Note 1 - Basis of preparation (2022)

Inland Revenue is a government department as defined by section 2 of the Public Finance Act 1989 and is domiciled and operates in New Zealand.

The relevant legislation governing Inland Revenue's operations is the Public Finance Act 1989.

Inland Revenue is a wholly owned entity of the Crown whose primary objective is to provide services to the public rather than to make a financial return. Accordingly, Inland Revenue has designated itself as a Public Benefit Entity (PBE) for financial reporting purposes.

The reporting period for these financial statements is for the year ended 30 June 2022. The forecast financial statements are for the year ending 30 June 2023.

The Chief Executive and Commissioner of Inland Revenue authorised these financial statements on 29 September 2022.

The financial statements have been prepared in accordance with the requirements of the Public Finance Act 1989, which includes the requirement to comply with New Zealand generally accepted accounting practice (NZ GAAP), and the Treasury instructions.

Inland Revenue has applied the Tier 1 Public Benefit Entity International Public Sector Accounting Standards (PBE IPSAS) in preparing the 30 June 2022 financial statements.

The financial statements have been prepared on a going concern basis, and the accounting policies set out below and in the notes to the financial statements have been applied consistently to all periods presented in these financial statements.

These financial statements have been prepared on a historical cost basis, unless otherwise stated. The accrual basis of accounting has been used.

These financial statements are presented in New Zealand dollars, and all values are rounded to the nearest thousand dollars ($000). The functional currency of Inland Revenue is New Zealand dollars.

Standards and amendments, issued but not yet effective, that have not been adopted early are as follows. 

PBE IPSAS 41 Financial Instruments

The External Reporting Board issued PBE IPSAS 41 Financial Instruments in March 2019. This standard supersedes PBE IFRS 9 Financial Instruments, which was issued as an interim standard. It is effective for reporting periods ending on or before 30 June 2023. Inland Revenue does not intend to adopt PBE IPSAS 41 early. When this standard is adopted, Inland Revenue does not expect any significant changes as the requirements are similar to PBE IFRS 9.

PBE FRS 48 Service Performance Reporting

PBE FRS 48 replaces the service performance reporting requirements of PBE IPSAS 1 Presentation of Financial Statements and is effective for reporting periods ending on or after 30 June 2023. Inland Revenue has not yet determined how the application of PBE FRS 48 will affect its statement of performance and did not to adopt PBE FRS 48 early.

In preparing these financial statements, judgements, estimates and assumptions have been made concerning the future.

These judgements, estimates and their associated assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on experience, including expectations of future events that are believed to be reasonable under the circumstances, and other factors. Revisions to accounting estimates are recognised in the period in which the estimate is revised and future periods if the revision affects both current and future periods.

The main estimations and judgements that are relevant to Inland Revenue's financial statements are disclosed in Note 9 - Property, plant and equipment, Note 10 - Intangible assets, Note 11 - Debtors and prepayments, Note 13 - Employee entitlements and Note 14 - Other liabilities. These notes include disclosures relating to the impacts of COVID-19 in Inland Revenue's financial statements.

Note 9 - Property plant and equipment (2022)

Note 10 - Intangible assets (2022)

Note 11 - Debtors and prepayments (2022)

Note 13 - Employee entitlements (2022)

Note 14 - Provision for other liabilities (2022)

Significant accounting policies are included in the notes to which they relate. Significant accounting policies that do not relate to a specific note and that materially affect the measurement of financial results, the financial position and output statements within the 'Our performance' section are outlined below.

From 1 July 2021, Inland Revenue has adopted the revised Crown accounting policy whereby customisation and configuration costs arising from software as a service arrangements, which Inland Revenue does not recognise as an intangible asset, are recognised in arriving at the surplus or deficit. The revised Crown accounting policy also requires retrospective adjustments on the financial statements (refer to 'Prior year restatement' below for details).

There have been no other changes in accounting policies since 30 June 2021.

All amounts in the financial statements and appropriation and output statements are exclusive of goods and services tax (GST), except for debtor Crown, net debtors and accounts payable, which are stated on a GST-inclusive basis. Where GST is not recoverable as input tax, it is recognised as part of the related asset or expense.

The net amount of GST owing or due at balance date, being the difference between output GST and input GST, is included in creditors and other payables in the 'Statement of financial position'.

Statement of financial position (2022)

The net GST paid or received, including the GST relating to investing and financing activities, is classified as an operating cash flow in the Statement of cash flows.

Statement of cash flows (2022)

Commitments and contingencies are disclosed exclusive of GST.

Government departments are exempt from income tax as public authorities. No charge for income tax has been provided for.

Cash and cash equivalents include cash on hand, cash in transit and funds held in the bank accounts. All cash held in bank accounts is held in on-demand accounts and no interest is payable to Inland Revenue.

Inland Revenue is only permitted to spend its cash and cash equivalents within the scope and limits of its appropriations.

