Departmental financial statements

Notes to the financial statements

Note 1: Revenue other

2006/07 Actual $000		2007/08 Actual $000
20,500	Accident Compensation Corporation - agency fees	20,500
4,432	State Services Commission - State Sector Retirement Savings Scheme	4,937
1,328	Supply of information to other agencies	1,355
1,504	Court cost recovery	1,085
659	Rulings	417
282	Subleased income	359
28,705	Total revenue other	28,653

Note 2: Gains

2006/07 Actual $000		2007/08 Actual $000
116	Net gains on derivative financial instruments	-
116	Total gains	-

Note 3: Personnel

2006/07 Actual $000		2007/08 Actual $000
289,135	Salaries and wages	329,404
21,745	Contractors and temporary staff	31,180
6,768	Employer contributions to defined contribution plans	5,465
4,055	Retiring and long-service leave	3,468
1,187	Annual leave taken	3,074
1,506	ACC levies	2,019
855	Bonuses	785
9,755	Other	6,728
335,006	Total personnel	382,123

Employer contributions to defined contribution plans include contributions to Inland Revenue Superannuation Scheme, KiwiSaver, State Sector Retirement Savings Scheme, and Government Superannuation Fund.

Note 4: Operating

2006/07 Actual $000		2007/08 Actual $000
30,416	Information technology costs	32,835
30,534	Operating lease rentals	31,413
19,104	Communication	21,727
12,366	Office supplies	15,035
10,392	Legal expenses	12,353
10,698	Travel and transport	11,795
5,660	Advertising and publicity	10,414
8,967	Premises costs	9,358
9,320	Consultants	9,174
8,613	Training and employee-related costs	8,948
2,410	Bank fees	2,569
1,664	Equipment maintenance	1,831
955	Audit fees for audit of the financial statements	1,013
55	Audit fees for transition to NZ IFRS	60
60	Loss on sale of intangible aspects	46
287	Loss on sale of property, plant and equipment	5
215	Increase/(decrease) in provision for doubtful debts	30
10	Bad debts written off	37
(471)	Increase/(decrease) in provision for onerous contracts	4
2,138	Other operating expenses	3,192
153,393	Total operating	171,839

Note 5: Property, plant and equipment by category

	IT equipment $000	Furniture and office equipment $000	Motor vehicles $000	Leasehold improvements $000	Asset under construction -leasehold $000	Total $000
Cost
Balance as at 1 July 2007	59,566	28,386	4,625	59,136	4,814	156,527
Additions by purchase	10,429	5,038	74	166	11,378	27,085
Additions-other ^*	-	-	-	4,171	-	4,171
Transfers between category	9	15	-	270	(294)	-
Disposals	(2,286)	(1,301)	(45)	(17,263)	-	(20,895)
Balance as at 30 June 2008	67,718	32,138	4,654	46,480	15,898	166,888
Depreciation and impairment losses
Balance as at 1 July 2007	45,236	20,124	1,787	50,310	-	117,457
Depreciation charge	7,898	2,582	483	5,524	-	16,487
Opening balance adjustment ^*	-	-	-	2,694	-	2,694
Impairment losses	-	-	-	245	-	245
Disposals	(2,160)	(1,294)	(32)	(17,247)	-	(20,733)
Capitalised depreciation	266	44	-	-	-	310
Transfers between category	-	15	-	(15)	-	-
Balance as at 30 June 2008	51,240	21,471	2,238	41,511	-	116,460
Carrying amount as at 30 June 2008	16,478	10,667	2,416	4,969	15,898	50,428
Cost
Balance as at 1 July 2006	54,550	28,456	4,626	57,489	1,520	146,641
Additions by purchase	7,285	2,992	-	824	4,136	15,237
Transfers between category	-	-	-	842	(842)	-
Disposals	(2,269)	(3,062)	(1)	(19)	-	(5,351)
Balance as at 30 June 2007	59,566	28,386	4,625	59,136	4,814	156,527
Depreciation and impairment losses
Balance as at 1 July 2006	39,335	20,745	1,281	44,821	-	106,182
Depreciation charge	7,499	2,374	506	5,506	-	15,885
Impairment losses	183	-	-	-	-	183
Disposals	(2,219)	(3,029)	-	(17)	-	(5,265)
Capitalised depreciation	438	34	-	-	-	472
Balance as at 30 June 2007	45,236	20,124	1,787	50,310	-	117,457
Carrying amount as at 30 June 2007	14,330	8,262	2,838	8,826	4,814	39,070

^*This relates to the initial recognition of lease make-good.

