Accounting Policy

Cash

Cash is the only financial asset and meets the definition of a financial instrument. The net fair value equals the carrying amount.

Receivables

ATO receivables are non-financial assets recoverable under law.

Collectability of receivables is reviewed on an ongoing basis. Where estimation is used, it represents the best estimate as at the reporting date, however inherent risks and uncertainties exist in the estimation process.

Debts which are irrecoverable at law or uneconomic to pursue are written off. However this does not preclude the Commissioner from re-raising these debts if information subsequently becomes available which indicates that recoverability action may be viable.

Parallel liabilities

Where a company fails to remit withholding tax or superannuation guarantee amounts, the Commissioner is authorised to serve notices requiring payment of estimated and outstanding amounts on the company and all associated Directors. These are called parallel liabilities and are not included in receivables or revenue. Similarly, duplications arising from debts raised under alternative provisions of the law are excluded.

Impairment on taxation receivables

An impairment allowance is created when there is evidence that the ATO will not be able to collect all of the amounts due.

A threshold is applied to determine whether the impairment allowance is calculated manually or using a statistically automated model.

In 2018-19, the ATO undertook a review of its thresholds and methodologies. As a result of this review, the threshold has been increased from $10 million to $30 million for receivables being assessed by the automated model, as it still provides a reliable estimate of the amounts to be impaired.

The effect of this change in accounting estimate as at 30 June 2019 is a decrease of $242 million.

Both estimate methodologies are based on several factors including compliance and lodgment history, the existence of a dispute over a receivable and the taxpayer’s capacity to pay, in conjunction with interpretative judgement impacting the collectability of these receivables. The amount of the impairment loss is recognised as an administered expense.

Allowance for credit amendments

An allowance for credit amendment is created when there is evidence that the ATO is likely to amend a taxation assessment in favour of the taxpayer. Where the ATO expects to amend more than the value of taxation receivables owed by a taxpayer, the ATO will recognise a provision for refund equal to the amount to be amended in the taxpayer’s favour, less any allowance for credit amendment.

A threshold is applied to determine whether the allowance for credit amendment is calculated manually or using an automated model.

As a result of the 2018-19 review of thresholds and methodologies, the threshold has been increased from $1 million to $10 million for assessments that may be amended by the automated model, as it still provides a reliable estimate of the amounts to be credit amended. While the model uses historical trends in the calculation, it has been refined to utilise more recent data to better capture trends in the estimates.

The effect of this change in accounting estimate as at 30 June 2019 is a decrease of $165 million.

For all assessments greater than $10 million that may be amended, an allowance for credit amendment is calculated on an individual basis. Interpretative judgement is used to calculate the value of credit amendments. Where a manual case assessment cannot be made a statistical model is used to estimate the value of the credit amendment. The amount of the allowance for credit amendments is recognised as a reduction in revenue.

Accrued revenues

Accrued revenues include revenue estimates made on an ETM basis and interest charges in accordance with Note 14.

Other securities

In some instances the ATO will enter into an agreement with a taxpayer to hold a security over a tax debt. These securities are not recorded in the financial statements as assets because the primary cash generating asset is the debt rather than the security over the debt.