Departmental financial statements

Notes to the financial statements

Note 1: Other revenue

Actual 2005 $000		Actual 2006 $000
20,500	Accident Compensation Corporation - agency fees	20,500
1,324	State Services Commission - State Sector Retirement Savings Scheme	3,783
1,393	Supply of information to other agencies	1,374
1,099	Court cost recovery	1,020
620	Rulings	810
327	Rental recovery	281
10	Other	14
25,273	Total other revenue	27,782

 

Note 2: Personnel expenses

Actual 2005 $000		Actual 2006 $000
238,145	Salaries and wages	264,573
12,256	Contractors and temporary staff	17,424
3,773	Superannuation	6,124
4,790	Retiring and long-service leave	2,034
720	ACC levies	1,194
735	Bonuses	822
4,488	Other	6,499
264,907	Total personnel expenses	298,670

 

Note 3: Operating expenses

Actual 2005 $000		Actual 2006 $000
30,506	Information technology costs	28,160
21,189	Operating lease rentals	24,718
18,158	Communication	18,049
10,181	Office supplies	11,768
7,174	Travel and transport	9,086
9,353	Legal expenses	8,858
6,880	Training and employee-related	8,412
6,217	Premises costs	7,746
7,736	Services	7,387
3,899	Consultants	6,870
2,776	Advertising and publicity	4,102
1,121	Equipment maintenance	1,332
858	Audit fees for audit of the financial statements	923
0	Other audit fees	20
(403	Increase/(decrease) in provision for restructuring	337
564	Bad debts written off	13
(239)	Increase/(decrease) in provision for doubtful debts	(334)
200	Other operating expenses	214
126,170	Total operating expenses	137,661

 

Note 4: Depreciation

Actual 2005 $000		Actual 2006 $000
16,792	Software	19,546
7,668	IT equipment	8,026
4,172	Leasehold improvements	5,084
1,902	Office equipment	1,793
353	Furniture	544
299	Motor vehicles	444
31,186	Total depreciation expense	35,437

 

Note 5: Capital charge

Inland Revenue pays a capital charge to the Crown on taxpayers' funds as at 30 June and 31 December each year. The capital charge rate for the year ended 30 June 2006 was 8% (2005: 8%).

 

Note 6: Debtors and receivables

Actual 2005 $000		Actual 2006 $000
3,585	Other receivables	5,073
(391)	Less provision for doubtful debts	(55)
3,194	Total debtors and receivables	5,018

 

Note 7: Fixed assets

	At cost 2005 $000	Accumulated depreciation 2005 $000	Net book value 2005 $000	At cost 2006 $000	Accumulated depreciation 2006 $000	Net book value 2006 $000
Software	287,822	239,067	48,755	316,888	255,282	61,606
IT equipment	47,970	32,024	15,946	54,550	39,335	15,215
Leasehold improvements	53,459	41,726	11,733	57,489	44,821	12,668
Office equipment	19,591	14,647	4,944	20,120	16,287	3,833
Motor vehicles	5,707	2,921	2,786	4,626	1,281	3,345
Furniture	5,150	3,925	1,225	8,336	4,459	3,877
Assets under construction
(software/IT equipment)	19,280	0	19,280	20,097	0	20,097
Assets under construction
(leasehold improvements)	3,710	0	3,710	1,521	0	1,521
Total	442,689	334,310	108,379	483,627	361,465	122,162

 

Note 8: Creditors and payables

Actual 2005 $000		Actual 2006 $000
6,366	Accounts payable	11,477
1,523	Accrued expenses - employees	2,682
9,672	Accrued expenses - other	17,516
3,730	GST payable	4,558
21,291	Total creditors and payables	36,233

 

Note 9: Provision for employee entitlements
Movements in provision

Actual 2005 $000		Actual 2006 $000
37,515	Opening balance	41,022
25,902	Additional provisions made during the year	26,883
(22,313)	Charged against provision for the year	(24,729)
(82)	Unused amounts reversed during the year	0
41,022	Closing balance	43,176

 

