A1B.4.

Memorandum items (ETF 71) are recorded in GFS to provide additional information about items related to (but not included on) the GFS balance sheet. Memorandum items in GFS differ to those of commercial accounting in that they are compulsory rather than optional as in commercial accounting. In the ABS GFS, memorandum items (ETF 71) are further classified as:

• Implicit transfers (ETF 711);
• Liabilities in arrears and related charges (ETF 712); and
• Non-performing loans (ETF 713).

A1B.5

Implicit transfers (ETF 711) record the implied transfers arising through concessional lending arrangements. In the ABS GFS, implicit transfers (ETF 711) are further classified as:

• Implicit transfers receivable from concessional loans (ETF 7111); and
• Implicit transfers payable due to concessional loans (ETF 7112).

A1B.6.

Implicit transfers receivable from concessional loans (ETF 7111) records the value of implicit transfers receivable through concessional lending arrangements. The value of the implicit transfer is the difference between the current market value of the loan (assuming market interest rates) and the value of the concessional loan. Because the value of the concessional loan is lower than the market value, an implicit transfer is recorded as receivable by the recipient of a concessional loan in the supplementary information (ETF 7) of the GFS. Further information on concessional loans can be found in Chapter 3, Chapter 8, Chapter 10, Chapter 12 and Chapter 13 Part A of this manual.

A1B.7.

Implicit transfers payable due to concessional loans (ETF 7112) records the value of implicit transfers payable through concessional lending arrangements. The value of the implicit transfer is the difference between the current market value of the loan (assuming market interest rates) and the value of the concessional loan. Because the value of the concessional loan is lower than the market value, an implicit transfer is recorded as payable by the provider of a concessional loan in the supplementary information of the GFS. Further information on concessional loans can be found in Chapter 3, Chapter 8, Chapter 10, Chapter 12 and Chapter 13 Part A of this manual.

A1B.8.

Arrears are defined as amounts that are both unpaid and past the due date for payment. Paragraph 9.20 of the IMF GFSM 2014 indicates that amounts payable for any expense, acquisition of non-financial assets, or related to any liability may become in arrears if the amounts due are past payment. Only the amounts past due are classified as arrears in GFS. For example, in the case of overdue debt service payments, only the overdue part is considered to be in arrears.

A1B.9.

Paragraph 9.21 of the IMF GFSM 2014 states that some types of financial assets and liabilities (most notably debt securities, loans, financial derivatives, and accounts receivable / payable), mature at a scheduled date (or series of dates) when the debtor is required to make specified payments to the creditor. If the payments are not made as scheduled, the debtor is seen to be effectively changing the terms of the debt contract (and sometimes even the classification) of a financial instrument. In this situation, the debtor is viewed as having effectively obtained additional financing by not making the scheduled payments.

A1B.10.

In the ABS GFS, liabilities in arrears and related charges (ETF 712) are further classified as:

• Total arrears (ETF 7121); and
• Interest on arrears (ETF 7122).

A1B.11.

Total arrears (ETF 7121) records the total sum of amounts that are both unpaid and past the due date for payment (also known as arrears) during the reference period. The value of total arrears should be recorded at the current market value of the arrears. When arrears occur, paragraph 9.21 of the IMF GFSM 2014 recommends that no transaction should be imputed, but the arrears should continue to be shown in the same instrument until the liability is extinguished and the details of the total amount of arrears should be recorded as a memorandum item to the GFS balance sheet under total arrears (ETF 7121). However, if the contract of a financial instrument provides for a change in the characteristics of a financial instrument should it go into arrears, then this change should be recorded as a reclassification via an other changes in the volume of the financial assets (ETF 5211, TALC) or other changes in the volume of liabilities (ETF 5213, TALC) account entry. See Chapter 11 of this manual for further information on other changes in the volume of assets and liabilities. If the contract of the financial instrument is renegotiated, or the nature of the instrument changes from one category to another (for example, from bonds to equity), then a new transaction is recorded in GFS accounts. It will involve recording the redemption of the financial instrument in arrears and the issuance of a new instrument.

A1B.12.

