Notes to and forming part of the financial statements
for the year ended 30 June 2021
Objectives of the Australian Taxation Office
The Australian Taxation Office (ATO) is an Australian Government controlled, not-for-profit entity. The objective of the ATO is to effectively manage and shape the tax and superannuation systems that support and fund services for Australians.
Basis of preparation of the financial statements
The financial statements are required by section 42 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and are general purpose financial statements. The financial statements have been prepared in accordance with:
- Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR); and
- Australian Accounting Standards and Interpretations - Reduced Disclosure Requirements issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.
The financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.
The financial statements have been prepared on a going concern basis. The ATO’s departmental activities are dependent on government policy and continued funding by the Parliament.
The financial statements are presented in Australian dollars and values are rounded to the nearest thousand (departmental) or the nearest million (administered), unless disclosure of the full amount is required.
Unless an alternate treatment is required by an accounting standard or the FRRs, assets and liabilities are recognised in the Statement of Financial Position when, and only when, it is probable that economic benefits will flow to the ATO or a future sacrifice of economic benefits will be required and the amount can be reliably measured. However, assets and liabilities arising under executory contracts are not recognised unless required by an accounting standard. Unrecognised liabilities are reported in Note 9 Contingent Assets and Liabilities.
Unless an alternate treatment is required by an accounting standard, income and expenses are recognised in the Statement of Comprehensive Income when, and only when, the flow, consumption or loss of economic benefits has occurred and can be reliably measured.
The ATO reporting entity
Included in the ATO’s financial statements are the operations of the Australian Charities and Not-for-profit (ACNC) through the ACNC Special Account; and the operations of the Australian Business Register (ABR) and Tax Practitioners Board (TPB).
During 2020-21, as a result of the Modernising Business Registers (MBR) program, 221 staff were transferred from the Australian Securities and Investments Commission (ASIC) to the ATO via Public Service Act 1999 (Machinery of government changes) Determination (No. 3) 2021 in addition to related departmental assets and liabilities.
The MBR program’s effective administrative responsibility transfers for administered items on completion of the necessary ATO system build to deliver the MBR program. This is currently scheduled to be completed in 2022-23. This has been agreed upon by both ASIC and ATO.
Details of the Departmental assets and liabilities transferred are included at Note 22. The appropriation notes have been prepared separately in accordance with legal authority.
Reporting of administered activities
The Administered Schedules of Comprehensive Income, Assets and Liabilities, Administered Reconciliation Schedule and Administered Cash Flow Statement reflect the Government’s transactions, through the ATO, with parties outside the Government.
Administered revenues, expenses, assets, liabilities and cash flows are disclosed in the administered schedules and related noted. Except where otherwise stated, administered items are accounted for on the same basis and using the same policies as for departmental items, including the application of Australian Accounting Standards.
A commitment note is not prepared for administered financial statements due to the nature of the items reported being legislated and not contractual arrangements.
Significant accounting judgements and estimates for departmental items
The fair value of leasehold improvements is determined by estimating the depreciated replacement cost after taking the useful life and remaining useful life of the asset into consideration.
The fair value of plant and equipment is determined based on the market value for items of similar type and age or, where there is no active or comparable market, by estimating the depreciated replacement cost.
No other accounting assumptions or estimates have been identified that could have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting period.
Significant accounting judgements and estimates for administered items
Taxation revenue items reported under the economic transaction method
General interest charge revenue and remission expense that have not as yet been posted to taxpayers’ accounts
Penalties and interest charges and settlements
Allowance for impairment losses
Allowance for credit amendments and provision for refunds – key assumptions and methodologies used
The increased uncertainty surrounding the expected value and timing of repayments of administered receivables as a result of the COVID-19 pandemic have continued into the 2020-21 financial year. Administered receivables remain higher than usual which may also increase the risk of collectability. Structural shifts in repayment behaviour could cause material future changes to the impairment allowance. During the 2020-21 financial year, the ATO has revised the impairment allowance accounting estimate. Refer to the accounting policy in Note 15.
No other accounting assumptions or estimates have been identified that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting period.
New accounting standards
No accounting standard has been adopted earlier than the application date as stated in the standard.
AASB 1059 Service Concession Arrangements: Grantors became effective 1 July 2020. The ATO has assessed the standard and concluded there is no impact on the ATO’s financial statements.
Standard / Interpretation
Nature of change
AASB 1059 Service
The new standard addresses the accounting for a service concession arrangement by a grantor that is a public sector entity by prescribing the accounting for the arrangement from a grantor’s perspective.
Prior to the issuance of AASB 1059, there was no definitive accounting guidance in Australia for service concession arrangements, which include a number of public private partnerships (PPP) arrangements. The AASB issued the new standard to address the lack of specific accounting guidance and based the content thereof broadly on its international equivalent: International Public Sector Accounting Standard 32: Service Concession Arrangements: Grantor.
Changes in accounting estimates
There have been no material changes in accounting estimates applied to the 2020-21 departmental financial statements.
There have been changes to the accounting estimate for impairment allowance for the administered financial statements. Refer to the accounting policy at Note 15.
Prior period errors
In the prior period, Note 8A Financial Instruments included amounts pertaining to lease liabilities ($1.2 billion), however, this disclosure is not required under AASB 9 Financial Instruments. Note 8A has been amended in the current period and this amount removed from comparative figures. This error was a disclosure error only and has no impact of the Statement of Comprehensive Income or Statement of Financial Position.
The ATO is exempt from all forms of taxation except fringe benefits tax and the goods and services tax (GST).
Revenues, expenses, assets and liabilities are recognised net of GST except:
- where the amount of GST incurred is not recoverable under the applicable legislation; and
- for receivables and payables.
Events after the reporting date
There was no subsequent event that had the potential to significantly affect the ongoing structure and financial activities of the ATO.