Employee entitlement provision

Actual 2005 $000		Actual 2006 $000
	Current liabilities
12,732	Annual leave provision	14,466
606	Retiring leave	976
659	Long-service leave provision	603
85	Time off in lieu	62
9	Other	0
14,091	Total current portion	16,107
	Non-current liabilities
22,084	Retiring leave	21,524
4,847	Long-service leave	5,545
26,931	Total non-current portion	27,069
41,022	Total employee entitlement provision	43,176

 

Note 10: Provision for restructuring expenses
Movements in provision

Actual 2005 $000		Actual 2006 $000
4,455	Opening balance	2,416
403	Additional provisions made during the year	336
(2,442)	Charged against provision for the year	(1,043)
0	Unused amounts reversed during the year	(59)
2,416	Closing balance	1,650

 

Restructuring provision

Actual 2005 $000		Actual 2006 $000
	Current liabilities
523	Net expenses on surplus space leased under non-cancellable operating leases	650
530	Restructuring expenses	0
1,053	Total current portion	650
	Non-current liabilities
1,363	Net expenses on surplus space leased under non-cancellable operating leases	1,000
1,363	Total non-current portion	1,000
2,416	Total restructuring provision	1,650

 

Note 11: Reconciliation of net surplus to net cash flow from operating activities

Actual 2005 $000		Actual 2006 $000
1,108	Net surplus/(deficit)	6,815
	Add non-cash items
31,186	Depreciation	35,437
3,634	Increase/(decrease) in non-current employee entitlements	138
(835)	Increase/(decrease) in non-current restructuring expenses	(363)
33,985	Total non-cash items	35,212
	Add/(less) working capital movements
2,364	(Increase)/decrease in debtors and receivables	(1,824)
5,824	(Increase)/decrease in prepayments	(742)
14,166	(Increase)/decrease in debtor Crown	(62,223)
(499)	Increase/(decrease) in creditors and payables	14,936
(127)	Increase/(decrease) in current employee entitlements	2,017
(1,204)	Increase/(decrease) in current restructuring expenses	(403)
20,524	Working capital movements - net	(48,239)
	Add/(less) investing activity items
73	Net loss on sale of fixed assets	242
73	Total investing activity items	242
55,690	Net cash inflow/(outflow) from operating activities	(5,970)

 

Note 12: Commitments

Inland Revenue's commitments comprise both capital and operating commitments. The operating commitments consist of non-cancellable accommodation leases and cancellable contracts for the supply of goods and services.

Commitments for non-cancellable accommodation leases relate to Inland Revenue's long-term leases on its premises at many locations throughout New Zealand. The annual lease payments are subject to regular reviews and the amounts disclosed at future commitments are based on current rental rates. These commitments also include office space that was vacated by Inland Revenue as a result of organisational restructuring and subleased. Provision has been made in the financial statements for the expected net expenses for the duration of these leases.

Inland Revenue has also entered into cancellable contracts for computer maintenance and other contracts for the supply of goods and services.

 

Note 13: Contingent liabilities

Inland Revenue is involved in a large number of legal proceedings and disputes. The majority of these court cases relate to tax prosecutions, debt collection cases and insolvency matters. The expected value of the contingent liability is calculated using an outcome probability model that weighs the total potential liability against outcome probabilities. Independent confirmation on the liability has been ascertained on all legal proceedings and disputes.

The contingent liability does not include tax in dispute which is reported under the Crown Schedule.

 

Note 14: Financial instruments

Inland Revenue is party to financial instruments as part of its everyday operations. These include instruments such as bank balances, accounts receivable, accounts payable and foreign currency forward exchange contracts.

Credit risk

Credit risk is the risk that a third party will default on its obligations to Inland Revenue, causing the department to incur a loss. In the normal course of its business, Inland Revenue incurs credit risk from trade debtors.

Inland Revenue does not require any collateral or security to support financial instruments with financial institutions that Inland Revenue deals with, or with the New Zealand Debt Management Office, as these entities have high credit ratings. For its other financial instruments, Inland Revenue does not have significant concentrations of credit risk.