Note 6: Intangible assets by category

	Software - Developed $000	Business process design $000	Software & licences - Purchased $000	Asset under construction - Software $000	Total $000
Cost
Balance as at 1 July 2007	243,875	965	96,306	52,519	393,665
Additions by purchase	-	-	29,573	-	29,573
Additions internally developed	11,456	797	-	40,963	53,216
Transfers between category	27,267	6,500	4,343	(38,110)	-
Disposals	(997)	-	(20,973)	-	(21,970)
Balance as at 30 June 2008	281,601	8,262	109,249	55,372	454,484
Amortisation and impairment losses
Balance as at 1 July 2007	212,210	965	62,853	-	276,028
Amortisation	12,084	995	13,480	-	26,559
Impairment losses	-	-	-	2,451	2,451
Transfers between category	563	-	(563)	-	-
Disposals	(997)	-	(13,353)	-	(14,350)
Capitalised depreciation	321	-	-	-	321
Balance as at 30 June 2008	224,181	1,960	62,417	2,451	291,009
Carrying amount as at 30 June 2008	57,420	6,302	46,832	52,921	163,475
Cost
Balance as at 1 July 2006	141,420	-	175,468	20,097	336,985
Additions by purchase	-	-	9,579	-	9,579
Additons internally developed	4,198	-	-	44,936	49,134
Transfers between category	98,322	965	(86,773)	(12,514)	-
Disposals	(65)	-	(1,968)	-	(2,033)
Balance as at 30 June 2007	243,875	965	93,306	52,519	393,665
Amortisation and impairment losses
Balance as at 1 July 2006	111,435	-	143,847	-	255,282
Amortisation	5,640	-	15,794	-	21,434
Impairment losses	-	-	495	-	495
Transfers between category	95,200	965	(96,165)	-	-
Disposals	(65)	-	(1,682)	-	(1,747)
Capitalised depreciation	-	-	564	-	564
Balance as at 30 June 2007	212,210	965	62,853	-	276,028
Carrying amount as at 30 June 2007	31,665	-	33,453	52,519	117,637

Note 7: Capital charge

Inland Revenue pays a capital charge to the Crown on taxpayer's funds as at 30 June and 31 December each year. The capital charge rate for the year ended 30 June 2008 was 7.5% per annum (2007, 7.5%).

Note 8: Other debtors and repayments

2006/07 Actual $000		2007/08 Actual $000
6,447	Other debtors	4,900
(71)	Less provision for doubtful debts	(101)
6,376	Net debtors	4,799
4,008	Prepayments	5,839
10,384	Total other debtors and prepayments	10,638

The carrying value of other debtors approximates their fair value.

As at 30 June 2008 and 2007, all overdue receivables have been assessed for impairment and appropriate provisions applied, as detailed below:

Net debtors	Gross debtors $000	Impairment $000	Net debtors $000
2007/08
Overdue by < 30 days	4,445	(1)	4,444
Overdue by 31 to 60 days	203	(13)	190
Overdue by 61 to 90 days	8	-	8
Overdue by > 90 days	244	(87)	157
Total	4,900	(101)	4,799
2006/07
Overdue by < 30 days	4,058	-	4,058
Overdue by 31 to 60 days	170	(5)	165
Overdue by 61 to 90 days	1,928	-	1,928
Overdue by > 90 days	291	(66)	225
Total	6,447	(71)	6,376

The provision for doubtful debts has been calculated based on expected losses for Inland Revenue's pool of debtors. Expected losses have been determined based on a review of each debtor.

