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Notes to the Financial Statements

For the year ended 30 June 2020

1. Overview and significant accounting policies

(a) Objectives of DHA

Defence Housing Australia (DHA) is an Australian Government (Government) controlled for profit entity. The objective of DHA is to provide housing and related services for members of the Australian Defence Force (ADF) and their families in line with the Department of Defence (Defence) operational requirements.

DHA is structured to meet one outcome:

  • To contribute to Defence's outcomes by providing total housing services that meet Defence's operational and client needs through a strong customer and business focus.

The continued existence of DHA in its present form and with its present operations is dependent on Government policy. DHA receives no appropriations or receipts from Government, and is considered 'Departmental' for Government reporting purposes.

(b) Basis of preparation of the financial statements

The financial statements are required by section 42 of the PGPA Act and are general purpose financial statements.

The financial statements and notes have been prepared in accordance with:

  • Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR); and
  • Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.

DHA is classified as a Government Business Enterprise (GBE) as stipulated in section 5(1)(c) of the PGPA Act and is a for-profit entity. It should also be noted that DHA is governed by the Defence Housing Australia Act 1987 (DHA Act).

The financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets and liabilities, which as noted, are 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 are presented in Australian dollars and values are rounded to the nearest thousand dollars unless otherwise specified.

(c) New and amended accounting standards adopted by DHA

No accounting standard has been adopted earlier than the application date as stated in the standard.

In the current year, DHA adopted all new and revised standards issued by the AASB that are relevant to its operations and effective for the current annual reporting period. Adoption of AASB 16 Leases required DHA to change its accounting policies where DHA is the lessee. DHA elected to adopt the new rules retrospectively but recognised the cumulative effect of initially applying the new standard on 1 July 2019. This is disclosed in Note 2 Changes in Accounting Policies.

Several other new standards and amendments apply for the first time from 1 July 2019, but these do not have a material impact on the financial statements.

Lease accounting

DHA has changed its accounting policy for leases where DHA is the lessee. The new policy is described in Note 23 Lease Liabilities and the impact of the change in Note 2 Changes in Accounting Policies.

Lease income from operating leases where DHA is a lessor is recognised in income on a straight-line basis over the lease term. The respective leased assets are included in the Statement of Financial Position based on their nature.

(d) COVID-19 impact risk assessment

DHA has considered the emerging risk arising from the uncertainty surrounding the COVID-19 global risk. In response to the COVID-19 crisis, DHA management activated the Business Continuity Plan and established a team to monitor the rapidly changing impacts on DHA business. Early predictions of a significant downturn in the Australian property market and contraction of the rental market have not eventuated. Internal and external market data indicates low interest rates and government support for borrowers have helped insulate the market from a significant downturn. Market uncertainty remains in the medium term as the pandemic is not yet under control and restrictions are currently being re-imposed in some jurisdictions after a period of slight easing. DHA has identified the following potential financial implications:

Fair value of inventory and investment assets
DHA measures its inventory and investment stock based on market value assessment, a market downturn could result in an impairment adjustment. To mitigate the risk of estimate uncertainty, DHA management closely monitor external reporting on property market indicators and the sale price outcomes of DHA stock compared to the 31 December 2019 independent market valuation. Property market reporting at the date of publication of these financial statements support a stabilisation of property values in line with the ten year averages and a recovery from the market lows reported in April 2020. In addition, the sales price achieved on DHA properties sold during the period 1 January 2020 to 30 June 2020 are in line with the 31 December 2019 independent market valuation. Impairment recognised at 30 June 2020 is appropriately updated to reflect market conditions.

Investment Stock and Leased Investment Properties
Recoverable amount calculations for investment properties and right of use leased investment properties use a discount rate that reflect the market property risks. Changes in the market capital values and rental returns could result in an additional impairment. As noted above, DHA management closely monitor external property market reports and internal sales outcomes to mitigate the risk of estimate uncertainty.

Expected credit losses
DHA calculates expected credit losses using historical rates of default rate to estimate future probability of default. DHA does not expect a material change as the majority of rental income is derived from Defence. However, DHA has factored the increased credit risk on private rental default into the expected credit loss calculation.

Going Concern
The financial statements have been prepared on a going concern basis. DHA management has reviewed the financial model to ensure DHA remains financially sustainable through the COVID-19 crisis by implementing measures to limit expenditure. In addition, the Defence rent bill revenue and payment to investors are known and not considered to be at risk. The directors of DHA are of the opinion that DHA has adequate resources to continue as a going concern and pay its debt when they fall due and payable.

2. Changes in accounting policies

This note explains the impact of the adoption of AASB 16 Leases on DHA’s financial statements.

DHA adopted AASB 16 Leases from 1 July 2019. The new accounting policies are disclosed throughout the notes to the financial statements.

On adoption of AASB 16 Leases, DHA recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of AASB 117 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 July 2019. The weighted average of DHA’s incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 1.73%.

(a) Practical expedients applied

In applying AASB 16 Leases for the first time, DHA has adopted the modified retrospective transitional approach, with the cumulative effect of initially applying the standard recognised at the date of initial application as an adjustment to the opening balance of retained earnings.

DHA is not required, or permitted, to reassess sale and leaseback transactions entered into before the date of initial application to determine whether the transfer of the underlying asset satisfies the requirements of AASB 15 Revenue from Contracts with Customers to be accounted for as a sale. DHA accounts for sale and leaseback transactions as a sale as all the risks and rewards of ownership transferred to the new owner at the date of sale. Using the practical expedient, provided in AASB 16 Leases relating to sale and leasebacks, DHA accounts for the leaseback in the same way it accounts for any other operating lease that exists at the date of initial application.

In line with the requirements of applying the modified retrospective approach, DHA has:

  • applied the Incremental Borrowing Rate (IBR) to discount the lease payment when calculating the lease liabilities to recognise on transition; the IBR is the rate DHA would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right of use asset in a similar economic environment;
  • elected to use the practical expedient and is using a single discount rate for leases that have similar characteristics, such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment; and
  • assessed whether the right of use assets recognised on transition relating to leases previously classified as operating leases need to be impaired in accordance with the requirements of AASB 136 Impairment of Assets; DHA has not relied on its assessment of whether leases are onerous when applying AASB 137 Provisions, Contingent Liabilities and Contingent Assets immediately before the date of initial application as an alternative to performing an impairment assessment.

DHA has not elected to use the recognition and measurement exemptions available under the standard for lease contracts where the lease term ends within 12 months from the date of initial application or for lease contracts where the underlying asset is of low-value. At 1 July 2019, DHA did not have any leases over low value assets or lease terms shorter than 12 months.

(b) Measurement of right of use assets

Right-of use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the Statement of Financial Position as at 1 July 2019.

(c) Adjustment recognised on the Statement of Financial Position as at 1 July 2019

The change in accounting policy affected the following items on the Statement of Financial Position on 1 July 2019. All numbers stated below are in $’000s:

  • right of use leased investment properties – increase by $1,619,657
  • right-of-use assets property plant and equipment – increase by $17,942
  • lease incentives - decrease by $781
  • deferred tax assets – increase by $48,428
  • prepayments – decrease by $26,041
  • lease liabilities – increase by $1,771,989

The net impact on retained earnings on 1 July 2019 was a decrease of $112,784.

(d) Lessor accounting

DHA did not need to make any adjustments to the accounting for assets held as lessor under operating leases (see Note 18 Investment Properties) as a result of the adoption of AASB 16 Leases.

3. Revenue from Contracts with Customers

2020

$'000

2019

$'000

Revenue from Defence

Allocation services provided

13,928

13,149

Defence property management services

59,630

59,029

Construction services

32,725

19,275

Defence other charges

6,989

7,930

Total revenue from Defence

113,272

99,383

Revenue from other customers

Sale of inventories1

307,145

334,256

Lessor management fee revenue

5,532

3,312

Non-Defence other charges

98

106

Total revenue from other customers

312,775

337,674

Total revenue from contracts with customers

426,047

437,057

Timing of revenue recognition

Over time

111,913

94,871

At a point in time1

314,134

342,186

Total revenue from contracts with customers

426,047

437,057

Note
1. In the 2018-19 Sale of inventory was disclosed separately on the face of the Statement of Comprehensive Income.

Accounting policy

Revenue recognition accounting policies with respect to DHA’s business activities within the scope of AASB15 Revenue from Contracts with Customers are as follows:

Timing of revenue recognition

Revenue from Defence

Allocation services provided

Over time

Defence property management services

Over time

Defence other charges

Point in time

Construction services revenue

Over time

Revenue from Non-Defence Customers

Constructions services

Over time

Sales of inventories

Point in time

Lessor management fee revenue

Over time

Allocation services provided

DHA provides the service of allocating ADF members to available and suitable accommodation under: the Allocation and Tenancy Management contract (ATM) or off-base accommodation; and the Living In Accommodation contract (LIA) or on-base accommodation based on Defence's requirements and policies. For these services, DHA receives annual fixed fees from Defence as per the ATM and LIA contracts which form part of the overall Services Agreement. The transaction price relating to the provision of each of these services comprises fixed annual amounts which remain unchanged across the contract term and cover a specified number of annual allocations. Additional fees are receivable by DHA should allocations exceed the annual amount. There is also an annual performance payment which DHA may be entitled to receive from Defence should specific KPIs be met. This performance payment relates to all services provided to Defence under the Services Agreement which includes the housing (leasing) services plus the services provided under the ATM and LIA contracts.