Fair value

The fair value of all departmental financial instruments is equivalent to the carrying amount disclosed in the Statement of Financial Position.

Currency risk

Currency risk is the risk that debtor or creditor amounts due in foreign currency will fl uctuate because of changes in foreign exchange rates. Inland Revenue uses foreign currency forward exchange contracts to manage foreign exchange exposures where single foreign exchange transactions exceed $NZ100,000, or the transaction exposure for an individual currency exceeds $NZ100,000.

Interest rate risk

Interest rate risk is the risk that the value of a financial instrument will fl uctuate due to changes in market interest rates. This could impact on the return on investments or the cost of borrowing. Inland Revenue has no significant exposure to interest rate risk on its financial instruments.

Under the Public Finance Act 1989, Inland Revenue cannot raise a loan without ministerial approval and no such loans have been raised. Accordingly, there is no interest rate exposure for funds borrowed.

 

Note 15: Related party information

Inland Revenue is a wholly owned entity of the Crown. The government significantly infl uences the roles of Inland Revenue as well as being its major source of revenue.

Inland Revenue enters into numerous transactions with other government departments, Crown agencies and state-owned enterprises on an arm's-length basis. Where those parties are acting in the course of their normal dealings with Inland Revenue, related party disclosures have not been made for transactions of this nature.

Apart from those transactions described above, Inland Revenue has not entered into any related party transactions.

 

Note 16: Major budget variations

Statement of financial performance

There were no major budget variations between Actuals and the Main Estimates.

Statement of financial position

The following major budget variations occurred between Actuals and the Main Estimates in the Statement of Financial Position:

• Cash was lower than budget by $5.572 million (53%). This was due to a large cash payment that occurred earlier than planned.
• Debtor Crown was higher than budget by $57.223 million (212%). This was due to reduced operating expenditure, timing of fixed asset purchases, increases in creditors and payables, and the reduced cash balance.
• Debtors and receivables were higher than budget by $2.131 million (74%). This was due to increases in receivables from other agencies.
• Fixed assets were lower than budget by $10.370 million (8%). This was due to development expenditure on legislative projects that will now occur in 2006-07.
• Creditors and payables were higher than budget by $17.020 million (89%). This was due to an increase in GST payable, an increase in accounts payable, an increase in accrued staff salaries, and an increase in other accruals.

Statement of commitments

The following major budget variations occurred between Actuals and the Main Estimates in the Statement of Commitments:

• Total accommodation commitments were higher than budget by $34.898 million (88%). This was due to Inland Revenue entering into two new accommodation leases.
• Total other lease commitments were lower than budget by $125.156 million (100%). This variation was due to a reclassification of a contract from an operating lease to a supply of services during the year.
• Total cancellable contracts for supply of goods and services were higher than budget by $54.973 million (790%). This variation was due to a reclassification of a contract from an operating lease to this category.

 

Note 17: Events after balance date

No events have occurred between the balance date and date of signing these financial statements that materially affect the financial statements.

 

Summary of departmental financial results
for the year ended 30 June

	Unit	Actual 2006	Actual 2005	Actual 2004
Operating results
Revenue: Third parties	$000	27,782	25,273	25,183
Output expenses	$000	479,654	429,359	404,617
Operating surplus before capital charge	$000	14,459	8,131	3,946
Net surplus/(deficit)	$000	6,815	1,108	(3,705)
Working capital
Liquid ratio		1.58	1.38	1.45
Current ratio		1.61	1.42	1.59
Resource utilisation
Physical assets
Physical assets as % of total assets		56%	67%	59%
Additions as % of physical assets		42%	47%	38%
Taxpayers' funds
Level at year-end	$000	130,831	95,892	87,793
Taxpayers' funds as % of total assets		60%	59%	58%
Forecast net cash flows
Surplus/(deficit) from operating activities	$000	(5,970)	55,690	36,002
Surplus/(deficit) from investing activities	$000	(49,457)	(50,885)	(33,287)
Surplus/(deficit) from financing activities	$000	33,831	8,099	(367)
Net increase/(decrease) in cash held	$000	(21,596)	12,904	2,348

 

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