Accounting Policy

The ATO recognises revenue when, and only when, the following three conditions have been satisfied:

1. there is a basis establishing the ATO’s right to receive the revenue;
2. it is probable that future economic benefits will be received by the ATO; and
3. the amount of revenue to be received can be reliably measured.

Estimating some revenues can be difficult due to impacts of economic conditions and timing of final taxable income, hence the ATO uses two bases of recognition:

1. Economic Transaction Method (ETM)

Revenue is recognised when the ATO, through the application of legislation to taxation and other relevant activities, gains control over the future economic benefits that arise from taxes and other statutory charges.

Where a taxation revenue type is able to be measured reliably, including transactions that are yet to occur but are likely to be reported, the ETM is applied.

Estimation techniques have inherent risks of error and rely on assumptions such as wage growth, gross domestic product (GDP) and recent historical information. Based on the information and evidence available at the date of these financial statements, the amounts disclosed represent a reliable estimate of revenue.

2. Taxation Liability Method (TLM)

Revenue is recognised at the earlier of when an assessment of a tax or superannuation liability is made, or payment is received by the ATO. Further, revenue is recognised when there is sufficient information to raise an assessment but an event has occurred which delays the issue of the assessment. This method is permitted under AASB 1004 Contributions (paragraph 30) in circumstances when there is an ‘inability to reliably measure taxes when the underlying transactions or events occur’. Revenue recognised under the TLM basis is generally measured at a later time than would be the case if it were measured under ETM.

For the unclaimed superannuation monies (USM) estimate, a change has been made to the methodology due to the introduction of the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019. Under this amending Act the ATO is now required to proactively reunite USM to an active superannuation account where the balance will be $6,000 or greater. The result of this change is a significant increase in the provision for expected future payments for amounts that were recognised as revenue in prior years. The ATO’s accounting policy is to recognise revenue based on USM received less an estimate of future outflows, as a result these amounts are reported as a reduction to revenue.

In addition to the previous USM categories, the legislation introduced a new inactive low balance account category. This change will significantly increase USM received and paid during 2019-20. These amounts will be recognised on a TLM basis for 2018-19 as the amount of the payments received and proportion subsequently reunited by the Commissioner cannot be reliably measured.

In accordance with the revenue recognition approach adopted by the Government, the ATO applies the ETM and TLM approaches as set out in the following tables.

Revenue types recognised on an ETM basis

Revenue types recognised on a TLM basis

Accounting Policy

Allowance for credit amendments and Provision for refunds

Taxpayers are entitled to dispute amounts assessed by the ATO. Where the ATO considers that the probable outcome will be a reduction in the amount of tax owed by a taxpayer, an allowance for credit amendment (if the disputed debt is unpaid) or a provision for refund (if the disputed debt has been paid) will be created and there will be a corresponding reduction in revenue.

Penalties and interest charges

Penalties and interest arising under taxation legislation are recognised as revenue at the time the penalty or interest is imposed on the taxpayer. Generally, subsequent remissions and write-offs of such penalties and interest are treated as an expense of the period. Penalties and interest that are imposed by law and immediately remitted by the Commissioner are not recognised as revenue or as an expense. Additional interest is raised for the period between the last imposition and the end of the financial year to recognise amounts not yet recorded on taxpayer accounts.

Settlements

A settlement involves an agreement between the ATO and the taxpayer to resolve matters in dispute where one or more parties make concessions on what they consider is the legally correct position. Where this results in a reduction of the amounts payable by the taxpayer, the reductions for the assessment and any associated penalties and interest charges, excluding failure to lodge penalty, are recognised as a reduction in revenue. This is consistent with AASB 1004 Contributions as the ATO never obtained control to impose the original assessment.

Pay as you go (PAYG) system

The ATO collects compulsory repayment amounts of accumulated HELP and other income contingent loan (ICL) debts through the PAYG tax system. The repayment of ICL debts reduces the loan that a person owes to the Commonwealth.

An adjustment is made to Individuals income tax revenue for the compulsory repayment of ICL debts as the collection of these amounts through the PAYG tax system does not represent revenue for the ATO and the compulsory repayments figure can be reliably estimated.