The provision of the Allocation Services under the ATM and LIA contracts each represent a series of distinct services that are substantially the same and have the same pattern of transfer to Defence and are each treated as one performance obligation satisfied over time. The fixed fees DHA receives for these services are considered to be the stand-alone selling price for the services being provided. All fees receivable under these arrangements will be recognised in full within the financial year.

For allocations above the specified contractual annual amounts, DHA will receive an additional fee. DHA considers the additional services in relation to the ATM contract to be options to purchase additional goods and services. Therefore, these will only be recognised as revenue as and when the additional allocation services are provided. The additional amounts relating to the LIA contract are considered to represent a material right to receive additional services at a discount and hence a separate performance obligation. However, the underlying services and the related revenue are not recognised until the option is exercised (so no amount of consideration for these transactions is estimated and included in the transaction price initially allocated). In all situations, revenue recognised in a year will relate to all allocations performed during that year. DHA invoices Defence on a monthly basis for the services provided and Defence pays within 30 days.

The performance payment is regarded as variable consideration at contract inception and fully constrained at this date given the nature of the payment. However, by the end of each financial year, the uncertainty of the performance payment is resolved as the performance payment is recognised using the variable consideration allocation exemption. It is allocated between the Allocation Services Provided, the other services provided to Defence, and other services which are in scope of AASB 15, i.e., the Defence property management services. DHA invoices Defence for such performance payments and Defence pays within 30 days.

Defence Property Management Services

DHA receive a range of fees and charges for managing and maintaining residential properties owned by Defence used to house ADF Members. DHA receives payments:

  • weekly, when a property is tenanted by an ADF member
  • annually, for properties managed by DHA
  • ad hoc, on an actual cost incurred basis plus a management fee percentage.

The management services provided under this part of the Services Agreement are considered to be a series of distinct services that form a single performance obligation that is recognised over time. The transaction price is variable as it depends on: how many properties are managed by DHA and for how many years; how often the property is tenanted; and what costs are incurred by DHA in providing specific services. The variable allocation exemption is used to allocate the variable consideration to the services provided in each month. DHA invoices Defence on a monthly basis for the services provided and Defence is required to pay within 30 days; State Taxes are invoiced quarterly and paid by Defence within 30 days.

Defence Other Charges

Defence Other Charges include expenses which are recovered from Defence under the Services Agreement. In the prior year, this included amounts such as: Defence funded capital projects; upgrades to the properties; reimbursements of rates, municipal charges, insurance and utilities incurred by DHA on behalf of Defence.

When incurring these costs, DHA assesses whether it is principal or agent in such transactions. DHA is the principal if DHA controls the good or service before the good or service is transferred to Defence. Where DHA is the principal, the consideration received from Defence is recognised as revenue when the service is performed.

Where DHA is the agent, the consideration received and the expense incurred will have no net impact on profit or loss as these amounts are reimbursed by Defence on a cost recovery basis with no margin or commissions retained by DHA.

Revenue received in relation to Defence funded capital projects is presented as construction services revenue (refer below).

Revenue received to upgrade properties to the required Defence standard is considered to be a distinct performance obligation satisfied at the point in time when the property is first tenanted by an ADF member, as this is when control of the upgrade is transferred to Defence. DHA receives a fixed fee for these services depending on the nature of the property being upgraded. DHA invoice Defence on a monthly basis for the services provided and Defence is required to pay within 30 days.

Construction Services

DHA will often manage the construction of property developments on behalf of Defence and at times non-Defence customers. These services involve DHA project managing the construction using sub-contractors for on-base housing constructions and particular off-base properties for Defence and non-Defence customers. The transaction price DHA receives represents the costs incurred plus a management fee.

Defence Customers - Construction Services

When DHA provides construction services to Defence it either receives cash in instalments over the construction period, or under annuity arrangements whereby Defence makes payments over a fixed period (typically 3-4 years) commencing after construction is completed.

Non-Defence Customers - Construction Services

The construction services DHA provides to non-Defence customers may involve either cash or non-cash consideration, usually being land DHA can use for future developments. Where non-cash consideration is provided, it is valued at fair value at the commencement of the contract. If actual construction costs incurred plus the specified margin is less than the fair value of the non-cash consideration determined at contract inception, DHA is required to refund the difference to the customer in cash, if the costs plus the margin are more than the fair value of the non-cash consideration, the customer is required to pay DHA the additional amount in cash.

The construction services provided for each project represent a single performance obligation satisfied over time, as DHA is creating or enhancing an asset that is controlled by Defence or other non-Defence customers as the construction occurs. The transaction price is determined based on the estimated construction costs plus a specified margin. It is considered variable as the final transaction price will depend on the actual construction costs incurred. At contract inception, DHA estimates variable consideration using an expected value method and this estimate is updated at each reporting period. Revenue is recognised over time using an input method, being the costs incurred to date on the project compared to total costs expected to be incurred, in determining how much of the performance obligation has been satisfied throughout the construction period. Any adjustment to the transaction price is recognised as part of revenue in the period the adjustment occurs.

For construction services involving non-cash consideration, DHA determines the fair value at contract inception using an external market valuation of the land being transferred to DHA.

DHA has applied the contract modification practical expedient available under AASB 15 to construction services contracts. The application of this practical expedient means DHA will not retrospectively account for any contract modifications occurring before the date of initial application. The application of this practical expedient will not have a material impact on DHA at transition or an ongoing basis.

Sale of Inventories

DHA develops properties with the primary purpose of using these properties to house ADF members. In the event that DHA has properties which become surplus to its requirements for meeting this purpose, properties will be disposed and sold to third parties.

Where DHA sells property that has been developed as inventory, it considers each sale of property to be single performance obligation which is satisfied at a point in time i.e. when control of the property transfers to the customer. This is deemed to occur upon final settlement. The transaction price is fixed and is determined at completion of the auction process. There are no significant payments terms as cash is exchanged at settlement.

Lessor Management Fee Revenue

DHA receives a fixed percentage management fee based on the rent paid to lessors in exchange for performing management and maintenance services on the property.

The lessor management fee that compensates DHA for the provision of separate services is recognised as lessor management fee revenue. DHA considers these services to be a series of distinct services that form a single performance obligation that is recognised over time. The transaction price is calculated as a set percentage of the monthly rent paid and will increase when the annual market rents are reset and the variable allocation exemption is used to allocate the variable consideration to the services performed in each month.

These lessor management fees are deducted from the monthly rental bill paid by DHA to the lessor.

Significant Accounting Judgement and Estimates

Lessor Management Fee Revenue

DHA has analysed the services provided in return for lessor management fees and applied judgement to conclude that some activities do not represent the transfer of goods or services from DHA to the lessor. Specifically, bill paying services and market rent review services were considered a performance obligation and recognised as revenue under AASB 15 Revenue from contracts with customers; while property administration, annual market rent reviews as defined by the lease and maintenance and restoration services are part of the overall lease related to DHA’s use of the property and accounted for as a reduction to rental expense under AASB 16 Leases.

Judgement was required in determining the split between the portion that represents the transfer of goods or services to the lessor (herein called ‘lessor management fee revenue’) and the portion that relates to the lease. DHA utilised internal business and product line costing methodologies across historical financial data, to determine the split.

Sale of Inventories

DHA standard Sale and Leaseback (SLB) arrangements have been assessed to ensure they meet the criteria of a sale under AASB 15 Revenue from contracts with customers. These arrangements typically grant DHA, as the seller-lessee, a first right to purchase the property in the event the lessor intends to sell. This option is controlled by the investor and not DHA. DHA has made a key judgement that the conditional repurchase option does not represent a substantive repurchase option that would preclude them from being accounted for as a sale under AASB 15 Revenue from contracts with customers.

SLB transactions executed on terms above or below market have specific accounting treatments under AASB 16 Leases. Prior to the implementation of AASB 16 Leases, DHA offered increased rents on leaseback arrangements to achieve a desired sales price, the sales achieved were usually made with an acceptable range to the independent market value assessment. DHA has applied judgement to conclude these SLB transactions completed prior to the date of initial application, do not represent above or below market terms. All SLB transactions completed after the date of initial adoption are assessed by property with reference to the independent market assessment of price and rent.

In relation to a SLB transaction, AASB 16 Leases only refers to the concept of recognising a gain or loss rather the revenue or expense; DHA has recognised revenue and cost of sales for the portion of the asset that relates to the rights transferred to the buyer-lessor. Management estimates are required to determine portion of revenue and cost of sales to be recognised such that they only reflect the portion rights transferred to the buyer-lessor (investor).

4. Housing Services Lease Rentals

2020

$'000

2019

$'000

Housing services lease rentals

Defence rent

476,347

473,796

Other rentals

11,468

10,938

Total housing services lease rentals

487,815

484,734

Accounting policy

Defence Rent

This represents lease revenue received from Defence for properties provided under the Services Agreement and Members Choice Accommodation Agreement and is accounted for on a straight line basis.

Other Rentals

Other Rentals comprise rental income received from the private rental market, where there are excess rental properties, not currently occupied by ADF members. Revenue is recognised when a property is tenanted and occupied by a civilian on a monthly basis for the term of the tenancy.

Significant Accounting Judgement

AASB 16 Leases states that a lease is present if a contract “conveys the right to control the use of an identified asset for a period of time in exchange of consideration.” AASB 16 Leases further sets out that to assess whether a contract conveys the right to control the use of an identified asset for a period of time, an entity shall assess whether, throughout the period of use, the customer has both of the following:

  1. the right to obtain substantially all of the economic benefits from use of the identified asset; and
  2. the right to direct the use of the identified asset.

