Note 6A: Leases
Plant and equipment
Maturity analysis - contractual undiscounted cash flows
Within 1 year
Between 1 to 5 years
More than 5 years
Total cash outflow for leases for the year ended 30 June 2021 was $222,034,000 (2020: $218,206,000). The ATO leases various offices, storage areas, data centre facilities, equipment and vehicles. Lease contracts are typically made for fixed periods of 12 months to ten years but may have extension options.
Contracts may contain both lease and non-lease components. The ATO allocates the consideration in the contracts to the lease and non-lease components based on their relative stand-alone prices. However, for leases of data centre facilities, the ATO has elected not to separate lease and non-lease components and instead accounts for these as a single lease component.
Extension and termination options are included in a number of leases across the ATO. These are used to maximise operational flexibility in terms of managing the assets used in the ATO’s operations. Extension options (or termination options) are only included in the lease term if the lease is reasonably certain to be extended (or terminated).
Extension options for offices, storage areas, data centre facilities, equipment and vehicles are not reasonably certain to be exercised because the ATO could replace the assets without significant cost or business disruption.
As at 30 June 2021, potential future cash outflows of $1.109 million (undiscounted) have not been included in the lease liability because it is not reasonably certain that the leases will be extended (2020: $1.078 million).
The above lease disclosures should be read in conjunction with the accompanying notes 1B, 1C, 2B and 4A.
For all new contracts entered into, the ATO considers whether the contract is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’.
Once it has been determined that a contract is, or contains a lease, the lease liability is initially measured at the present value of the lease payments unpaid at the commencement date, discounted using the interest rate implicit in the lease, if that rate is readily determinable, or the ATO’s incremental borrowing rate.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification to the lease. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset or profit and loss depending on the nature of the reassessment or modification.