Movements in the provision for doubtful debts are as follows:

2006/07 Actual $000		2007/08 Actual $000
(55)	Opening balance	(71)
(233)	Additional provisions made during the year	(64)
217	Receivables written off during the year	34
(71)	Closing balance	(101)

Note 9: Inventories held for external distribution

Inland Revenue holds inventories in the form of returns and guides for external distribution. The carrying amount of inventories held for distribution that are measured at cost as at 30 June 2008 amounted to $1,792,000 (2007, $1,372,000).

There has been no write-down of inventories held for distribution or reversal of write-down.

No inventories are pledged as security for liabilities.

Note 10: Creditors and other payables

2006/07 Actual $000		2007/08 Actual $000
14,691	Accounts payable	4,161
21,907	Accrued expenses - other	23,643
3,488	GST payable	3,877
40,086	Total creditors and payables	31,681

Creditors and other payables are normally settled on 30-day terms, therefore the carrying value of creditors and other payables approximates their fair value.

Note 11: Provision for employee benefits

2006/07 Actual $000		2007/08 Actual $000

	Current liabilities
15,694	Annual leave	20,340
8,244	Accrued salaries and wages	12,108
2,024	Sick leave	2,176
948	Retiring leave	1,033
620	Long-service leave	416
52	Time off in lieu	52
178	Other	303
27,760	Total current portion	36,428
	Non-current liabilities
5,025	Sick leave	5,538
23,910	Retiring leave	24,454
5,750	Long-service leave	6,556
34,685	Total non-current portion	36,548
62,445	Total provision for employee benefits	72,976

The present value of sick leave, retiring, and long-service leave obligations depend on a number of factors that are determined on an actuarial basis using a number of assumptions. Two key assumptions used in calculating these liabilities include the discount rate and the salary inflation factor. Any changes in these assumptions will impact on the carrying amount of the liabilities.

Sick leave

If the discount rate were to differ by 1% from the estimate, with all other factors held constant, the carrying amount of the liabilities would be $215,000 higher/lower.
If the salary inflation factor were to differ by 1% from the estimate, with all other factors held constant, the carrying amount of the liabilities would be $223,000 higher/lower.

Long-service leave

If the discount rate were to differ by 1% from the estimate, with all other factors held constant, the carrying amount of the liabilities would be $250,000 higher/lower.
If the salary inflation factor were to differ by 1% from the estimate, with all other factors held constant, the carrying amount of the liabilities would be $200,000 higher/lower.

Retiring leave

If the discount rate were to differ by 1% from the estimate, with all other factors held constant, the carrying amount of the liabilities would be $1,500,000 higher/lower.
If the salary inflation factor were to differ by 1% from the estimate, with all other factors held constant, the carrying amount of the liabilities would be $1,600,000 higher/lower.

Note 12: Provision for other liabilities

2006/07 Actual $000		2007/08 Actual $000
	Current liabilities
443	Onerous contracts	196
122	Lease make-good	590
-	Restructuring	120
565	Total current portion	906
	Non-current liabilities
262	Oerous contracts	-
5,170	Lease make-good	5,468
5,432	Total non-current portion	5,468
5,997	Total provision for other liabilities	6,374

	Onerous contracts $000	Lease make-good $000	Restructuring $000	Total $000
2007/08
Opening balance	705	5,292	-	5,997
Additional provisions made	197	294	120	611
Amounts used	(92)	(7)	-	(99)
Unused amounts reversed	(614)	(56)	-	(670)
Discount unwind	-	535	-	535
Closing balance	196	6,058	120	6,374
2006/07
Opening balance	1,650	4,481	-	6,131
Amounts used	(945)	(243)	-	(1,188)
Discount unwind	-	1,054	-	1,054
Closing balance	705	5,292	-	5,997

Onerous contracts

The provision for onerous contracts arises from a non-cancellable operating lease where the unavoidable costs of meeting the lease contract exceed the economic benefits to be received from it. Inland Revenue is no longer able to utilise the surplus space due to restructuring. The floor spaces have not been sublet. This lease is due to expire on 26 April 2009.