DHA has analysed the agreements between DHA, Department of Defence and the Australian Defence Force Member in order to determine if there is a lease agreement under AASB 16 Leases. DHA considers it is necessary to read the Defence Services Agreement (DSA), the Defence Housing Australia Act 1987 (DHA Act) and the Defence Housing Australia Residence Agreement (DRA) as a whole to understand the commercial arrangements between the three parties. DHA has concluded that the DSA between DHA and Defence satisfies the definition of a lease under AASB 16 Leases, based on the following key judgements:

  1. In order to understand the arrangements, the DSA should be considered together with the DRA and the DHA Act. On assessing the substance of these arrangements, DHA considers that the DSA, through the provisioning process, identifies the portfolio of properties that Defence has the right to control the use of, and benefit from.
  2. The DSA provides Defence the right to control the properties because it directs when the properties are to be used, including the allocations policy and when properties must be vacated. The ADF members only have a right to occupy a DHA property as a result of their employment with Defence and, if the employment is terminated the entitlement under the DRA ends. The DSA is therefore a lease in an arrangement where the property is ultimately occupied by the ADF member.
  3. Defence does not act as an agent for DHA by collecting rental contributions from members. Defence’s obligation to pay rent under the DSA is independent of the member’s contribution under the DRA. Defence bears the credit risk on contributions by ADF members, and Defence payments to DHA continue regardless of any default by an ADF member.

5. Interest Received

2020

$'000

2019

$'000

Interest received

Interest on deposits

3,450

3,644

Interest on annuities

-

2,116

Total interest received

3,450

5,760

Accounting policy

Interest revenue earned on financial assets is recognised on an accrual basis using the effective interest method taking into account the interest rates applicable to the financial assets.

Interest income is also recognised in relation to construction services DHA provides to Defence under annuity arrangements. The annuity balance was paid out by Defence on 1 May 2019 and therefore there is no interest received on annuities in the 2019-20 financial year.

6. Gains from disposal of investment properties

2020

$'000

2019

$'000

Net gains from disposal

Proceeds from Sale

24,486

20,375

Carrying value of assets sold

(18,518)

(11,171)

Selling expenses

(608)

(1,528)

Total gains from disposal of investment properties

5,360

7,676

Accounting policy

Profits or losses from the disposal of investment properties are recognised when all specified conditions relating to the sale are satisfied and there is an unconditional sale. This is when settlement occurs.

7. Employee benefits

2020

$'000

2019

$'000

Employee benefits

Wages and salaries

51,570

50,065

Superannuation

Defined contribution plans

7,529

8,016

Defined benefit plans

2,480

2,681

Leave and other entitlements

6,601

7,478

Separation and redundancies

1,700

470

Total employee benefits

69,880

68,710

Accounting policy

Superannuation

DHA staff are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), or the PSS accumulation plan (PSSap), or other superannuation funds held outside the Government.

The CSS and PSS are defined benefit schemes for the Government. The PSSap is a defined contribution scheme.

The liability for defined benefits is recognised in the financial statements of the Government and is settled by the Government in due course. This liability is reported in the Department of Finance's (Finance) administered schedules and notes.

DHA makes employer contributions to CSS and PSS at rates determined by an actuary to be sufficient to meet the current cost to the Government. DHA accounts for these contributions as if they were contributions to defined contribution plans in accordance with AASB 119 – Employee Benefits.

The liability for superannuation recognised as at 30 June represents outstanding contributions.

Leave and other entitlements

The liability for employee benefits includes provisions for annual leave and long service leave. The leave liabilities are calculated on the basis of employees' remuneration at the estimated salary rates that will be applied at the time the leave is taken, including DHA's employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination.

Separation and redundancy

Provision is made for separation and redundancy benefit payments. The entity recognises a provision for termination when it has developed a detailed formal plan for the terminations and has informed those employees affected that it will carry out the terminations.

Payroll tax equivalent is a related party transaction with Defence, and is reported on the Statement of Comprehensive Income as Other Expenses. All other employee benefits are incurred with external parties.

8. Rates, repairs and maintenance

2020

$'000

2019

$'000

Rates, repairs and maintenance

Rates and municipal charges

11,655

11,347

Stamp duty and land tax equivalents

34,915

34,206

Repairs and maintenance

37,167

45,822

Other property charges

58,282

48,683

Total rates, repairs and maintenance

142,019

140,058

Accounting policy

Rates, Repairs and Maintenance includes expenditure for investment properties of $44,941,885 (2019: $20,017,983). The 2019-20 financial year includes leased properties due to the implementation of AASB 16 Leases.

Rates and Municipal Charges

Includes council and water rates for DHA's property portfolio, which are not recoverable from Defence. The expenses are incurred from external parties, and are expensed in the period they are incurred.

Stamp Duty and Land Tax Equivalents

Stamp Duty and Land Tax Equivalents are related party transactions associated with Defence.

DHA provides services on a for-profit basis. Under the Competitive Neutrality arrangements, DHA is required to make State Tax Equivalent payments, including payroll tax, land tax and stamp duty.

DHA includes State Tax Equivalent payments in the expenditure items to which they relate. Payroll tax is included in Other Expenses.

Repairs and Maintenance

Includes repairs and maintenance expenses on the DHA property portfolio, which are not recoverable from Defence.

Expenses are incurred from external contractors and are expensed in the period they are incurred.

Other Property Charges

Includes recoverable repairs and maintenance, and Defence funded capital project expenses. DHA, in accordance with the Services Agreement, is entitled to recover from Defence these expenses.

Expenses are incurred from external parties and sub-contractors and are expensed in the period they are incurred.

9. Depreciation and amortisation

2020

$'000

2019

$'000

Depreciation

Investment properties ¹

288,907

15,031

Plant and equipment

3,246

3,355

292,153

18,386

Amortisation

Software

1,525

1,498

Right of use assets - PPE

5,389

-

6,914

1,498

Total depreciation and amortisation

299,067

19,884

Note
1. Depreciation in the 2019-20 financial year includes $272,021,232 depreciation of right of use assets which meet the definition of investment properties under AASB 140 Investment Properties.

Accounting policy

Depreciable assets are written down to their estimated residual values over their estimated useful lives using, in all cases, the straight-line method of depreciation. Office fit outs are depreciated on a straight-line basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease.

Depreciation and amortisation rates applying to each class of depreciable asset are based on the straight-line method over the following useful lives:

2020

2019

Investment properties

50 years or the term of the lease

50 years

Plant and equipment

Term of Lease

Term of Lease

Software

2.5 to 6 years

2.5 to 6 years

Right of use assets - PPE

Term of Lease

Term of lease

Depreciation and amortisation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate.

10. Finance costs

2020

$'000

2019

$'000

Finance costs

Interest on loans

20,809

24,506

Interest on lease liabilities

32,300

-

Total finance costs

53,109

24,506

Accounting policy

Interest on loans is accrued based on effective interest rates on the outstanding balance of the loan. Interest paid on loans is a related party transaction with Defence.

Interest on lease liabilities is the amount that produces a constant rate of interest on the remaining balance of the lease liability.

11. Write down and impairment of assets

2020

$'000

2019

$'000

Non-financial assets

Write downs and impairments

Investment properties1

34,447

5,299

Inventories

40,550

11,007

74,997

16,306

Reversal of write downs and impairments

Investment properties1

(28,138)

(1,209)

Inventories

(1,500)

(942)

(29,638)

(2,151)

Net write down and impairment

45,359

14,155

Note
1. Write down and impairment of investment properties in the 2019-20 financial year includes $2,958,272 impairment on right of use assets which meet the definition of investment properties under AASB 140 Investment Properties.

Accounting policy

Inventories

To ensure compliance with AASB 102 Inventories, an independent valuation to assess the net realisable value of inventory properties held by DHA is undertaken by a registered valuer as at 31 December 2019. The carrying value of individual properties, where the cost of the property exceeded the net realisable value, are written down accordingly. At the end of the reporting period DHA reassesses the net realisable value based on internal and external market data, and recognises a further write down or write back where there is a significant change in the property market. A write back, where applicable, will not exceed cost. Refer to Note 16 Inventories for more information.

Investment Properties

Investment properties include right of use assets that meet the definition of investment properties in accordance with AASB 140 Investment Property.

Investment properties are initially recognised at cost. The carrying amount includes the cost of replacing parts of existing investment properties, at the time those costs are incurred. The carrying amount excludes costs of day-to-day servicing and maintenance of the investment property.

Investment properties are subsequently recognised at the lower of carrying value and recoverable amount. The recoverable amount is the higher of an assets’ fair value less costs to sell and value in use where the property is not identified for future sale or is a leased property.

Investment properties are derecognised when they have been disposed of, when they are withdrawn from use and no future economic value is expected from its disposal, or when the lease has expired.

The fair value of investment properties is assessed annually by an independent valuer and a value in use calculation is prepared internally for assets not identified for future sale and for right of use assets. Where the fair value less costs to sell and the value in use calculation for an individual property is less than its cost, the carrying value of the property is written down to the higher of the two valuation methods, and the loss is recognised as an impairment loss in the statement of comprehensive income. Refer to Note 18 Investment Properties.