Interest on arrears (ETF 7122) records any interest that accrues on arrears during the reporting period. Interest can accrue on liabilities in arrears (both principal and interest arrears) and is known as late interest in paragraph 9.22 of the IMF GFSM 2014. Late interest accrues at the same interest rate as on the original debt instrument, unless the interest rate for arrears was stipulated in the original debt contract, in which case the stipulated interest rate should be used. The stipulated rate may include a penalty rate in addition to the interest rate on the original debt. For other liabilities in arrears (in the absence of other information), interest costs accrue on these arrears at the market rate of interest for overnight borrowing.

A1B.13.

Paragraph 9.22 of the IMF GFSM 2014 recommends that any additional charges relating to arrears (such as penalties) be classified as interest on arrears (ETF 7122) as a memorandum item to the GFS balance sheet at the time that the charges accrue. If an item is purchased on credit and the debtor fails to pay within the period stated at the time the purchase was made, any extra charges incurred should also be classified as interest on arrears (ETF 7122) as a memorandum item to the GFS balance sheet until the debt is extinguished.

A1B.14.

Non-performing loans (ETF 713, and ETF 7131) are defined in paragraph 7.262 of the IMF GFSM 2014 as loans for which:

1. Payments of principal and interest are past due by three months (90 days) or more; or
2. Interest payments equal to three months (90 days) interest or more have been capitalised (reinvested to the principal amount) or payment has been delayed by agreement; or
3. Evidence exists to reclassify a loan as non-performing even in the absence of a 90-day past due payment, such as when the debtor files for bankruptcy.

A1B.15

Paragraph 7.262 of the IMF GFSM 2014 states that the amount of non-performing debt outstanding remains a legal liability of the debtor and interest should continue to accrue, unless the liability has been extinguished by repayment or as a result of a bilateral arrangement between debtor and creditor.

A1B.16.

As mentioned earlier in this chapter, loans are recorded at their current market value in Australian GFS. The current market value is equal to the required future payments of principal and contractual interest discounted at the existing market yield interest rate.

A1B.17.

Contingent liabilities (ETF 72) are defined in paragraph 7.251 of the IMF GFSM 2014 as obligations that do not arise unless a particular, discrete event(s) occurs in the future. The key difference between contingent liabilities and actual liabilities is that one or more conditions must be fulfilled before a financial transaction is recorded. Contingent liabilities are not recognised as liabilities prior to their associated condition(s) being fulfilled. Contingent liabilities are further discussed in Chapter 13 Part C of this manual. In GFS, contingent liabilities are further classified as:

• Explicit contingent liabilities (ETF 721); and
• Implicit contingent liabilities (ETF 722).

A1B.18.

Explicit contingent liabilities (ETF 721) occur when there is a contractual agreement which explicitly states that one party (in this case, the government) agrees to assume the liability of another party if certain conditions arise. The most common form of explicit contingent liabilities are one-off guarantees in the form of loans and other debt instrument guarantees that are referred to as publicly guaranteed debt, and other types of one-off guarantees. Explicit contingent liabilities are not recorded in GFS unless the conditions associated with these are met. Further information on explicit contingent liabilities can be found in Chapter 13 Part C of this manual.

A1B.19.

In the ABS GFS, explicit contingent liabilities (ETF 721) are further classified as:

• Loan and other debt instrument guarantees (ETF 7211);
• Other one-off guarantees (ETF 7212);
• Legal claims (ETF 7213);
• Indemnities (ETF 7214);
• Uncalled share capital (ETF 7215); and
• Explicit contingent liabilities not elsewhere classified (ETF 7219).

A1B.20.

Loan and other debt instrument guarantees (ETF 7211) consist of the value of loans and other debt instruments that are guaranteed under a contractual agreement which explicitly states that the government will assume these liabilities on behalf of another party if certain conditions arise.

A1B.21.

Other one-off guarantees (ETF 7212) consist of the value of other one-off guarantees that are under a contractual agreement which explicitly states that a public sector unit will assume liabilities on behalf of another party if certain conditions arise.

A1B.22.

Legal claims (ETF 7213) consist of the value of legal claims that are guaranteed under a contractual agreement which explicitly states that a public sector unit will assume liabilities on behalf of another party if certain conditions arise.

A1B.23.

