Accounting policy

Cash

Cash is carried at net fair value and is a financial instrument.

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, GST 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 statistical model.

Assessment of the collectability of receivables includes consideration of a taxpayer’s compliance and lodgement history, the existence of a dispute over a receivable, the taxpayer’s capacity to pay, and management judgement.

Impairment losses are recognised as an administered expense.

Administered receivables are not financial instruments as they arise from statutory charges. The impairment of statutory receivables is made under AASB 136 Impairment of Assets.

An impairment allowance is estimated using historical data and is informed by expert advice. In 2020-21, total administered receivables remain higher than prior years as a result of the continued effects of COVID. This has resulted in continued heightened uncertainty surrounding the expected value and timing of repayments of administered receivables.

During 2020-21 the ATO made several updates to the model for estimating the impairment on small debts. These changes were made to better incorporate emerging trends and patterns, enhance alignment with business practices and strengthen review and monitoring steps. The effect of this change in accounting estimate at 30 June 2021 is an increase to the impairment allowance of $4,673 million and a corresponding increase to the impairment of receivables expense. It is impracticable to estimate the effect of this change on future reporting periods.

Structural shifts in repayment behaviour could cause material future changes to the impairment allowance and will continue to be monitored using the revised model.

Allowance for credit amendments

Recognised in relation to disputed assessments in accordance with Note 14.

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.