DHA uses a discounted cash flow model to determine the value in use of investment properties. In determining the value in use, DHA applies the following assumptions:

  • Rental and capital growth for the next 20 years or rental growth for the term of the lease by individual post codes from major industry publications.
  • Consumer Price Index (CPI) rates in line with the mid-point of the Reserve Bank of Australia's (RBA) target inflation rate, being 2.50%.
  • A discount rate that is determined in accordance with the requirement of AASB 136 Impairment, calculated internally by management on an individual asset basis.
  • Cash inflow estimates including rental income and other Defence fees and charges paid to DHA in accordance with the Services Agreement.
  • Cash outflow estimates including annual repairs and maintenance based on historical data and judgements made by management.
  • Major capital work expenditure estimates including internal and external repainting and replacement of carpets based on the age of the property.

Significant Accounting Judgement and Estimates

Rental and Capital Growth

The discounted cash flow model used to determine the value in use of investment properties includes an assumption on the forecast rental and capital growth for the next 20 years or rental growth for the term of the lease. DHA management applies judgement to assume a capital growth rate in line with the long term historical average, and estimates a rental growth rate by individual postcode from major industry publications.

12. Taxation

(a) Income tax expense

2020

$'000

2019

$'000

Income tax expense

Current tax expense

22,501

17,343

Adjustments for current tax of prior periods

(351)

1,716

Deferred tax

(5,284)

(1,520)

Adjustments for deferred tax of prior periods

184

(2,064)

17,050

15,475

Income tax expense attributable to:

Profit from continuing operations

59,723

56,383

59,723

56,383

(b) Reconciliation of income tax expense to prima facie tax payable

2020

$'000

2019

$'000

Reconciliation of income tax expense:

Profit from continuing operations before income tax

59,723

56,383

Tax expense at the Australian tax rate of 30%

17,917

16,915

Tax effect of amounts not deductible/(assessable):

Tax cost base valuations

(512)

(886)

Adjustments relating to prior periods

(168)

(349)

Other

(187)

(205)

17,050

15,475

(c) Deferred tax assets/(liabilities) recognised in the Statement of Comprehensive Income

2020

$'000

2019

$'000

Net deferred tax assets/(liabilities)

Employee benefits

6,191

8,749

Unearned income

(1,279)

234

Inventory properties

2,435

(818)

Investment properties

(7,361)

(8,933)

Right of use asset – investment properties

(455,917)

-

Right of use asset – property, plant and equipment

(5,201)

-

Lease liability

493,663

-

Prepayments

8,859

(576)

Make good provisions

34,094

29,125

Provisions - other

4,226

604

Property, plant and equipment

1,691

565

Research and development expense

-

(737)

Other

441

101

Net deferred tax asset

81,842

28,314

Comprising:

Deferred tax assets

551,600

39,494

Deferred tax liabilities

(469,758)

(11,180)

Net deferred tax asset

81,842

28,314

Movements:

Opening balance at 1 July

28,314

24,738

Adjustment on initial application of AASB 16 Leases1

48,428

-

Charged to the statement of comprehensive income

5,100

3,576

Net deferred tax asset

81,842

28,314

Note
1. Adjustment required on initial implementation of AASB 16 Leases. Refer Note 2 Change in Accounting Policies for details.

Accounting Policy

DHA became a Commonwealth income tax payer on 1 July 2007, following an amendment of the DHA Act.

As a result of DHA becoming a taxable entity on 1 July 2007, an unrecognised temporary difference (Deferred Tax Asset) was created between the accounting carrying value and the tax value for properties held as Investment Properties. The unrecognised value of the temporary difference at 30 June 2020 is $442,325,907 (2019: $445,771,382). The tax effect of this temporary difference is $132,697,772 (2019: $133,731,415).

Income Tax Expense

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

Deferred income tax is provided on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities, and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset, and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

Goods and Services Tax

Revenues, expenses and assets are recognised net of the amount of Goods and Services Tax (GST), except:

  • Where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO), it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or
  • Receivables and payables which are recognised inclusive of GST.

The net amount of GST recoverable from or payable to the ATO, is included as part of receivables or payables.

Cash flows are included in the Statement of Cash Flows on a gross basis. The GST components of cash flows arising from investing and financing activities, which are recoverable from or payable to the ATO, are classified as operating cash flows.

Non Refundable Research & Development Tax Incentive

DHA makes research and development tax incentive claims through AusIndustry and the ATO in relation to qualifying expenditure on major property developments.

The permanent benefit arising from the non-refundable research and development tax incentive is accounted for in accordance with AASB 120 Accounting for Government Grants and Disclosure of Government Grants, and is capitalised to the extent that it relates to assets in accordance with Part 3 of the FRR. The capitalised amounts are recognised as income based on the underlying assets useful life, or when disposed.

The temporary timing benefit arising from the non-refundable research and development tax incentive is accounted for in accordance with AASB 112 Income Taxes.

13. Cash and cash equivalents

insert content

2020

$'000

2020

$'000

Cash and cash equivalents

Cash at bank

118,143

19,924

Term deposits

261,000

193,000

Total cash and cash equivalents

379,143

212,924

Accounting policy

Cash and cash equivalents means notes and coins held and any deposit held at call or readily convertible to cash with a bank or financial institution. As part of managing working capital, DHA invests in term deposits. These term deposits are classified as cash equivalents as they are readily convertible to a known amount of cash and are not subject to a significant risk of change in value. Cash is recognised at its nominal amount.

14. Trade and other receivables

(a) Trade and other receivables

2020

$'000

2019

$'000

Current receivables for good and services

Receivables

5,492

5,522

Impairment – expected credit loss

(111)

(55)

5,381

5,467

Accrued income

13,848

5,020

Other receivables

4,328

3,514

23,557

14,001

Current receivables for goods and services from

Related entities

16,627

6,034

External parties

6,930

7,967

Total trade and other receivables

23,557

14,001

(b) Trade and Other Receivables (Net) expected to be recovered

insert content

2020

$'000

2019

$'000

Current receivables (net) expected to be recovered in:

Less than 12 months

23,557

14,001

(c) Receivables are aged as follows:

2020

$'000

2019

$'000

Current receivables (net) expected to be recovered in:

Not overdue

18,063

8,478

0 to 30 days

5,030

4,694

31 to 60 days

380

329

61 to 90 days

44

48

More than 90 days

40

452

Total trade and other receivables

23,557

14,001

(d) Reconciliation of the impairment loss allowance:

2020

$'000

2019

$'000

Movement in the impairment loss allowance:

Impairment loss allowance at 1 July

55

154

Impairment loss increase

56

-

Amounts written off

-

(7)

Amounts to be recovered and reversed

-

(92)

Total as at 30 June

111

55

Accounting policy

Credit terms are between 7 and 30 days.

Receivables for goods and services are recognised at the nominal amounts due, less any provision for impairment allowance. Collectability of debts is reviewed at 30 June each year. Allowances for expected credit losses (ECL’s) are based on a provision matrix that is in accordance with AASB 9 Financial Instruments.

15. Investment properties held for sale

2020

$'000

2019

$'000

Current assets

Investment properties – at cost

11,332

1,918

Investment properties – at cost (less impairment)

2,087

-

Total investment properties held for sale

13,419

1,918

Accounting policy

DHA applies AASB 5 Non-Current Assets Held for Sale and Discontinued Operations to its investment properties held for sale. These properties are carried at the lower of cost and fair value less costs to sell and are not depreciated.

DHA holds a small proportion of its investment properties for sale. Investment properties are deemed eligible for sale if identified as a sale and lease back property, when they have below average capital growth expectations, carry high repairs and maintenance expenditure, are permanently privately leased out, have no redevelopment opportunities or have low rental yield.

DHA will only classify Investment properties as held for sale once the property is available for immediate sale in its present condition, there is an active programme to locate a buyer and management is committed to selling the investment property. It is expected that the sale will be completed within 12 months.

16. Inventories

2020

$'000

2019

$'000

Total inventories

Current inventories

428,139

488,824

Non-current inventories

327,113

489,733

Total inventories

755,252

978,557

Completed properties

At cost

348,128

383,949

At net realisable value

182,405

193,438

Land held for sale

At cost

30,590

30,878

At net realisable value

631

-

Work in progress

At cost

173,528

358,782

At net realisable value

19,970

11,510

Total inventories

755,252

978,557

Accounting policy

The total fair value of inventory as at 30 June 2020 is $898,685,828 (2019: $1,191,844,103).

For the period 1 July 2019 to 30 June 2020 DHA disposed of 409 inventory properties of which 25 at a loss of $622,679 (2019: DHA disposed of 393 inventory properties of which 7 properties at a loss of $91,696).

DHA accounts for inventory properties under AASB 102 - Inventories. Inventories are properties which are held to meet Defence provisioning requirements and are available for sale in the short to medium term in order to free capital for reinvestment.

Inventories are initially recognised at cost and are subsequently recognised at the lower of cost or net realisable value. Net realisable value is estimated based on the finished product's gross expected realisation less costs to complete and selling costs.

Inventories are separated into the following categories:

  • Completed properties - completed properties held for sale on normal trading cycle;
  • Land held for sale; or
  • Work in progress - incomplete construction projects.

Work in Progress

Development projects are classified as inventory properties whilst in progress where a significant majority of the property on completion of the development is expected to be sold as inventory stock.

Development project costs include variable and fixed costs as they relate directly to specific contracts, and those costs relating to general contract activity which can be allocated to the project on a reasonable basis.