Indemnities (ETF 7214) consist of the value of indemnities that are guaranteed under a contractual agreement which explicitly states that a public sector unit will assume liabilities on behalf of another party if certain conditions arise.

A1B.24.

Uncalled share capital (ETF 7215) consists of the value of uncalled share capital that is guaranteed under a contractual agreement which explicitly states that a public sector unit will assume liabilities on behalf of another party if certain conditions arise.

A1B.25.

Explicit contingent liabilities not elsewhere classified (ETF 7219) consist of the value of other explicit contingent liabilities that are guaranteed under a contractual agreement which explicitly states that a public sector unit will assume liabilities on behalf of another party if certain conditions arise.

A1B.26.

Implicit contingent liabilities (ETF 722) occur when it is assumed that one party (in this case, the government) will take on the liability of another. The most common form of implicit contingent liability for government is the assumption of the net obligations of future social security benefits for a population, such as age or disability pensions. Implicit contingent liabilities are not recorded in GFS unless the conditions associated with these are met (e.g. a person reaches an age where they are eligible to claim the age pension) and then the implicit contingent liability transforms into an actual liability and enters the GFS balance sheet. Until the time that the conditions associated with implicit contingent liabilities arise, the value of these are recorded as supplementary information. Further information on implicit contingent liabilities can be found in Chapter 13 Part C of this manual. In GFS, implicit contingent liabilities are further classified as:

• Present value of implicit obligations for future social security benefits (ETF 7221); and
• Implicit contingent liabilities not elsewhere classified (ETF 7229).

A1B.27.

Present value of implicit obligations for future social security benefits (ETF 7221) consists of the present value of obligations for future social security benefits (other than employment-related retirement benefits) that are under an implicit guarantee by government to assume these liabilities on behalf of another party if certain conditions arise. In this context, social security benefits relate to the international GFS meaning of social security which does not exist in Australia. In Australia, the only type of social security benefits that involve a contractual liability for public sector units relate to employment related retirement benefits. Therefore in Australian GFS, the classification category of present value of implicit obligations for future social security benefits (ETF 7221) is maintained for conceptual completeness in alignment with the international standards and will report a zero balance.

A1B.28.

Other implicit contingent liabilities (ETF 7229) consist of the value of contingent liabilities that are under an implicit guarantee by government to assume these liabilities on behalf of another party if certain conditions arise.

A1B.29.

Provisions for doubtful debts (ETF 73, ETF 731, and ETF 7311) consist of provisions for anticipated doubtful debts during the reporting period. Provisions for doubtful debts are not recognised in GFS, but are recorded in the AGFS15 as part of the supplementary information so that the ABS can derive the face value of financial assets and liabilities which is required for international statistical reporting. Provisions or allowances for doubtful debts are not included in GFS output and accounts receivable in the balance sheet, however the market value of the debt will take into account the expectation that a proportion may be uncollectable. Provisions for doubtful debts are further discussed in Chapter 13 Part A, and Appendix 1 Part B of this manual.

A1B.30.

The classification of debt instruments by maturity and type of financial instrument is recorded as part of supplementary information to aid understanding of future payment obligations and for international GFS statistical reporting purposes. Paragraph 7.266 of the IMF GFSM 2014 refers to the maturity of a debt instrument as the time it takes until the debt is extinguished according to the contract between the debtor and the creditor, and provides information on the liquidity dimensions of government debt. Paragraph 7.267 of the IMF GFSM 2014 indicates that maturity may relate to ‘original maturity’ which is the period from the issue date until the final contractually scheduled payment date; or ‘remaining maturity’ or ‘residual maturity’ which is the period from the reference date (balance sheet date) until the final contractually scheduled payment date.

A1B.31.

Paragraph 7.266 of the IMF GFSM 2014 further states that a debt instrument’s maturity can be either short-term or long-term:

• Short-term maturity is payable on demand or with a maturity of one year or less. This category includes arrears and interest on arrears.
• Long-term maturity is a term of more than one year, or no stated maturity (other than debt repayable on demand, which is considered short-term).

A1B.32.

Debt maturity (ETF 74) is further classified as debt maturity valued at market value (ETF 741, SDC).

A1B.33.