Inland Revenue's activities expose it to the risks of changes in foreign exchange rates. Foreign currency transactions (including those for which forward exchange contracts are held) are translated into New Zealand dollars using the spot exchange rates at the dates of the transactions.

Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the financial results.

Inland Revenue allocates costs directly to an appropriation where a line of sight exists between an appropriation and a cost centre or a project. Inland Revenue utilises indirect allocation where a cost centre or a project cannot be attributed directly to an appropriation. Indirect allocation rates are derived from the weighting of apportioned direct costs from relevant cost drivers to appropriations.

When the presentation or classification of items in the financial statements change, comparative figures for prior periods are restated to ensure consistency with the current period, unless it is impractical to do so.

As noted, the presentation of some information has changed from the previous period, with prior period balances re-classified to be comparable with current year figures (refer to 'Changes in accounting policies' above).

The budget, revised budget, and forecast figures have been prepared in accordance with NZ GAAP, using accounting policies that are consistent with those adopted in preparing these financial statements.

The budget and forecast figures are not subject to audit.

The budget figures for 2021–22 are those included in the 'Estimates of Appropriations for the Government of New Zealand for the Year Ending 30 June 2022'.

The Estimates of Appropriations for the Government of New Zealand for the Year Ending 30 June 2022 - treasury.govt.nz

The revised budget figures for 2021–22 (refer to the 'Statement of budgeted departmental and actual expenses and capital expenditure incurred against appropriations') are those included in The Supplementary Estimates of Appropriations for the Government of New Zealand for the Year Ending 30 June 2022.

Statements of budgeted and actual expenses and capital expenditure incurred against appropriations

The forecast figures for 2022–22 are those included in the 'Estimates of Appropriations for the Government of New Zealand for the year ending 30 June 2023'.

The Estimates of Appropriations for the Government of New Zealand for the Year Ending 30 June 2023 - treasury.govt.nz

The forecast financial statements have been prepared in accordance with the requirements of the Public Finance Act 1989 to communicate forecast financial information for accountability purposes. They are compliant with PBE Financial Reporting Standard 42 Prospective Financial Statements.

The forecasts have been compiled on the basis of existing government policies and ministerial expectations at the time the statements were finalised, and reflect all Government decisions up to 11 April 2022. While Inland Revenue regularly updates its forecasts, updated forecast financial statements for the year ending 30 June 2023 will not be published.

The main assumptions are as follows:

• Inland Revenue's main activities will remain substantially the same as for the previous year
• Inland Revenue's transformation programme ceased in 2021–22, with some residual transformation activities post the closure of the programme to occur in 2022–23 and 2023–24
• Operating costs are based on historical information and Inland Revenue's best estimates of future costs to be incurred for the delivery of its services and the transformation programme
• Estimated year-end information for 2021–22 is used as the opening position for the 2022–23 forecasts.

Any changes to budgets during 2022–23 will be incorporated into the 'Supplementary Estimates of Appropriations for the Government of New Zealand for the Year Ending 30 June 2023'

The actual financial results for the forecast period covered are likely to vary from the information presented in these forecasts. Factors that may lead to a material difference between information in these forecast financial statements and the actual reported results include:

• changes due to initiatives approved by Cabinet
• technical adjustments to the budget, including transfers between financial years
• the timing of expenditure relating to significant programmes and projects.

In April 2021, the International Financial Reporting Interpretations Committee issued a final agenda decision on how to account for software as a service (SaaS) arrangements. The agenda decision clarified that a customer does not normally recognise an intangible asset based on the requirement of PBE IPSAS 31 Intangible Assets where a supplier controls the application software to which the customer has access on an SaaS agreement. Therefore, the configuration and customisation costs of the SaaS must be recognised against surplus or deficit.

The modernisation of our tax system, enabled by our transformation programme, involved a significant upgrade to the underlying technology infrastructure, which meant that Inland Revenue entered into a number of SaaS arrangements with different providers.

The new accounting policy has been effective since 1 July 2021. As a result of this change, we have restated some areas of our financial statements retrospectively for the 2020–21 financial year.

¹ Total figures are not the sum of the above figures, but are to be read as restated figures only. ↩

² Total figures are not the sum of the above figures, but are to be read as restated figures only. ↩

³ Total figures are not the sum of the above figures, but are to be read as restated figures only. ↩

⁴ Total figures are not the sum of the above figures, but are to be read as restated figures only. ↩

The total impact of the new accounting policies on financial periods prior to 2020–21 was a cumulative reduction of $13.873 million against Inland Revenue's intangible assets and taxpayers' funds.

As our multi-year transformation appropriation ended in 2021–22, Inland Revenue does not expect that this change will have a material impact on Inland Revenue's financial statements for any future years, unless there are fundamental changes in our technology or our SaaS providers.

⁵ Total figures are not the sum of the above figures, but are to be read as restated figures only. ↩