Significant Accounting Judgement and Estimates

Completed inventory properties

The net realisable value of completed inventory properties is assessed annually by independent valuers at 31 December. Where the net realisable value for an individual property is less than its cost, the carrying value of the property is written down to its net realisable value.

Development inventory sites

The net realisable value of an inventory development site is the finished product's gross realisable value less cost to complete and selling costs. Where the net realisable value is lower than cost to date for the development site, the cost to date is written down by the value of the estimated loss.

Market Uncertainty

DHA has considered the emerging risk to property values arising from the uncertainty surrounding the COVID-19 crisis and potential economic downturn. A significant downturn in the property market capital values and rental returns could result in a reduction in the net realisable value and additional impairment. DHA management closely monitor external reports on property market indicators and the sale price outcomes of DHA stock compared to the 31 December 2019 independent market valuation. Property market reports at the date of publication of these financial statements support a stabilisation of property values in line with the ten year averages and a recovery from the market lows reported in April. In addition, the sales price achieved on DHA properties sold during the period 1 January 2020 to 30 June 2020 are in line with the 31 December 2019 independent market valuation. Carrying values and impairment recognised at 30 June 2020 is appropriately updated to reflect market conditions.

17. Other current assets

2020

$'000

2019

$'000

Other current assets

Other prepayments

2,206

2,388

Prepaid property rentals

-

27,466

Total other current assets

2,206

29,854

Accounting policy

In the 2019-20 financial year Other current assets include prepayments of subscriptions, body corporate fees, rates and insurance premiums. In 2018-19 financial year this amount also included commercial office rents and rents to lessors paid in advance which are now accounted for under the new leasing rules due to the implementation of AASB 16 Leases (refer Note 2 Changes in Accounting Policies).

18. Investment properties

2020

$'000

2019

$'000

Investment properties

Investment properties at cost

1,400,982

1,013,986

Less: accumulated depreciation

(193,816)

(122,432)

1,207,166

891,554

Investment properties - impaired

Investment properties at cost

1,805,100

166,011

Less: accumulated depreciation

(215,314)

(7,731)

Less: accumulated impairment

(179,953)

(12,104)

1,409,833

146,176

Total investment properties1

2,616,999

1,037,730

Note
1. Total investment properties in the 2019-20 financial year includes $1,519,723,629 of right of use assets (measured at cost less accumulated depreciation and impairment) which meet the definition of investment properties under AASB 140 Investment Properties.

Accounting policy

The total fair value of Investment Properties (including Investment Properties - Held for Sale in Note 15) as at 30 June 2020 is $3,645,711,176 (2019: $2,068,166,322). The fair value amount disclosed at 30 June 2020 includes $1,519,723,629 of right of use assets measured at cost.

The fair value of DHA’s investment properties as at 31 December 2019 and as at 31 December 2018 was on the basis of a valuation carried out on the respective date by external independent valuers. On 30 June 2020, DHA undertook a review of the fair value determined on 31 December 2019 and determined there is no material change. The external valuers are members of the Institute of Valuers of Australia, and they have appropriate qualifications and recent experience in the valuation of properties in the relevant locations. The fair value was determined based on the market comparable approach that reflects recent transaction prices for similar properties. In estimating the fair value of the properties, the highest and best use of the properties is their current use. There has been no change to the valuation technique during the year. The fair value level in accordance with AASB 13 Fair Value Measurement is level 2.

To calculate impairment, the fair value of DHA’s right of use assets that meet the definition of investment properties in accordance with AASB 16 Leases as at 30 June 2020 has been determined based on a discounted cash flow with an appropriate buyer’s premium applied. In determining the fair value, DHA applies the following assumptions:

  • Rental and capital growth for the next 20 years or rental growth for the term of the lease by individual post codes from major industry publications.
  • Consumer Price Index (CPI) rates in line with the mid-point of the Reserve Bank of Australia's (RBA) target inflation rate, being 2.50%.
  • A discount rate which is calculated internally by management on an individual asset basis, being the nominal pre-tax discount rate implied by the capital value of the individual property’s and the expected future rent, determined in accordance with the requirement of AASB 136 Impairment of Assets.
  • Cash inflow estimates including rental income and other Defence fees and charges paid to DHA in accordance with the Services Agreement.

Cash outflow estimates including annual repairs and maintenance based on historical data and judgements made by management. The fair value level in accordance with AASB 13 Fair Value Measurement is level 3.

Significant Accounting Judgement and Estimates

DHA owned investment properties are assessed for indicators of impairment annually. Where there is an indicator of impairment, the recoverable amount of each investment property is estimated. AASB 136 Impairment of Assets requires that the recoverable amount is the higher of the property’s fair value less costs of disposal (FVLCOD) and its value in use (VIU).

FVLCOD is assessed annually by an independent valuer. VIU is calculated by management using various assumptions in relation to the cost of debt and equity and future rental income of the property. Where the recoverable amount is less than the carrying amount, the carrying amount of the investment property is impaired to the greater of the fair value less cost to sell and value in use.

DHA has applied judgement to determine the discount rate used in the calculation of the VIU. DHA has used a rate that reflects the nominal pre-tax discount rate implied by the capital value of related properties, the expected future rents from the properties and other cash flows for associated property related services.

DHA’s right of use assets that meet the definition of investments properties may be assessed for impairment by itself, or as part of a Cash Generating Unit (CGU). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. DHA has determined that individual right of use asset for each property represents a CGU, as each property is capable of generating cash inflows which are largely independent of cash inflows of any other asset/CGU.

DHA has applied judgement to conclude that of the two methods available to determine the recoverable amount on right of use assets, the value in use will consistently generate a higher recoverable amount. DHA use a VIU approach to assess and measure impairment on the right of use assets.

2020

$'000

2019

$'000

As at 1 July

Cost or fair value

1,179,997

1,110,883

Less: accumulated depreciation and impairment

(142,267)

(124,110)

Total as at 1 July 2019

1,037,730

986,773

Recognition of ROU investment properties1

1,779,584

-

Less: Opening accumulated impairment on leased properties1

(159,927)

-

Adjusted total as at 1 July 2019

2,657,387

986,773

For the year ended 30 June

Additions

133,492

37,589

Lease Adjustments

62,100

-

Transfer from inventory to investment property

101,037

38,619

Depreciation charge

(288,907)

(15,031)

Impairment loss

(6,459)

(4,090)

Transfer to assets held for sale

(40,380)

(7,094)

Other disposals or lease expiries

(9,747)

-

Depreciation/impairment written back on disposal or transfer

8,476

964

Movement in net book value for the period

(40,388)

50,957

As at 30 June

Cost or fair value

3,206,083

1,179,997

Less: accumulated depreciation and impairment

(589,084)

(142,267)

Total investment properties

2,616,999

1,037,730

Note
1. Recognition of right of use leased investment properties on initial application of AASB 16 Leases. Refer to Note 2(d) Changes in Accounting Policies - Adjustment recognised on the Statement of Financial Position as at 1 July 2019.

Accounting policy

DHA accounts for investment properties under AASB 140 Investment Property and applies the Cost model. Investment properties are properties held for strategic long-term provisioning requirements.

Investment properties are separated into the following categories:

  • Completed properties;
  • Land held for future development; or
  • Work in progress - incomplete construction projects.

Transfers from inventory to investment are made when there is a change in use of a property in accordance with AASB 140 Investment Property.

Where there is a change in the term of a lease or the weekly rental paid on a leased investment property, this is treated as a Lease Adjustment.

19. Property, plant and equipment

2020

$'000

2019

$'000

Property, plant and equipment

Property, plant and equipment at cost

21,551

20,422

Less: accumulated depreciation

(17,052)

(14,178)

Net property, plant and equipment

4,499

6,244

Right of use assets

Motor vehicles and office leases

22,727

-

Less: accumulated amortisation

(5,389)

-

Net motor vehicles and office leases

17,338

-

Total property, plant and equipment

21,837

6,244

20. Current liabilities – trade and other payables

2020

$'000

2019

$'000

Trade and other payables

Trade creditors

13,805

15,950

Accrued expenses

20,333

39,676

Stamp duty and land tax payable

5,643

5,086

39,781

60,712

Trade payables expected to be settled no later than 12 months:

Related entities

5,732

8,548

External parties

34,049

52,164

Total trade and other payables

39,781

60,712

21. Final dividend

DHA declared a final dividend for the year ended 30 June 2020 of $25,603,579 (2019: $24,544,517). The DHA Board resolved on 18 June 2020 to pay a dividend of 60 percent of net profit after tax in accordance with DHA’s dividend policy.

22. Borrowings

2020

$'000

2019

$'000

Loans from the Commonwealth

Current borrowings

135,000

150,000

Non-current borrowings

374,580

359,580

509,580

509,580

Maturity schedule for borrowings payable

Within one year

135,000

150,000

Between two and five years

309,100

200,000

More than five years

65,480

159,580

Total borrowings

509,580

509,580

Accounting policy

DHA has an unsecured borrowing facility with the Commonwealth, incorporating all borrowings, underpinned by a Loan Agreement dated 21 February 2017, as amended. Finance representatives delivered a letter to DHA extending DHA’s current facility with the Minister for Finance until 21 February 2020. On 20 February a deed of variation was signed to extend the current facility to 30 June 2020. Due to delays resulting from the coronavirus pandemic, a letter was signed to further extend the term of the current facility to 1 October 2020 until the renewed agreement is approved by Parliament.