Debt maturity valued at market value (ETF 741, SDC) consists of the market value and the time it takes until the debt is extinguished according to the contract between the debtor and the creditor. The current market value is equal to the required future payments of principal and contractual interest discounted at the existing market yield interest rate. This item is further classified by type of debt instrument using an appropriate TALC and SDC code. In GFS, debt maturity valued at market value is further classified as:

• Short-term debt by original maturity valued at market value (ETF 7411, TALC, SDC);
• Long-term debt with payment due within one year or less valued at market value (ETF 7412, TALC, SDC); and
• Long-term debt with payment due in more than one year valued at market value (ETF 7413, TALC, SDC).

A1B.34.

Short-term debt by original maturity valued at market value (ETF 7411, TALC, SDC) consists of the market value and the time it takes until the debt is extinguished according to the contract between the debtor and the creditor on a short term basis.

A1B.35.

Long-term debt with payment due within one year or less valued at market value (ETF 7412, TALC, SDC) consists of the market value and the time it takes until the debt is extinguished according to the contract between the debtor and the creditor on a long term basis with payment due within one year or less.

A1B.36.

Long-term debt with payment due in more than one year valued at market value (ETF 7413, TALC, SDC) consists of the market value and the time it takes until the debt is extinguished according to the contract between the debtor and the creditor on a long term basis with payment due in more one year.

A1B.37.

Salary sacrifice expenses (ETF 75) record the expenses of benefits supplied by a public sector employer to employees under a salary sacrifice arrangement. These expenses are collected as part of the AGFS15 for national accounting purposes and contains details not normally used in GFS. Paragraph 7.47 of the 2008 SNA describes a salary sacrifice as a benefit such as a car or extra superannuation contributions that may be 'purchased' by the employee from the employer by foregoing some salary. Items can only be purchased in this way through a specific salary sacrifice agreement between the employer and the individual employee. The attraction of a salary sacrifice arrangement lies in the tax advantages of purchasing items under such a scheme. For example, a car bought by the employer and sold to the employee is taxed at a lower rate than a car purchased by an individual; and superannuation contributions are taxed differently from other income if deducted at source. Whether or not an employer provides benefits under salary sacrifice arrangements for employees is dependent on the employer's willingness to do so, and is not a mandatory part of the conditions of employment.

A1B.38.

In the ABS GFS, salary sacrifice expenses (ETF 75) are further classified as salary sacrifice expenses (ETF 751).

A1B.39.

Salary sacrifice expenses (ETF 751) consist of the expenses of benefits supplied by a public sector employer to employees under a salary sacrifice arrangement. In the ABS GFS, salary sacrifice expenses are further classified by destination using an appropriate SDC code, and are further classified as:

• Salary sacrifice expenses - superannuation (ETF 7511, SDC); and
• Salary sacrifice expenses not elsewhere classified (ETF 7519, SDC).

A1B.40.

Salary sacrifice expenses - superannuation (ETF 7511, SDC) consists of the value of expenses relating to superannuation provided by the employer to employees through a salary sacrifice arrangement. As mentioned above, there are tax advantages for the employee when they make extra superannuation contributions through a salary sacrifice arrangement. This item only records the expenses to the employer relating to the provision of superannuation to employees through a salary sacrifice arrangement, and excludes normal superannuation expenses.

A1B.41.

Salary sacrifice expenses not elsewhere classified (ETF 7519, SDC) consists of the value of expenses relating to items other than superannuation (such as a car, or computer) provided by the employer to employees through a salary sacrifice arrangement. As mentioned above, there are tax advantages for the employee when they purchase items through a salary sacrifice arrangement. This item only records the expenses to the employer relating to the provision of items other than superannuation to employees through a salary sacrifice arrangement, and excludes normal expenses.

A1B.42.

Sometimes, public sector units decide to produce goods or services for their own use rather than purchase them from other units. Often this involves the construction of non-financial produced assets (such as a building or computer software) using the unit's own materials, labour, and expertise. This activity is called own-account capital formation and although it is collected as part of the ABS GFS, the splits classified in own-account capital formation (ETF 76) are collected for national accounting purposes.

A1B.43.