Lease make-good

In respect of a number of its leased premises, Inland Revenue is required at the expiry of the lease term to make good any damage caused to the premises and remove any fixtures and fittings installed by the department.

Where leases include make-good clauses that require removal of Inland Revenue's improvements, an asset and a provision for lease make-good costs is recognised at the commencement of the lease, with respect to the costs of removing the improvement and restoring any damage from its installation.

Restructuring

The restructuring provision arises from the closure of Inland Revenue's warehouse in Wellington. It is anticipated that the restructuring will be completed within 12 months of balance date.

Note 13: Other financial liabilities

2006/07 Actual $000		2007/08 Actual $000
	Current liabilities
216	Leasing incentives	260
216	Total current portion	260
	Non-current liabilities
138	Leasing incentives	1,329
138	Total non-current portion	1,329
354	Total other financial liabilities	1,589

Note 14: Derivative financial instruments

To hedge its currency risk Inland Revenue enters into Foreign Currency Forward Exchange Contracts (FEC) with New Zealand Debt Management Office (NZDMO).

The notional principal amounts of outstanding forward exchange contracts as at 30 June 2008 were $nil (2007, $AUS 1,950,829).

The fair value of forward exchange contracts has been determined by reference to published price quotations in an active market.

Note 15: Reconciliation of net surplus to net cash flow from operating activities

2006/07 Actual $000		2007/08 Actual $000
(619)	Net surplus/(deficit)	5,961
	Add non-cash items
16,068	Depreciation and impairment	16,732
21,929	Amortisation and impairment	29,010
37,997	Total non-cash items	45,742
	Add items classified as investing or financing activities
60	Net loss on sale of property, plant and equipment	46
287	Net loss on sale of intangible assets	5
347	Total items classified as investing or financing activities	51
	Add/(less) working capital movements
(1,166)	(Increase)/decrease in debtor Crown	12,297
(3,059)	(Increase)/decrease in other debtors and prepayments	(254)
(1,372)	(Increase)/decrease in inventories held for distribution	(420)
7,566	Increase/(decrease) in creditors and other payables	(8,406)
186	Increase/(decrease) in derivative financial instruments	(49)
8,508	Increase/(decrease) in provision for employee benefits	10,531
4,347	Increase/(decrease) in provision for other liabilities	377
(229)	Increase/(decrease) in other financial liabilities	1,235
14,781	Net movements in working capital items	15,311
52,506	Net cash inflow from operating activities	67,065

Note 16: Commitments

Capital commitments

Capital commitments are the aggregate amount of capital expenditure contracted for the acquisition of property, plant and equipment and intangible assets that have not been paid for or not recognised as a liability at the balance sheet date.

Operating commitments

Inland Revenue's 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 sub-leased. Provision has been made in the financial statements for the expected net expenses for the duration of these leases.

The total minimum future sub-lease payments expected to be received under non-cancellable sub-lease at balance date is $280,897 (2007, $281,855).

Inland Revenue's non-cancellable operating leases have varying terms, escalation clauses and renewal rights. There are no restrictions placed on Inland Revenue by any of its leasing arrangements.

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

Note 17: Contingent Liabilities

Legal proceedings and disputes

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 Schedules.

Personal grievances

Personal grievances represent amounts claimed by employees for personal grievances cases. They all relate to an alleged breach of contract.

Note 18: Related party transactions and key management personnel

Inland Revenue is a wholly owned entity of the Crown. The government significantly influences 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. Any transactions not conducted at arm's-length have been disclosed in the financial statements.

No transactions were carried with related parties during the year. No provision has been required, nor any expense recognised, for impairment of receivables from related parties.