The facility affords DHA the flexibility to borrow at either fixed or floating interest rates at market rates which includes a competitive neutrality charge. Note that even though the facility is with the Commonwealth, the facility requires DHA to pay interest on the amounts drawn down to Defence.

All loans and borrowings drawn down under this facility are initially recognised at fair value less directly attributable transaction costs. Subsequent recognition of loans and borrowings is at amortised cost, and interest is charged as an expense as it accrues. During 2019-2020 the interest rate range applied to DHA's borrowings was from 0.55% to 5.89% (2019: 1.78% to 5.89%).

Borrowings are classified as current liabilities unless DHA has an unconditional right to defer settlement of the liability for at least 12 months after the balance date.

23. Lease liabilities

2020

$'000

2019

$'000

Lease liabilities ¹

Current lease liabilities

258,239

-

Non-current lease liabilities

1,387,196

-

1,645,435

-

Maturity schedule for lease liabilities

Within one year

11,231

-

Between two and five years

332,785

-

More than five years

1,301,419

-

Total lease liabilities

1,645,435

-

Note
1. For adjustments recognised on adoption of AASB 16 Leases on 1 July 2019, please refer to Note 2 Changes in Accounting Policies.

Accounting policy

(i) DHA’s leasing activities

DHA leases real estate, various offices and vehicles. Rental contracts are typically made for fixed periods of 6 months to 15 years, but may have extension options as described below.

Contracts may contain both lease and non-lease components. DHA allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices.

Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.

Until 30 June 2019 leases of property, plant and equipment were classified as operating leases, see Note 2 Changes in Accounting Policies for details. From 1 July 2019, leases are recognised as a right of use asset and a corresponding liability at the date at which the leased asset is available for use by DHA.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

  • fixed payments (including in-substance fixed payments), less any lease incentives receivable;
  • variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date;
  • amounts expected to be payable by DHA under residual value guarantees;
  • the exercise price of a purchase option if DHA is reasonably certain to exercise that option; and
  • payment of penalties for terminating the lease, if the lease term reflects DHA exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the lessee’s incremental borrowing rate is used, being the rate that DHA would have to pay to borrow the funds necessary to obtain an asset of similar value to the right of use asset in a similar economic environment with similar terms, security and conditions.

To determine the incremental borrowing rate, DHA:

  • uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk; and
  • makes adjustments specific to the lease, e.g. term and security

DHA is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right of use asset.

Lease payments are allocated between principal and finance cost. The finance cost is expensed over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right of use assets commencing after 1 July 2019 are measured at cost comprising the following:

  • the amount of the initial measurement of lease liability;
  • any lease payments made at or before the commencement date less any lease incentives received;
  • any initial direct costs; and
  • restoration costs.

Right of use assets are depreciated over the lease term on a straight-line basis.

(ii) Extension and termination options

Extension and termination options are included in a number of property leases. These are used to maximise operational flexibility in terms of managing the assets used in DHA’s operations. The majority of extension and termination options held are exercisable only by DHA and not by the respective lessor.

Significant Accounting Judgement

(i) Lease term

DHA has used judgement in determining where options for extension or termination contained in lease arrangements would or would not be considered reasonably certain of being exercised. DHA makes this judgement on a lease by lease basis and considers all relevant facts and circumstances that create an economic incentive for DHA from the commencement date until the exercise date of the option.

For most property leases, DHA has concluded it is reasonably certain to exercise options to extend the lease, and accordingly has included the period covered by those lease extensions in the lease term. DHA’s assessment reflects, in part, DHA’s past experience in exercising a high proportion of extension options, expectations of the housing needs of the Department of Defence, and costs to source alternative properties.

Generally extension options for motor vehicle leases have not been included in the lease liability, because DHA could replace the assets without significant cost or business disruption.

The lease term is reassessed if an option is actually exercised (or not exercised) or DHA becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and is within the control of the lessee. During the current financial year, the financial effect of revising lease terms to reflect the effect of exercising extension and termination options was an increase in recognised lease liabilities and right of use assets of $150,000.

(ii) Renewal of a lease arrangement

In some instances, DHA may renew a lease with an investor, often 1-2 years before the end of the lease term. DHA will typically incur legal costs to review the lease and DHA will also incur capital works to maintain Defence standards where DHA is able to recover 50% of the capital costs from the investor/lessor. DHA has used judgement to conclude that lease renewals are to be accounted for as lease modifications, rather than as new or separate leases under AASB 16 Leases. In the absence of specific requirements in AASB 16 Leases for costs associated with the modified lease, judgement is required to conclude that modification transaction costs, agreed capital costs and associated recoveries will be capitalised by either including amounts in the lease payments, which forms an input to the cost of the right of use asset, or as an adjustment to the cost of the associated right of use asset.

(iii) Make good costs

A liability is recognised for make good costs to be incurred on the expiry of long term leases. Based on historical data, management has made assumptions regarding the future economic outflows associated with the make good expenditure. DHA is required under the lease agreement to undertake prescribed maintenance (make good) at the end of the lease period.

At the time of entering into the lease agreement, a provision is raised to recognise the make good obligation. The provision is based on an assessment of the present value of the necessary costs to make good properties at the end of their lease terms. The estimate includes an inflation factor of 2.50% (2019: 2.50%) and a discount rate of 0.40% (2019: 2.47%, being the five year commercial bank swap rate as at 30 June 2019). During 2019-20 DHA has reassessed the discount rate used for discounting make good and determined that the risk free rate is a more appropriate rate in accordance with AASB 137 - Provision and Contingent Liabilities. Actual make good expenditure is charged, as incurred against the provision. The estimate of future make good maintenance is reviewed annually to ensure that the make good provision is adequate to meet the liability.

Judgment has been applied to conclude that changes to provisions for make good obligations that exist in respect of leases at transition, which were initially recognised as an expense in profit or loss under previous standards, will be recognised as an adjustment to the associated right of use asset recognised at transition.

Judgement has been applied to conclude that obligations that arise during the lease term, when a contractual option is exercised, will be recognised as an adjustment to the related right of use asset. The judgement arises from unclear requirements of AASB 16. The requirements explicitly state that lessees may incur the obligation for such costs either at the commencement date or as a consequence of having used the underlying asset during a particular period. Those provisions are included in relation to the initial measurement of the right of use asset.

DHA’s obligation to perform restoration activities at the end of the lease term vary depending on the length of time DHA has held the lease, with no obligation where DHA hold the lease for less than 6 years. Judgement has been applied to conclude DHA does not recognise a make good provision for leases with a current contract lease term of less than 6 years.

(iv) Incremental borrowing rate (IBR)

Significant estimation is involved in determining the discount rate to apply to calculate the lease liability when initially recognising a lease. In line with the requirements of applying the modified retrospective transition method, DHA is required to use the Incremental Borrowing Rate (IBR) to discount the lease payments when calculating the lease liabilities to be recognised on transition. The IBR is the rate of interest DHA would have to pay to borrow funds over a similar term, and with a similar security, to obtain an asset of similar value to the right of use asset in a similar economic environment.

The IBR to be adopted by DHA reflects its corporate credit issuer rating of AA+ which considers its ownership by, and relationship with, the Commonwealth Government. DHA has assessed that no other significant adjustments are required for other lessee or lease-specific factors.

(v) Interest rate implicit in the lease (IRIL)

The IRIL is the discount rate that, at the inception of the lease, causes the aggregate present value of the lease payments and the unguaranteed residual value to be equal to the sum of the fair value of the leased asset and the initial direct costs of the lessor. The unguaranteed residual value is defined in AASB 16 Leases as the portion of the residual value of the underlying asset, the realisation of which is not assured. Determining the unguaranteed residual value may be the most significant estimate in the IRIL calculation. DHA uses forecast property capital growths, sourced from Core Logic, for each geographical area to determine the estimated unguaranteed residual value of each property.

(vi) Defence Services Agreement

DHA has analysed the agreements between DHA, Department of Defence and the Australian Defence Force Member in order to determine if there is a lease agreement under AASB 16 Leases. AASB 16 defines a lease as an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. AASB 16 Leases states that a lease is present if a contract “conveys the right to control the use of an identified asset for a period of time in exchange of consideration.” AASB 16 Leases further sets out that to assess whether a contract conveys the right to control the use of an identified asset for a period of time, an entity shall assess whether, throughout the period of use, the customer has both of the following:

  1. the right to obtain substantially all of the economic benefits from use of the identified asset; and
  2. the right to direct the use of the identified asset.

DHA has concluded that the Defence Services Agreement between DHA and Defence is a lease in accordance with AASB 16 Leases, as it satisfies the definition of a lease.

(vii) Lessor management fees

DHA has analysed the services provided in return for lessor management fees and concluded that some activities do not represent the transfer of goods or services from DHA to the lessor. Specifically, bill paying services and market rent review services were considered a performance obligation and recognised as revenue under AASB 15 Revenue from Contracts with Customers; while property administration, annual market rent reviews as defined by the lease and maintenance and restoration services are part of the overall lease and accounted for as a reduction to rental expense.

Judgement was required in determining the split between the portion that represents the transfer of goods or services to the lessor (herein called ‘lessor management fee revenue’) and the portion that relates to the lease. DHA utilised internal business and product line costing methodologies across historical financial data, to determine the split.

