting policy at the end of this note.

(iii) Classification of derivatives

Derivatives are designated and documented as hedging instruments and for the effective portion of the hedge accounted for at fair value in other comprehensive income and deferred in equity in the hedging reserve. It is reclassified into the income statement when the hedged interest expense is recognised.

(iv) Sensitivity analysis - interest rate and foreign currency

This analysis assumes all other variables are constant. All current bonds are issued at fixed rates. Foreign currency derivatives balances were low or nil in both the current and previous financial periods and therefore excluded from the above sensitivity analysis.

(b) Credit risk

(i) Risk management

The Group's exposure to credit risk arises from potential default of the counterparty, with a maximum exposure equal to the carrying amount. Credit risk is managed on a Group basis. Credit risk arises predominantly from trade and other receivables and a very minimal amount from cash and cash equivalents. The Group does not hold any credit derivatives to offset its credit exposure.

The Group's Treasury Policy mitigates credit risk including that related to cash and cash equivalents by outlining the approach to the management of counterparty credit risk as approved by the Board. A number of criteria are utilised to manage and spread the level of risk such as: minimum credit rating of counterparty (investment grade), maximum credit exposure to any one counterparty and consideration of counterparty concentration risk. The Group generally utilises large A-1/AAA rated banks and therefore as a result credit risk is very minimal on cash and cash equivalents.

The Group's policy is that all customers enter into access agreements meeting the terms and conditions as set out in the agreement before entering the Group's rail network and receiving any trade credit facilities.

The Group’s exposure to bad debts has been historically low and statistically insignificant. The Group does have significant concentration of credit risk associated with major customers providing a high proportion of access revenue. Bad debt provisions are assessed on an individual basis in addition to an expected credit loss calculation.

(ii) Credit quality: Allowance for impairment

As at 1 July 2018, the group has moved from an 'incurred loss' model to an 'expected credit loss model' to comply with the new Accounting Standard AASB 9 Financial Instruments. A specific provision for impaired receivables will continue to be recognised for all known exposures and an expected credit loss allowance will be recognised for potential future exposures.

The Group has chosen to use the Simplified Approach in determining its expected credit loss allowance for trade receivables which is made up of accruals or amounts where credit risk is non - existent are assessed using relevant impairment indicators. Under the Simplified Approach, a matrix has been used as the practical expedient to determine expected credit losses on trade receivables. The matrix incorporates forward looking information and historical default rates. The inputs to the matrix include revenue, trade receivable collections, trade receivable write-offs and reasons for bad debts. The output of the matrix is an average 3 year default rate for each aged trade receivable range, with the addition of the specific provision for impaired receivables included. The average default rate is then applied to the aged trade receivable balances at each reporting date to calculate the expected credit loss allowance.

As at 30 June 2019, the expected credit loss allowance calculated using the average 3 year default rate for the group was calculated as $0.106m (2018: $0.213m of which $0.188 was a specific impairment and $0.025m was the calculated expected credit loss allowance that was restated through opening retained earnings). The individually impaired items primarily relate to rental on property where the lessees have fallen behind on lease payments.

The following table provides information about the exposure to credit risk and expected credit losses for trade and other receivables as at 30 June 2019.

Trade receivables

30 June 2019	Total	Current	>30 Days	> 60 Days	> 90 Days	> 90 Days (Specific Provision)
	$'000	$'000	$'000	$'000	$'000	$'000
Trade receivables	56,515	28,872	26,599	232	812	-
Other receivables	2,097	1,795	52	42	208	-
Total	58,612	30,667	26,651	274	1,020	-
Expected credit loss rate		0.03%	0.03%	0.46%	0.77%
Allowance for expected credit loss	(106)	(9)	(9)	(1)	(8)	(79)

Movements in the allowance for expected credit losses of trade receivables are as follows:

	Trade receivables
	2019	2018
	$'000	$'000
At 30 June – calculated under AASB 139	(188)	(114)
Amounts restated through opening retained earnings	(25)	-
Opening loss allowance as at 1 July 2018 – calculated under AASB 9	(213)	(114)
Increase in expected credit loss allowance recognised in profit or loss during the year	(2)	-
Receivables written off during the year as uncollectible	(137)	(242)
Unused amount reversed	246	168
At 30 June	(106)	(302)

The creation and release of the allowance for expected credit losses has been included in 'other expenses' in the income statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of committed credit facilities to support funding requirements and the ability to close out market positions. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and maintaining adequate liquidity reserves to support forecast net business expenditure requirements for a minimum of twelve months on a rolling monthly basis.