Compensation to key management personnel

The remuneration of key management personnel during the year was as follows:

2006/07 Actual $000		2007/08 Actual $000
2,294	Short-term employee benefits	2,230
-	Termination benefits	17
2,294	Total compensation to key management personnel	2,247

Key management personnel include the Commissioner, four Deputy Commissioners, Chief Tax Counsel, Chief Financial Officer, and those formally acting in those positions. The Commissioner's remuneration is determined by the State Services Commission.

Note 19: Financial instrument risks

Market risk

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

As Inland Revenue purchases fixed assets and services from overseas suppliers it is exposed to currency risk arising from various currency exposures, primarily with respect to the United States and Australian dollars. Currency risk arises from future purchases of fixed assets and services which are denominated in a foreign currency.

Inland Revenue has policies in place to manage the risks associated with financial instruments and, being risk averse, seeks to minimise exposure from its treasury activities. Inland Revenue does not enter into transactions that are speculative in nature.

As per Inland Revenue's Foreign Exchange Policy, the department enters into foreign currency forward exchange contracts to manage foreign exchange exposures when single foreign exchange transactions exceed $NZ100,000, or the transaction exposure for an individual currency exceeds $NZ100,000. This policy has been approved by The Treasury and is in accordance with the requirements of The Treasury Guidelines for the Management of Crown and Departmental Foreign-Exchange Exposure.

Sensitivity analysis

As there is no significant exchange risk a sensitivity analysis has not been undertaken.

Interest rate risk

Interest rate risk is the risk that the fair value of a financial instrument will fluctuate or, the cash flows from a financial instrument will fluctuate, due to changes in market interest rates.

Inland Revenue has no interest bearing financial instruments and, accordingly, has no exposure to interest rate risk.

Credit risk

Credit risk is the risk that a third party will default on its obligations to Inland Revenue, causing a loss to be incurred. In the normal course of its business credit risk from trade debtors is concentrated with the Crown and other government agencies.

The carrying amount of financial assets recognised in the Statement of Financial Position best represents Inland Revenue's maximum exposure to credit risk at balance date.

Inland Revenue does not require any collateral, security, or other credit enhancements to support financial instruments with financial institutions that Inland Revenue deals with, or 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.

The carrying amount of financial assets that would otherwise be past due or impaired, because terms have been renegotiated, is not material.

Liquidity risk

Liquidity risk is the risk that Inland Revenue will encounter difficulty raising liquid funds to meet commitments as they fall due.

As all but an insignificant proportion of funds come from the New Zealand Government and cash is drawn down on a fortnightly basis, Inland Revenue does not have significant liquidity risk. In meeting its liquidity requirements, Inland Revenue closely monitors its forecast cash requirements with expected cash drawdowns from the New Zealand Debt Management Office. Inland Revenue maintains a target level of available cash to meet liquidity requirements.

The table on page 99 analyses Inland Revenue's financial liabilities that will be settled based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

Liquidity risks

	Up to 1 year $000	Greater than 1 year but less than 5 years $000	Total $000
2007/08
Creditors and other payables - refer note 10	31,681	-	31,681
Other financial liabilities - refer note 13	260	1,329	1,589
Closing balance	31,941	1,329	33,270
2006/07
Creditors and other payables - refer note 10	40,086	-	40,086
Derivative financial instrument liabilities	2,199	-	2,199
Other financial liabilities - refer note 13	216	138	354
Closing balance	42,501	138	42,270

Note 20: Categories of financial instruments

The carrying amounts of financial assets and financial liabilities in each of the NZ IAS 39 categories are as follows:
2006/07 Actual $000		2007/08 Actual $000
	Loans and receivables
13,534	Cash and cash equivalents	18,677
85,389	Debtor Crown	73,092
6,376	Other debtors - refer note 8	4,799
105,299	Total loans and receivables	96,568
	Fair value through the profit and loss
49	Derivative financial instrument liabilities	-
49	Total fair value through the profit and loss	-
	Financial liabilities measured at amortised cost
40,086	Creditors and other payables - refer note 10	31,681
354	Other financial liabilities - refer note 13	1,589
40,440	Total financial liabilities measured at amortised cost	33,270

Note 21: Capital management

Inland Revenue's capital is its equity (or taxpayers' funds), which comprise general funds. Equity is represented by net assets.