24. Provisions

2020

2019

Current

$'000

Non-current

$’000

Total

$’000

Current

$'000

Non-current

$’000

Total

$’000

Employee benefits:

Annual leave

5,253

-

5,253

5,273

-

5,273

Long service leave

7,981

3,156

11,137

7,932

3,349

11,281

Redundancy

75

-

75

75

-

75

13,309

3,156

16,465

13,280

3,349

16,629

Other provisions:

Make good

11,475

102,172

113,647

7,258

97,010

104,268

Lease capital upgrades

11,415

-

11,415

-

-

-

Other general

16,820

2,370

19,190

6,193

1,338

7,531

39,710

104,542

144,252

13,451

98,348

111,799

Total provisions

53,019

107,698

160,717

26,731

101,697

128,428

Movements in provisions

Movements in each class of provision during the financial year, other than employee benefits, is set out below:

Make good provision

$’000

Lease capital upgrades

$’000

Other general provision

$’000

Total

$’000

Carrying amount at 1 July 2019

104,268

-

7,531

111,799

Additional provisions recognised

25,773

11,415

20,178

57,366

Amounts used during the year

(16,394)

-

(8,519)

(24,913)

Carrying amount at 30 June 2020

113,647

11,415

19,190

144,252

Accounting policy

Employee benefits

Liabilities for services rendered by employees are recognised at the reporting date to the extent that they have not been settled.

Liabilities for ‘short-term employee benefits’ (as defined in AASB 119 - Employee Benefits) and termination benefits expected to be settled within twelve months of the end of the reporting period are measured at their nominal amounts.

The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.

Leave Liability

A liability is recognised for benefits accruing to employees in respect of annual leave and long service leave in the period the related service is rendered.

Liabilities recognised in respect of short-term employee benefits are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made by DHA in respect of services provided by employees up to the reporting date.

Make good provision

DHA is required under the sale and leaseback agreement to undertake prescribed maintenance (make good) at the end of the lease period, where the lease term is more than six years. The make good provision provides for the cost of refurbishing the leased property as set out in the lease agreement.

Lease capital upgrades provision

DHA is required to undertake capital upgrades on leased properties which were agreed to at the time the lease was signed. The capital upgrade provision provides for the costs of these obligations as set out in the lease.

Other general provisions

Other general provisions include amounts set aside for:

  • Fringe Benefits Tax and Goods and Service Tax;
  • Employee performance bonuses

Recognition of Provisions

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably.

25. Other financial liabilities

2020

$'000

2019

$'000

Current other financial liabilities

Revenue in advance

34,530

19,922

Lease incentives

-

395

34,530

20,317

Non-current other financial liabilities

Lease incentives

-

386

Total other financial liabilities

-

386

Accounting policy

Revenue in advance

Rental and property management fee revenues are billed to Defence one month in advance, in line with the Services Agreement. For the year ended 30 June 2020, 72.73% of revenue in advance was in relation to payments received from Defence (2019: 100.00%). The majority of revenue in advance received from non-Defence sources in the 2019-20 year relates to development project income.

Lease Incentives

From 1 July 2019 Lease Incentives are accounted for in accordance with AASB 16 Leases. Refer Note 2 Changes in Accounting Policies.

Other financial liabilities

DHA classifies all financial liabilities as Other financial liabilities. Other financial liabilities are recognised and derecognised upon trade date.

26. Cash flow reconciliation

2020

$'000

2019

$'000

Reconciliation of operating results to net cash from operating activities

Profit for the period after tax

42,673

40,908

Depreciation – plant and equipment

3,246

3,355

Depreciation – investment properties

288,907

15,031

Depreciation – right of use assets

5,389

-

Amortisation – software

1,525

1,498

Impairment expense/(write back)

6,309

4,090

Gain on disposal of investment properties

(5,360)

(7,676)

Increase/(decrease) in other non-operating cash flow revenue items

2

(76)

Increase/(decrease) in other non-operating cash flow expense items

(224)

2,881

Increase/(decrease) in supplier payments

(20,931)

3,018

Increase/(decrease) in provisions

33,348

(3,457)

Increase/(decrease) in other liabilities

13,827

(5,655)

Increase/(decrease) in tax liabilities

8,588

4,507

(Increase)/decrease in net receivables

(9,398)

61,538

(Increase)/decrease in net deferred tax assets

(53,528)

(3,576)

(Increase)/decrease in inventories

122,829

(49,372)

(Increase)/decrease in prepayments

27,648

3,359

Net cash from operating activities

464,850

70,373

27. Financial statements

The main risks arising from DHA's financial instruments are interest rate risk, credit risk and liquidity risk. DHA uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring the level of exposure to interest rates and assessments of forecasts for interest rates. Ageing analysis and monitoring of specific credit tolerances are undertaken to manage credit risk. Liquidity risk is monitored through the development of rolling cash flow forecasts.

Financial Assets at Amortised Cost

Financial assets included in this category need to meet two criteria:

  1. the financial asset is held in order to collect the contractual cash flows; and
  2. the cash flows are solely payments of principal and interest (SPPI) on the principal outstanding amount.

Amortised cost is determined using the effective interest method.

Effective Interest Method

Income is recognised on an effective interest rate basis for financial assets that are recognised at amortised cost.

Impairment of Financial Assets

Financial assets are assessed for impairment at the end of each reporting period based on Expected Credit Losses, using the general approach which measures the loss allowance based on an amount equal to lifetime expected credit losses where risk has significantly increased, or an amount equal to 12 month expected credit losses if risk has not increased.

The simplified approach for trade, contract and lease receivables is used. This approach always measures the loss allowance as the amount equal to the lifetime expected credit losses.

A write-off constitutes a de-recognition event where the write-off directly reduces the gross carrying amount of the financial asset.

Carrying value

The carrying value of DHA’s financial assets and liabilities at the reporting date are as follows:

2020

$'000

2019

$'000

Financial assets

Cash and cash equivalents

379,143

212,924

Trade and other receivables

23,557

14,001

Carrying value of financial assets

402,700

226,925

Financial liabilities

Borrowings - current

135,000

150,000

Borrowings – non-current

374,580

359,580

Trade and other payables

39,781

60,712

Other financial liabilities - current

34,530

20,317

Other financial liabilities – non-current

-

386

Final dividend

25,604

24,545

Carrying value of financial liabilities

609,495

615,540

2020

$'000

2019

$'000

Net income from financial assets

Interest

3,450

3,644

Annuity revenue

-

2,116

Net gain on loans and receivables

3,450

5,760

Net expenses from financial liabilities

Interest on borrowings

20,809

24,506

Net loss on financial liabilities – amortised cost

20,809

24,506

Accounting policy

Fair Value

The fair value of financial assets and liabilities are derived as follows:

  • The fair value of government loans is calculated by the Australian Office of Financial Management. The loans are valued by calculating the net present value of all future contracted payments at the relevant interest rate. The fair value of DHA's loans with the Commonwealth was $554,942,788 for 2020 (2019: $535,650,410).
  • The Directors consider that the carrying amounts of all other financial assets and liabilities recorded at amortised cost in the financial statements approximates their fair values.

In accordance with AASB 7 - Financial Instruments: Disclosures, the fair value of Government loans have been determined using level 2 of the fair value hierarchy.

Credit Risk

Credit risk arises from the financial assets of DHA, which comprise cash and cash equivalents and trade and other receivables. Exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note.

DHA does not hold any credit derivatives to offset its credit exposure.

DHA trades only with recognised, creditworthy third parties. Department of Defence is the primary counterparty. As such collateral is not requested nor is it policy to securitise its trade and other receivables.

In addition, receivable balances are monitored on an ongoing basis with the result that DHA's potential exposure to bad debts is not significant.

There are no significant concentrations of credit risk within DHA and financial instruments are spread amongst a number of financial institutions to minimise the risk of default of counterparties.

Liquidity Risk

DHA manages liquidity risk by maintaining an appropriate level of marketable securities on hand to meet outgoing commitments in the event of failure to receive any revenue from the normal course of business and ensuring capacity exists to borrow under the Cash Advance Facility based upon regular cash flow forecasts prepared by DHA.

Other than Commonwealth loans all financial liabilities will mature within one year. Refer to Note 22 Borrowings for ageing of Commonwealth loans.

Market Risk

Interest rate risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. DHA has exposure to interest rate risk arising from fluctuations in interest rates applicable to cash and borrowings.

DHA manages interest rate risk by ensuring that investments mature commensurate with cash flow requirements to maximise interest income. DHA also seeks to ensure an appropriate mix of maturities across the yield curve to avoid concentration of maturities on any given date and higher volatility inherent in longer dated investments.

Interest rate risk on borrowings is managed by ensuring maturing loans are rolled over taking into consideration the interest rate outlook and the maturity profile of existing borrowings.

Financial Risk Management

DHA's principle financial instruments comprise receivables, payables, government loans, finance leases, cash and short term deposits.

DHA’s Treasury Policy provides a framework to manage core risks, including financial risk management, which pertain to DHA’s financial market investments, borrowings and associated activities.

Primary responsibility for the overall financial risk management rests with the Chief Financial Officer, duly supported by the Chief Risk Officer through the identification, assessment and regular reporting to the DHA Board.

Sensitivity analysis of the risk that DHA is exposed to in 2020 and 2019

The table below details the interest rate sensitivity analyses of the entity at the reporting date, holding all other variables constant.

Effect on

Interest rate risk

Risk Variable

Change in risk variable

%

Average cash

$'000

Profit & loss and equity

$'000

2020

Interest

0.09

282,076

254

2019

Interest

0.20

183,366

367


Interest rate sensitivity analysis has been calculated on a "reasonable possible" basis. The rate of 9 basis points (2019: 20 basis points) was determined by using the standard parameters issued by Finance.