As at 30 June 2019, $150m of the $800m syndicated debt facility has been utilised (2018: $65m). The Group has a $1,500m Australian Dollar Domestic Note programme of which $300m is issued (note 6(d)). The Group also has access to business card facilities of $2m (2018: $2m).

Maturities of financial assets and liabilities based on contractual maturities

The tables below analyse the Group's financial assets and liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date.

The amounts disclosed in the table are the contractual principal and accrued interest undiscounted cash flows.

(d) Fair value measurements

(i) Fair value hierarchy and accounting classification

Judgements and estimates are made in determining the fair values of the items that are recognised and measured at fair value in the financial statements. The reliability of the inputs used in determining fair value has been classified into the three levels prescribed under AASB 13. An explanation of each level follows underneath the table.

Level 1: The fair value of instruments traded in active markets (such as publicly traded derivatives and trading and available-for-sale securities) is based on quoted market prices at the end of the reporting period. These instruments are included in level 1.

Level 2: The fair value of instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Disclosed fair values

The carrying amounts of trade receivables and payables, bonds, banking facilities, cash and short term deposits equates approximately to their fair values due to their nature and are carried at amortised cost.

There were no transfers between levels 1, 2 and 3 for recurring fair value measurements during the current or the previous financial year. The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

(ii) Valuation techniques used to determine fair values

Specific valuation techniques used to value financial instruments include:

• The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. The present values and discounted rates used were adjusted for counterparty and own credit risk and are not considered a significant input.
• The fair value of foreign contracts is calculated as the present value of the future cash flows based on the forward exchange rates at the consolidated balance sheet date.
• The fair value of infrastructure assets is determined using risk adjusted discounted cash flow projections based on reasonable estimates of future cash flows.

(iii) Fair value measurements using significant unobservable inputs (level 3)

The following table presents the changes in level 3 items for the periods ended 30 June 2018 and 30 June 2019 for the Group:

(iv) Valuation inputs and relationships to fair value

The following table summarises the information about the significant unobservable inputs used in level 3 fair value infrastructure asset measurements. See (ii) above for the valuation techniques adopted.

(v) Valuation processes

The Group calculates the fair value for infrastructure assets using the income method approach, whereby the measurement reflects current market expectations of future cashflows discounted to their present value for each asset group that would be considered reasonable by a normal market participant. The estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the business risk.

ARTC’s policy is to revalue on a triennial basis or in an intervening year if the fair value of the revalued asset class differs materially from its carrying amount. Property, plant and equipment reviews are undertaken annually to ensure significant movements are identified and accounted for. At 30 June 2019, the Group undertook a fair value assessment on an income method approach as there are no similar market quoted assets. The net present value of the cash flows for each business unit is compared with the current carrying value and any significant variance is taken to the financial statements.

The main level 3 inputs used by the Group for this process are derived and evaluated as follows:

• The Interstate business unit comprises the East West and North South corridors, the underlying cash flows are compiled on the basis that the CGUs operate as a combined Interstate business unit.
• Due to the long life of the asset base of the business, cash flows are considered for the ACCC approved remaining mine life for Hunter Valley or 20 years for the Interstate network.
• Expected cash flows are based on the terms of existing contracts, along with the entity’s knowledge of the business and assessment of the likely current economic environment impacts, adjusted to account for an expected arm's length market participant’s view of cash flow risks.
• Growth rates for income are derived from the underlying contract data, GDP growth rates, inflation estimates and pricing assumptions. Long term average growth rates used range from 2.8% to 4.2% (2018: 2.2% to 4.5%).
• An external expert is used to determine a nominal post-tax weighted average cost of capital range that reflects current market assessments of the time value of money and the risks specific to the relevant business units. As at 30 June 2019, the range determined across all business units is 5.8% - 7.1% (2018: 5.9% - 7.3%). The rates applied were selected from within the range applicable to each business unit.