Inland Revenue manages its revenues, expenses, assets, liabilities, and general financial dealings prudently. Inland Revenue's equity is largely managed as a by-product of managing income, expenses, assets, liabilities, and compliance with the Government Budget processes and with Treasury Instructions.

The objective of managing Inland Revenue's equity is to ensure the department effectively achieves its goals and objectives for which it has been established, whilst remaining a going concern.

Note 22: Explanation of major variances

Statement of Financial Performance

The following major variations occurred in the Statement of Financial Performance between 30 June 2008 Actuals and 30 June 2007 Actuals:

Revenue Crown was higher than last year's actual by $82,254,000 (16%). This increase in baseline was to fund the introduction of KiwiSaver as a new business for Inland Revenue; enhancement to Working for Families Tax Credit and Student Loan initiatives; development of capability to meet future challenges within the tax administration; and improvement to core tax compliance initiatives.
Personnel expenses were higher than last year's actual by $47,117,000 (14%). This increase was due to an increase in staff numbers associated with new initiatives (refer to Revenue Crown) and an update to remuneration lines.
Operating expenses were higher than last year's actual by $18,446,000 (12%). This increase was mainly due to an increase in advertising, office supplies, communication, and IT-related expenses. The increase is largely a reflection of higher approved baselines to fund the implementation of KiwiSaver and other initiatives as well as general price inflation.
Amortisation and impairment were higher than last year's actual by $7,081,000 (32%). This increase was due to an increase in amortisation on software-developed. Software developed for KiwiSaver accounts for the majority of this increase.
Capital charge expenses were higher than last year's actual by $2,198,000 (22%). This increase was due to injections of additional capital by Government in 2007-08. These were largely approved to fund the implementation of KiwiSaver as well as other initiatives.

The following major budget variations occurred between Actuals and the Main Estimates in the Statement of Financial Performance for the year ended 30 June 2008:

Revenue other was lower than budget by $3,027,000 (10%). This was due to a decline in court cost recoveries; and a decline in income from rulings due to the write-off of the work in progress associated with a number of longstanding applications, which Inland Revenue will not be ruling on.
Operating expenses were higher than budget by $29,111,000 (20%). This increase was due to an increase in postage, travel, and other operating expenses, arising in part from the post-Budget 2007 increases in the departmental baseline to fund KiwiSaver and other initiatives, as well as an under-estimation in the original budget.
Amortisation and impairment were lower than budget by $3,373,000 (10%). This decrease was due to deferred capitalisation of development expenditure on legislative projects that will be carried forward into the 2008-09 financial year.
Capital charge expenses were lower than budget by $831,000 (6%). This decrease was due to capital repayment not being factored into the budget as it was not known at the time.

The following major budget variations occurred between the Main Estimates and Supplementary Estimates in the Statement of Financial Performance for the year ended 30 June 2008:

Total income and total expenditure the approved departmental expenditure baseline and matching revenue for 2007-08 increased by $23,582,000 (3.9%) in the period following the Main Estimates for this year. Cabinet approved additional funding of $26,150,000 during this period, while the net technical adjustments approved by Ministers amounted to a reduction of $2,568,000. The majority of the additional funding ($17,428,000), related to the implementation of KiwiSaver. Other significant increases related to the student loans, the tax relief for redundancy payments and other legislative initiatives.