28. Aggregate assets and liabilities

2020

$'000

2019

$'000

Assets expected to be recovered in:

No more than 12 months

846,464

747,521

Greater than 12 months

3,052,841

1,567,232

Total assets

3,899,305

2,314,753

Liabilities expected to be recovered in:

No more than 12 months

558,012

285,556

Greater than 12 months

1,869,474

461,663

Total liabilities

2,427,486

747,219

29. Auditors remuneration

2020

$'000

2019

$'000

Amount received or due and receivable by auditors

Australian National Audit Office (ANAO) for the audit of the financial statements

355,000

376,000

Deloitte Touché Tohmatsu has been contracted by the ANAO to provide audit services on the ANAO's behalf. Fees for these services are included above. No other services were provided by the ANAO or Deloitte during the reporting period.

Unrecognised Items

This section of the notes provides information about items that are not recognised in the financial statements as they do not (yet) satisfy recognition criteria.

30. Commitments
31. Contingent assets and liabilities
32. Events occurring after the reporting period

30. Commitments

2020

$'000

2019

$'000

Commitments receivable

Operating lease income

Within one year

406,703

397,578

Later than one year but not later than five years

1,273,515

1,277,271

Later than five years

1,026,063

1,220,451

2,706,281

2,895,300

Commitments payable – capital expenditure

Within one year

78,060

147,541

Later than one year but not later than five years

17,225

20,879

Later than five years

624

2,495

95,909

170,915

Commitments payable –operating lease1

Within one year

-

280,673

Later than one year but not later than five years

-

968,597

Later than five years

-

625,058

-

1,874,328

Total commitments payable

95,909

2,045,243

Net Commitments Receivable/(Payable)

2,610,372

850,057

Commitments are GST inclusive where relevant.

1. Measurement of lease liabilities

From 1 July 2019, due to the implementation of AASB 16 Leases, commitments payable on operating leases are disclosed in the Statement of Financial Position as current and non-current lease liabilities. The adjustments made upon implementation of AASB 16 Leases are disclosed below:

2020

$'000

Operating lease commitments payable disclosed as at 30 June 2019

1,874,328

Discounted using the lessee’s incremental borrowing rate at 1 July 2019

(107,887)

Adjustments relating to prepaid rent

(25,536)

Adjustment due to changes in accounting treatment

25,912

Additions due to option period not included in 2019 office lease commitments

6,559

Rental changes not included in 2019 office lease commitments

(836)

Motor vehicle operating expenditure excluded from lease liability

(551)

Lease liabilities recognised as at 1 July 2019

1,771,989

Lease liabilities recognised as at 1 July 2019

Current lease liabilities

278,346

Non-current lease liabilities

1,493,643

Total lease liabilities recognised as at 1 July 2019

1,771,989

Accounting policy

Commitments are GST inclusive where relevant.

Operating Lease Income Receivable

The operating lease income commitments receivable is the expected future lease rent to be received from the Department of Defence, taking into consideration the number of properties available for lease by the Department of Defence adjusted for the estimated vacancy based on historical data. DHA has determined that the Defence Services Agreement is a lease agreement in accordance with AASB 16 Leases.

Capital expenditure commitments

Capital expenditure commitments refer to construction project commitments and the payable figures above represent outstanding contractual payments for buildings under construction.

Operating lease commitments

Operating lease payments were expensed until 30 June 2019 on a straight line basis which is representative of the pattern of benefits derived from the leased assets. Under AASB 16 Leases, a lease liability is reflected on the Statement of Financial Position, refer Note 2(b) Changes in Accounting Policies – Measurement of Lease Liabilities.

DHA has three categories of leases:

  1. Residential properties (mostly acquired through the sale and leaseback program), for the housing of ADF members, under the Services Agreement between DHA and Defence;
  2. Commercial properties for the administration of DHA; and
  3. Motor vehicles used in the operations of DHA.

Significant Accounting Judgement and Estimates

Operating Lease Income Receivable

DHA management applies judgement to estimate rental growth and property vacancy rates based on historical long term averages. In addition, DHA estimates that ninety percent of all options to extend the lease term will be exercised, in line with the DHA Capital Plan.

31. Contingent assets and liabilities

Guarantees

Total

2020

$'000

2019

$'000

2020

$'000

2019

$'000

Contingent assets

Balance from previous period

3,000

9,050

3,000

9,050

New

-

-

-

-

Expired

(3,000)

(6,050)

(3,000)

(6,050)

-

3,000

-

3,000

Contingent liabilities

Balance from previous period

11,448

14,291

11,448

14,291

New

10,309

8,742

10,309

8,742

Expired

(7,034)

(11,585)

(7,034)

(11,585)

14,723

11,448

14,723

11,448

Net contingent liability

(14,723)

(8,448)

(14,723)

(8,448)

Accounting policy

Quantifiable Contingencies

Contingent assets and liabilities take the form of bank guarantees and financial undertakings which arise as a result of DHA's normal business operations. The amount disclosed represents the aggregate amount of such guarantees and financial undertakings. No financial assets or liabilities are expected to arise from provisions of the guarantees or financial undertakings.

Unquantifiable Contingencies

As at 30 June 2020, DHA has no unquantifiable contingencies.

Remote Contingencies

As at 30 June 2020, DHA has no remote contingencies.

32. Events occurring after the reporting period

Australian Property Market

The COVID-19 global crisis is expected to have a significant impact on the Australian economy and in turn the potential to significantly impact the Australian Property Market. DHA management closely monitor a range of property market indicators, to ensure the inventory and investment stock, including leased residential properties, are measured based on fair value assessment.

The July 2020 property market indicators show that activity is returning to the market, with the national average clearance rate and new listings higher than the lows recorded in April 2020 and consistent with the 10 year averages. The rental market continues to be subdued, however the impact on rental prices has been minor with overall vacancy rates tracking lower than previous years.

The Melbourne market is strongly supplied compared to other cities, thought to be compounded by current restrictions and the growing concern of community spread of the COVID-19 virus. The full impact on short term valuations and rental is unknown at the date of publication.

Further recovery is expected in September onwards for most capital cities, consistent with normal seasonal demand. The government support packages and bank loan deferrals have helped insulate the housing market from a significant downturn to date. The medium to long term impact on the Australian Property market remains uncertain as the spread of community transmission within Victoria escalates and small pockets of community transmission continues within NSW. Victoria and NSW represent the two biggest markets within Australia, economic recovery will be dependent on the speed of recovery in both these states. Based on current market indicators, management consider there is no change required to the fair values recorded at 30 June 2020.

Other

There are no other events post 30 June 2020 which would have a material impact on the financial statements or operations of the DHA business.

Key management personnel and related parties

This section of the notes provides other information that must be disclosed to comply with the accounting standards and other pronouncements, but that is not immediately related to individual line items in the financial statements.

2. Key management personnel disclosures
3. Related party transactions
4. Economic dependency

33. Key Management Personnel Remuneration

(a) Director remuneration

The aggregate remuneration of the Directors of DHA is set out below:

2020

$

2019

$

Director remuneration

Short term employee benefits

534,165

524,998

Post-employment benefits

64,837

61,589

Total director remuneration

599,002

586,587


The Director's remuneration includes fees and benefits, including travel and motor vehicle allowances, as prescribed by the Remuneration Tribunal’s determination for part-time public office holders and superannuation payable in accordance with applicable legislation and fund requirements.

(b) Key management personnel remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of DHA, directly or indirectly. DHA has determined key management personnel to include the Managing Director, Group General Managers, Chief Financial Officer and Senior Legal Counsel, including in an acting capacity.

The aggregate remuneration of key management personnel of DHA during the financial year is set out below:

2020

$

2019

$

Short-term employee benefits

Base salary

1,345,243

2,204,465

Performance bonus

86,774

280,263

Other benefits and allowances

6,125

18,295

1,438,142

2,503,023

Post-employment benefits

Superannuation

240,319

333,185

240,319

333,185

Other long-term employee benefits

Long service leave

23,548

48,030

23,548

48,030

Termination benefits

Termination benefits

-

20,545

-

20,545

Total employment benefits

1,702,009

2,904,783

Accounting policy

The total number of key management personnel that are included in the above table are 5 individuals (2019: 11 individuals).

The above key management personnel remuneration excludes the remuneration and other benefits of the Cabinet and Portfolio Ministers. The Portfolio Ministers' remuneration and other benefits are set by the Remuneration Tribunal and are not paid by the entity.

34. Related party disclosures

DHA is an Australian Government controlled entity. Related parties to this entity are the Directors, Key Management personnel and Executive, and other Australian Government entities. DHA forms part of the Defence Portfolio. DHA reports to two shareholder ministers: the Minister for Defence and the Minister for Finance.

Given the breadth of Government activities, related parties may transact with the government sector in the same capacity as ordinary citizens. These transactions have not been separately disclosed.

DHA and Defence have entered into a Services Agreement on housing and related matters which details the provision of services to Defence. Transactions between Defence, Finance and DHA are highlighted throughout the financial statement notes.

There have been no financial transactions between the key management personnel and DHA outside the normal employment contracts under the Public Service Act 1999.

35. Economic dependency

DHA depends on Defence in accordance with the Services Agreement. DHA received 70.95% of its total revenue from Defence for the year ended 30 June 2020 (2019: 77.30%).