Summarised sensitivity analysis

For the fair values of infrastructure assets, reasonably possible changes at the reporting date to one of the significant unobservable inputs, holding other inputs constant would have the following effects:

Fair Value Impact

	2019		2018
	Increase	Decrease	Increase	Decrease
	$'000's	$'000's	$'000's	$'000
Annual revenue (1% revenue movement p.a.)	136,218	(136,218)	142,984	(142,984)
Maintenance and capital expenditure (1% cost movement p.a.)	(57,113)	57,113	(52,260)	52,260
Discount rate (+/- 100bps movement)	(516,411)	1,103,813	(667,658)	1,026,708

The impact of the above sensitivities of the infrastructure asset value in percentage terms would be as follows:

	2019		2018
	Increase	Decrease	Increase	Decrease
	%	%	%	%
Annual revenue (1% revenue movement p.a.)	3.4	(3.4)	3.6	(3.6)
Maintenance and capital expenditure (1% cost movement p.a.)	1.4	(1.4)	(1.3)	1.3
Discount rate (+/- 100bps movement)	(13.0)	27.7	(16.8)	25.8

Accounting policy

Financial assets

Financial assets classified as either fair value at amortised cost, fair value through other comprehensive income (OCI), or fair value through profit or loss. The classification depends on the purpose for which the financial instruments were acquired, which is determined at initial recognition based on characteristics of the contractual cash flows of the instrument.

With the exception of trade receivables, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables are measured at the transaction price determined under AASB 15.

Subsequent to initial recognition they are measured at amortised cost using the effective interest method. The Group's financial assets at amortised cost include trade and other receivables.

Financial liabilities

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, and derivative financial instruments.

Derivative financial instruments and hedge accounting

The Group uses derivative financial instruments to hedge its foreign currency risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value with any gain or loss on remeasurement being recognised through profit or loss or other comprehensive income and later reclassified to profit or loss when the hedge item affects profit or loss. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Note 12 Subsidiaries

Significant investment in subsidiaries

The consolidated financial statements incorporate the assets, liabilities and results of the following principal non - operating subsidiaries in accordance with the accounting policy.

Name of subsidiary	Country of incorporation	Equity holding
		2019 %	2018 %
ARTC Services Company Pty Ltd	Australia	-	100
Standard Gauge Company Pty Ltd	Australia	100	100

ARTC Services Company Pty Ltd holding is now nil due to the company being wound up during the year.

Accounting policy

Subsidiaries

The consolidated financial statements incorporate the assets and liabilities of all entities controlled by the Australian Rail Track Corporation Ltd (''Company'' or ''Parent entity'') as at each balance date and the results of the controlled entities for the year then ended. Australian Rail Track Corporation Ltd and its controlled entities are referred to in this financial report as the "Consolidated Entity" or "the Group". The effects of all transactions between entities in the Consolidated Entity are eliminated in full.

Investments in subsidiaries are accounted for at cost in the individual financial statements of Australian Rail Track Corporation Ltd and are not material to the Group.

Note 13 Contingencies

The Group accounts for costs associated with rectifying rail access related incidents following their occurrence. Income from subsequent insurance and other recoveries are only recognised when there is a contractual arrangement in place and the income is virtually certain of being received. As a result, certain potential insurance and or other recoveries have not been recognised at year end, as their ultimate collection is not considered virtually certain.

Note 14 Commitments

(a) Capital commitments

At 30 June 2019, the Group has commitments in the order of $427.6m (2018: $212.6m) relating to the investment program that the Group will be undertaking in the Interstate, Hunter Valley and Inland Rail business units in the coming years.

The scope of the work includes Inland Rail project construction and a range of projects across the existing operating network. Corridor works focus on renovating and rebuilding the rail infrastructure assets to address rail's performance on the corridor.

(b) Lease commitments: Group as lessee

Non-cancellable operating leases

The Group leases various offices and warehouses under operating leases expiring within one to eight years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated.

Accounting policy

Leases - Group as a Lessee

Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short term and long term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term.

Leases in which substantially all the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight line basis over the period of the lease.

(c) Lease commitments: Group as the lessor

The Group has entered into various property leases with terms of the lease ranging from one year to indefinite. The future minimum lease payments receivable under operating leases are as follows:

	Consolidated
	2019 $'000	2018 $'000
Commitments in relation to leases contracted for at the end of each reporting period but not recognised as assets, receivable:
space
Within one year	6,663	4,969
Later than one year but not later than five years	15,787	10,449
Later than five years	14,265	9,338
	36,715	24,756

Accounting policy

Group as a lessor

Leases in which the Group retains substantially all the risks and benefits of ownership of the leased asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as rental income.

Note 15 Directors and key management personnel disclosures

(a) Remuneration of Directors and Key Management Personnel

The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key management personnel.