Own-account production is different from the goods and services generated by producer units. This is because the goods and services produced by producer units are intended to be sold at market or below market prices, whereas own-account production involves the construction of a non-financial asset for the unit's own use. Assets constructed by own-account production are intended to be held and used in-house and do not generate receipts from sales. Paragraph 7.37 of the IMF GFSM 2014 states that assets being constructed on own account are treated as the acquisition of non-financial produced assets by the public sector unit rather than as inventories of work in progress. The costs associated with own-account production must be separately identified from expenses because the own-account capital costs make up the cost base of the asset being constructed.

A1B.44.

Own-account capital formation (ETF 76) includes all of the costs associated with constructing an asset in-house. Typical costs include wages and salaries, other employee entitlements, materials and capitalised depreciation relating to work conducted by public sector employees in the construction of non-financial produced assets.

A1B.45.

Assets created through own-account capital formation should be valued at their estimated market price before adding any taxes less subsidies, transport, or distribution margins. It may be difficult to establish the market value of assets produced on own account. This is because the type of asset constructed through own-account capital formation may be specialised and only useful for the exclusive purpose that the public sector unit constructed it (such as computer software or databases). Paragraphs 8.41 and A7.27 of the IMF GFSM 2014 state that in the absence of adequate information to enable an estimation of a market value for assets produced through own-account capital formation, it may be necessary to value the assets by the sum of their cost of production.

A1B.46.

When production is carried out on own account, there is no formal transfer of ownership. Paragraph 8.15 of the IMF GFSM 2014 states that the producing unit effectively takes possession progressively as production proceeds, so that the asset is acquired as each transaction involved in its production is recorded. For example, if a public sector unit constructs a building using its own workforce, then each use of goods and services and work performed by employees is classified as an acquisition of the non-financial produced asset as work takes place.

A1B.47.

Since the costs associated with own-account capital formation form part of the cost base of the asset being created, these costs are further classified by the type of asset being created using an appropriate TALC code, and by purpose using an appropriate COFOG-A code. In the ABS GFS, own-account capital formation (ETF 76) are further classified as:

• Own-account superannuation payments (ETF 761);
• Own-account employee payments other than superannuation (ETF 762); and
• Own-account non-employee payments (ETF 763)

A1B.48.

Own-account superannuation payments (ETF 761) records the value of costs relating to employment related superannuation schemes provided to employees working on own-account capital formation. Own-account superannuation payments (ETF 761) are further classified as:

• Own-account employers' contributions - defined contribution superannuation (ETF 7611, TALC, COFOG-A);
• Own-account employers' contributions - defined benefit superannuation (ETF 7612, TALC, COFOG-A); and
• Own-account imputed employers' contribution - defined benefit superannuation (ETF 7613, TALC, COFOG-A).

A1B.49.

Own-account employers' contributions - defined contribution superannuation (ETF 7611, TALC, COFOG-A) form part of own-account capital formation (76), and consist of the value of superannuation payments accrued under a defined contribution superannuation scheme for employees engaged in work on own-account capital formation in the current period. Further information on defined contribution superannuation can be found in Chapter 7 and Chapter 13 of this manual.

A1B.50.

Own-account employers' contributions - defined benefit superannuation (ETF 7612, TALC, COFOG-A) consist of the value of superannuation payments accrued under a defined benefit superannuation scheme for employees engaged in work on own-account capital formation work in the current period. Further information on defined benefit superannuation can be found in Chapter 7 and Chapter 13 of this manual.

A1B.51.

Own-account imputed employers' contribution - defined benefit superannuation (ETF 7613, TALC, COFOG-A) consists of the value of imputed employers' contributions equal to the increase in benefits payable due to current period employment, plus the costs of operating the scheme, minus the sum of the employer’s actual contribution and the sum of any contributions by the employees, in relation to employees engaged in work on own-account capital formation. Further information on imputed employers' contributions to defined benefit superannuation can be found in Chapter 7 and Chapter 13 of this manual.

A1B.52.