Statement of Financial Position

The following major variations occurred in the Statement of Financial Position between 30 June 2008 Actuals and 30 June 2007 Actuals:

Cash and cash equivalents were higher than last year's actual by $5,143,000 (38%). This was mainly due to a delay in payment of employee benefits.
Debtor Crown was lower than last year's actual by $12,297,000 (14%). This was due to an increase in cash drawdown during 2007-08 to fund operating costs.
Property, plant and equipment were higher than last year's actual by $11,358,000 (29%).This was mainly due to an increase in assets under construction associated with leasehold improvements.
Intangibles were higher than last year's actual by $45,838,000 (39%). This was due to an increase in the capitalisation of software-developed and software and licences-purchased. The implementation of KiwiSaver accounts for a significant majority of this increase.
Creditors and other payables were lower than last year's actual by $8,405,000 (21%). This was due to a decrease in trade payables. In particular, two large creditors for IT and telecommunications, respectively, resulted in a higher amount reported for 2006-07 than for 2007-08.
Provision for employee benefits was higher than last year's actual by $10,531,000 (17%). This was due to an increase in accrued annual leave, staff salaries, sick leave, and retiring and long-service leave. These are driven by the increase in staff numbers and staff salaries.
Other financial liabilities were higher than last year's actual by $1,235,000 (349%). This was due to an increase in leasing incentives received on a property situated in Christchurch.

The following major budget variations occurred between Actuals and the Main Estimates in the Statement of Financial Position as at 30 June 2008:

Cash and cash equivalents were higher than budget by $8,659,000 (86%). This was due to a timing delay in the payment of creditors and other payables.
Debtor Crown was lower than budget by $8,942,000 (11%). This was due to an increase in cash drawdown during 2007-08 to fund operating costs.
Other debtors and prepayments were higher than budget by $4,851,000 (84%).This was due to an increase in trade receivables from Departments and an increase in prepaid IT maintenance contracts.
Property, plant and equipment were higher than budget by $2,671,000 (6%). This was due to an increase in furniture and fittings.
Intangibles were higher than budget by $43,927,000 (37%). This was due to an increase in software - developed and software and licences - purchased.
Creditors and other payables were higher than budget by $11,724,000 (59%). This was due to an increase in trade payables to third parties.
Provision for employee benefits were higher than budget by $10,721,000 (17%). This was due to an increase in accrued annual leave, staff salaries, sick leave, and retiring and long-service leave.
Provision for other liabilities were higher than budget by $6,024,000 (1721%). This was due to an increase in provision for lease make-good and provision for restructuring.
Other financial liabilities were higher than budget by $1,223,000 (334%). This was due to leasing incentives received on a property situated in Christchurch.

The following major budget variations occurred between the Main Estimates and the Supplementary Estimates in the Statement of Financial Position for the year ended 30 June 2008:

Total taxpayers' funds increased by $15,968,000 in the period after the 2007-08 Main Estimates. Cabinet approved capital injections of $24,029,000 in this period, while the net technical adjustments approved by Ministers amounted to a reduction of $2,766,000. A further reduction of $5,295,000 relates to NZ IFRS adjustments.
The majority of the new capital ($21,808,000) related to the implementation of KiwiSaver. A further significant injection of capital of $1,928,000 was approved to implement the long-term Wellington accommodation solution.

Statement of Commitments

The following major variations occurred in the Statement of Commitments between 30 June 2008 Actuals and 30 June 2007 Actuals:

Total capital commitments were lower than last year's actual by $4,818,000 (30%). This was mainly due to the completion of new premises in Christchurch.
Total accommodation commitments were higher than last year's actual by $126,231,000 (104%). This was due to Inland Revenue entering into new accommodation leases in Wellington.
Total supply commitments were lower than last year's actual by $4,981,000 (18%). This was due to a decrease in cancellable contracts for the supply of goods and services

Note 23: 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.

Note 24: Explanation of transition to NZ IFRS

In line with other government entities, Inland Revenue has prepared its first set of financial statements for the year ended 30 June 2008 under NZ IFRS. As part of this transition, the financial statements for the year ended 30 June 2007 have been restated to provide comparatives to the 2007-08 accounts. This includes restating the opening Statement of Financial Position as at 1 July 2006 to be NZ IFRS compliant as this was its transition date.

NZ IFRS 1 has been applied in the preparation of these accounts. Inland Revenue has elected not to apply any of the optional exemptions from full retrospective application, and to make the following mandatory exception from retrospective application:

Estimates under NZ IFRS as at 1 July 2006 are consistent with estimates made for the same date under NZ FRS.