Note 16 Remuneration of auditors

During the year the following fees were paid or payable for services provided by the auditor of the Consolidated Entity, its related practices and non-related audit firms:

Audit and other assurance services
		Consolidated
		2019 $	2018 $
Audit services
The following total remuneration was received or is due and receivable, by the Australian National Audit Office in respect of its services, including those performed by its contractors EY for auditing the financial report of the entity in the Group		347,600	335,500
Other assurance services
The following total remuneration was received or is due and receivable, by the Australian National Audit Office in respect of its services, including those performed by its contractors EY relating to fees for Infrastructure Investment Grant Audit		11,000	11,000
Total remuneration for audit and other assurance services		358,600	346,500
Other services
Other non-audit services - asset management practices review		159,478	133,162

Note 17 Related party disclosures

(a) Ultimate controlling entity

ARTC is the ultimate Australian parent entity within the Group and the ultimate controlling entity of the Group is the Commonwealth Government.

(b) Directors

There were no related party transactions with Directors at year end (2018: $ nil).

There were no loans to Directors at year end (2018: nil).

Note 18 Significant events after the balance sheet

No other events have occurred after the balance sheet date that should be brought to account or disclosed in the year ended 30 June 2019 financial statements.

Note 19 Parent entity financial information

(a) Summary financial information

The individual financial statements for the Parent entity (Australian Rail Track Corporation Limited) show the following aggregate amounts:

(b) Contingencies of the parent entity

The parent entity accounts for costs associated with rectifying rail access related incidents following their occurrence. Income from subsequent insurance and other recoveries is only recognised when there is a contractual arrangement in place and the income is probable of being received. As a result, certain potential insurance and or other recoveries have not been recognised at year end, as their ultimate collection is not considered probable.

(c) Contractual commitments for the acquisition of property, plant or equipment

As at 30 June 2019, the parent entity had contractual commitments for the acquisition of property, plant or equipment totalling $427.6m (2018: $212.6m). These commitments are not recognised as liabilities as the relevant assets have not yet been received.

Accounting policy

Parent entity financial information

The financial information for the Parent entity, Australian Rail Track Corporation Ltd. has been prepared on the same basis as the consolidated financial statements.

Note 20 Other accounting policies

(a) New and amended standards adopted by the Group

The Group applied AASB 15 and AASB 9 for the first time. The nature and effect of the changes as a result of adoption of these new accounting standards are described below.

Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

AASB 15 Revenue from Contracts with Customers

AASB 15 supersedes AASB 111 Construction Contracts, AASB 118 Revenue and related interpretations and it applies, with limited exceptions, to all revenue arising from contracts with its customers. AASB 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The Group adopted AASB 15 using the modified retrospective method of adoption with the date of initial application of 1 July 2018. The Group assessed that the point at which the performance obligation was satisfied for the variable usage charges was the last completed train journey, therefore an adjustment was recognised for train journeys not completed at 30 June 2018 to decrease revenue by $0.439 million ($0.308 tax effected). The comparative information for the period beginning 1 July 2017 is not restated as permitted by the Standard.

The impact in the current reporting period of the application of AASB 15 as compared to AASB 111, AASB 118 and related Interpretations that were in effect before the change, is a decrease in revenue $0.233 million ($0.163 tax effected).

AASB 9 Financial Instruments

AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018; bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.

With the exception of hedge accounting, which the Group applied prospectively, the Group has applied AASB 9 retrospectively, with the initial application date of 1 July 2018, with no changes to comparatives.

(i) Classification and measurement

The classification and measurement requirements of AASB 9 did not have a significant impact on the Group. The Group continued measuring at amortised cost all financial assets previously held at amortised cost under AASB 139. The Group also continues to measure derivatives at fair value with subsequent gains through Other Comprehensive Income for the effective portion of the hedge and through profit and loss for the ineffective portion consistent under AASB 139.

(ii) Impairment

The Group have changed their accounting for impairment losses for financial assets by replacing AASB 139’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. AASB 9 requires the Group to recognise an allowance for ECLs for all debt instruments not held at fair value through profit or loss on and contract assets. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate.

The cumulative effect of adopting the ECL approach is $0.025 million (nil tax effect) to retained earnings.

(iii) Hedge accounting

The Group applied hedge accounting prospectively and has no impact on the presentation of comparative figures. At the date of initial application, all of the Group’s existing hedging relationships were eligible to be treated as continuing hedging relationships.