Own-account employee payments other than superannuation (ETF 762) form part of own-account capital formation (76), and consist of the value of compensation of employees (other than superannuation) relating to employees engaged in work on own-account capital formation. In the ABS GFS, own-account employee payments other than superannuation (ETF 762) are further classified as:

• Own-account wages, salaries and supplements in cash (ETF 7621, TALC, COFOG-A);
• Own-account wages and salaries in kind (ETF 7622, TALC, COFOG-A);
• Own-account salary sacrifice payments - superannuation (ETF 7623, TALC, COFOG-A);
• Own-account salary sacrifice payments - items other than superannuation (ETF 7624, TALC, COFOG-A);
• Own-account fringe benefits tax (FBT) payments (ETF 7625, TALC, COFOG-A);
• Own-account workers' compensation payments (ETF 7626, TALC, COFOG-A); and
• Own-account employee payments not elsewhere classified (ETF 7629, TALC, COFOG-A).

A1B.53.

Own-account wages, salaries and supplements in cash (ETF 7621, TALC, COFOG-A) consist of the value of employer payments relating to employee wages and salaries payable in cash (or any other financial instruments used as means of payments) to employees in return for work done on own-account capital formation. Further information on wages, salaries and supplements in cash can be found in Chapter 7 of this manual.

A1B.54.

Own-account wages and salaries in kind (ETF 7622, TALC, COFOG-A) consist of the value of employer payments relating to employee wages and salaries in kind that are payable in the form of goods, services, interest forgone, and shares issued to employees in return for work done on own-account capital formation. Further information on wages and salaries in kind can be found in Chapter 7 of this manual.

A1B.55.

Own-account salary sacrifice payments - superannuation (ETF 7623, TALC, COFOG-A) consist of the value of salary sacrifice payments relating to superannuation provided by the employer to employees working on own-account capital formation through a salary sacrifice arrangement.

A1B.56.

Own-account salary sacrifice payments - items other than superannuation (ETF 7624, TALC, COFOG-A) consist of the value of salary sacrifice payments relating to items other than superannuation (such as a car, or computer) provided by the employer to employees working on own-account capital formation through a salary sacrifice arrangement.

A1B.57.

Own-account fringe benefits tax (FBT) payments (ETF 7625, TALC, COFOG-A) consist of the value of employers' FBT payments relating to employees working on own-account capital formation. Further information on FBT can be found in paragraphs 7.24 to 7.25 of this manual.

A1B.58.

Own-account workers' compensation payments (ETF 7626, TALC, COFOG-A) consist of the value of employer payments for the provision of workers' compensation for employees working on own-account capital formation. Further information on workers' compensation can be found in paragraph 7.26 of this manual.

A1B.59.

Own-account employee payments not elsewhere classified (ETF 7629, TALC, COFOG-A) consist of the value of employee payments connected to work relating to own-account capital formation other than superannuation, wages, salaries and supplements, salary sacrificed items, FBT payments, and workers' compensation payments. This item includes accrued costs for the period relating to sick leave paid, annual leave, long service leave, retirement and redundancy for employees working on own-account capital formation. Further information on other employee payments not elsewhere classified can be found in paragraph 7.27 of this manual.

A1B.60.

Own-account non-employee payments (ETF 763) consist of the value of payments connected to work relating to own-account capital formation that are not related to the compensation of employees. In the ABS GFS, own-account non-employee payments (ETF 763) are further classified as:

• Own-account use of goods and services (ETF 7631, TALC, COFOG-A);
• Own-account depreciation of fixed produced assets (ETF 7632, TALC, COFOG-A);
• Own-account other taxes on production less other subsidies on production (ETF 7633, TALC, COFOG-A); and
• Own-account other non-employee payments not elsewhere classified (ETF 7639, TALC, COFOG-A).

A1B.61.

Own-account use of goods and services (ETF 7631, TALC, COFOG-A) consist of the value of goods and services consumed by a public sector unit in connection to work relating to own-account capital formation. Further information on use of goods and services can be found in paragraphs 7.31 to 7.34 of this manual.

A1B.62.

Own-account depreciation of fixed produced assets (ETF 7632, TALC, COFOG-A) form part of own-account capital formation (76), and consist of the value of depreciation (or consumption) on non-current tangible assets connected to own-account capital formation. Further information on depreciation can be found in paragraphs 7.36 to 7.40 of this manual.

A1B.63.

Own-account non-employee payments not elsewhere classified (ETF 7639, TALC, COFOG-A) form part of own-account capital formation (76), and consist of the value of other non-employee related payments in relation to own-account capital formation such as capitalised interest.