(b) New accounting standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2019 reporting periods and have not been early adopted by the Group. The Group's assessment of the impact of these new standards and interpretations which may be relevant to the Group are set out below.

(i) AASB 16 Leases

AASB 16 replaces existing leases guidance, including AASB 117 Leases, Interpretation 4 Determining whether an Arrangement contains a Lease, Interpretation 115 Operating Leases-Incentives and Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply AASB 15 on or before the date of initial application of AASB 16. ARTC does not plan to early adopt this standard.

AASB 16 introduces a single, on balance sheet lease accounting model for lessees. A lessee recognises a right of use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short term leases and leases of low value items. Lessor accounting remains similar to the current standard i.e lessors continue to classify leases as finance or operating leases.

ARTC with the support of its external advisor has completed a detailed assessment of the potential impact on its consolidated financial statements of the application of AASB 16. The actual impact of applying AASB 16 on the financial statements in the period of initial application will depend on economic conditions post 30 June 2019, including ARTC’s borrowing rate at 1 July 2019, the composition of ARTC’s lease portfolio at that date, and ARTC’s latest assessment of whether it will exercise any lease renewal options.

ARTC is intending to adopt the following approaches to the new standard:

• The modified retrospective approach will be applied on initial application of AASB 16 and using the option of right of use asset amount equal to the liability adjusted for prepayments/accruals where required;
• The short-term or low value exemptions will be applied to lease recognition where:
  • The lease has a term of 12 months or less at the commencement date and
  • The underlying value of the lease is of low value ($10,000).

The most significant impact identified is the recognition of new assets and liabilities for operating leases of Property, plant and equipment. As at 30 June 2019, ARTC’s future minimum lease payments under non-cancellable operating leases amounted to $34.2m, on an undiscounted basis. The amounts brought onto the balance sheet at 1 July 2019 are expected to be lower than the minimum lease payments due to the discounting requirements in the standard. In addition, the nature of expenses related to those leases will now change as AASB 16 replaces the straight line operating lease expense with a depreciation charge for right of use assets and interest expense on lease liabilities.

(ii) AASB 2017-4 Uncertainty over Income Tax Treatments

Clarification to the accounting for income tax treatments that have yet to be accepted by tax authorities.

It is noted that ARTC does not take positions that it does not expect to be accepted by the Australian Taxation Office. Additionally, ARTC obtains tax advice or seeks ATO guidance where the tax treatment of a transaction is complex or uncertain.

Therefore, this interpretation is unlikely to have an impact on ARTC.

(iii) AASB 112 Income Taxes - Income tax consequences of payments on financial instruments classified as equity

This has no impact on ARTC on the basis that ARTC does not have any Financial Instruments classified as equity, and as such no returns that would be deemed not dividends for tax purposes.

There are no other standards that have been issued or amended but are not yet effective that are expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions.

(c) Infrastructure maintenance

Infrastructure maintenance of infrastructure assets is classified as major periodic maintenance if it is part of a systematic planned program of works, occurs on a cyclical basis and is significant in monetary value. Major periodic maintenance may include significant corrective works, component replacement programs, and similar activities and these costs are expensed.

(d) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated balance sheet.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(e) Going concern

The consolidated financial statements have been prepared on a going concern basis as the Director's consider that the Group will be able to meet the mandatory repayment terms of banking facilities see note 6(d) and other amounts payable.

At 30 June 2019, the Group has a net deficiency of current assets (2019: $170.9m, 2018: $180.2m) to current liabilities (2019: $503.7m, 2018: $398.8m) of $332.8m (2018: $218.7m). Notwithstanding this deficiency, the Directors remain confident that the Group will be able to meet its debts as and when they fall due. The Directors are of the opinion that the financial statements are appropriately prepared on a going concern basis having regard to the following:

As at 30 June 2019

  The Group has net assets of $3,314m (2018: $3,679m)

  The Group generated cash from operating activities of $176.4m (2018: $318m)

  The Group expects to continue to generate positive cash flows from operating activities in the next twelve months

  The Group has $650m (2018: $385m) of unutilised funds available through a Syndicated Debt Facility Agreement (as detailed in note 11(c))

  The Group engages in active financial risk management and an established debit capital market programme which are subject to ongoing governance at Committee and Board level (as detailed in note 11)

  The Group has entered into an Equity Funding Agreement with the Commonwealth Government in relation to progressive funding to support the Inland Rail construction project.