Entities must bring forward a new policy proposal (NPP) and capital business case for consideration by Government where they propose to spend more than:
NPPs for ongoing or future funding
For minor ongoing changes, entities may submit an NPP to request an ongoing increase to their DCB or ACB.
Where ongoing or future funding is required (typically for assets valued at more than
$10 million), the NPP should clearly identify the funding is ongoing, its timing and purpose, such as:
- the replacement of the asset
- capitalised maintenance
- make-good costs.
An entity can nominate a minor part of their DCB, ACB or depreciation funding as an offset for new assets or other NPP types (e.g. operating expenses or savings proposals). This is subject to the entity demonstrating the funding is in excess of long-term capital needs.
NPPs for major capital works and leases
NPPs for capital works with an estimated whole-of-life cost (WoLC) of $30 million or more (excluding fit-outs), must apply the two stage capital works approval process.
This excludes Defence’s capital works proposals in the context of the Defence Integrated Investment Program (DIIP) which are subject to specific provisions with a separate approval process.
For major infrastructure projects where the Commonwealth contribution is $100 million or more, for a first-pass to Cabinet entities must prepare financing options in collaboration with Finance, the Department of the Treasury and the Infrastructure Project Financing Agency.
For leases, NCEs must apply the lease endorsement process – this process:
- is mandatory for all leases, regardless of whether the proposal is within or outside the context of an NPP
- includes fit-out costs in WoLC estimates
- does not provide authority for additional appropriation funding which must be sought through the Budget approval process.
Leases for office accommodation and shopfronts are subject to endorsement by the Finance Minister (or nominee) where the value exceeds:
- $30 million on a WoLC basis, or
- $100 million for Defence, including extension options and GST.
The Finance Minister (or nominee) may review and approve, or cancel any lease including those below the value threshold.
NPPs for the creation of a new entity
Where an NPP proposes the creation of a new entity, the NPP should address the need for:
- setup capital funding – through appropriation Acts (No. 2/4/6)
- an ongoing DCB or ACB.
The proposed amount of DCB and ACB funding for the new entity should consider the DCB and ACB amounts provided to comparable entities (i.e. similar size, function and asset base).
Where DCB and ACB funding is required to commence replacing assets in future years, this must be explicitly identified in the NPP – otherwise the entity may be required to offset this expenditure from existing funding. Where the new entity is a CCE, depreciation funding is based on the assets transferred or purchased as part of its creation.
Changes to an entity’s corporate or non-corporate status
If an entity changes its status from a CCE to an NCE, funding for:
- depreciation expenses will be reclassified from operating to DCB and / or ACB
- the replacement of assets (valued at more than $10 million) should be reduced, where appropriate, in line with net cash funding arrangements.
If an entity changes its status from an NCE to a CCE, funding for the DCB and ACB will be reclassified as funding for depreciation expenses.
It is unlikely the transfer between DCB and ACB funding and depreciation expenses will match. Where a change of status occurs and additional funding is requested, the transfer amount must be:
- discussed with your AAU
- outlined in the NPP
- disclosed in the next Portfolio Budget Statements (PB statements) and Portfolio Additional Estimates Statements (PAES).
Proceeds from sale of assets
Item 7, under subsection 27(2) of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule), enables NCEs to retain receipts related to the sale of non‑financial assets.
Proceeds from the sale of non-financial assets may be considered offsets for capital expenditure proposals, scoping studies and similarly defined, time-limited projects relating to the sale of non-financial assets.
The PGPA Rule (subsection 27(7)) limits the amount that can be receipted from the sale of
non-financial assets under item 7 (less costs incurred) to no more than five per cent of a NCEs total departmental items in an appropriation Act for the financial year.
The proceeds from the sale must not be used for recurring expenditure such as salaries or supplier costs.
Entities must consult their AAU in relation to the sale of significant assets and when updating estimates for asset acquisitions.
Movements of capital expenditure
Entities may seek a reappropriation of DCB and ACB funding if unspent appropriations lapse following the repeal of appropriation Acts.
Movement of capital expenditure will be subject to the agreement of Finance, or the Finance Minister’s approval where the net accumulated amount to be moved in a financial year is more than:
- $2 million for ‘Small’ entities
- $5 million for ’Material’ entities.
The thresholds apply cumulatively across financial year and include any movements previously agreed (i.e. movements in capital expenditure estimates across all estimate updates within a single financial year would count towards the threshold).
Any unspent or unallocated DCB and ACB from previous years must be used before seeking a movement of expenditure estimates from forward years to earlier years.
The movement of capital expenditure approval process below shows where movements below the relevant thresholds may be agreed between the entity and the relevant AAU.
Requests for the movement of capital expenditure, with a revised CMP, are to be submitted to the relevant AAU and CMP-PCEF@finance.gov.au.
Movement of capital expenditure approval process
Movement of loan or investment amounts
Entities should contact their AAU where they need re-profile their:
- ‘loan’ or ‘loan and expenditure’, for a yet-to-be appropriated multi-year loan or investment involving a movement of funds.
- ‘expenditure’ for a loan or investment amount that has been appropriated or an unspent portion that remains at the end of the budget period.
Reallocation of capital expenditure
DCB, ACB and depreciation funding must be used for the purpose it was provided – i.e. for the replacement of assets and capitalised maintenance. Entities seeking to use this funding for another purpose must do so through an NPP.
Reallocations are limited to activities with existing policy authority and can only occur within a financial year, in time for the Additional Estimates process. The reallocation must be processed through the Additional Estimates and reported in PAES.
The use of DCB and ACB funding on operating expenditure can only occur within a financial year (i.e. not between years) and is subject to the agreement of Finance (if the value of the reallocation is less than $10 million) or the Finance Minister (if the value is $10 million or more).
Appropriate steps must be taken to ensure the change can be reflected in an entity’s financial statements, where:
- funding is reallocated from DCB to operating expenditure – or vice versa – during the year (i.e. post Budget)
- the reallocation of administered operating to administered capital in appropriation Acts (No. 2/4/6) is approved by Government.
For all reallocation requests, contact your AAU and provide substantiating documentation, such as:
- a memorandum of understanding
- a contract or lease agreement
- other formal agreements and / or accounting policy papers
- correspondence.
Circumstances where a reallocation may be requested
A reallocation may be requested, where:
- a decision is taken to change the asset capitalisation threshold of the entity. For example, instead of assets being capitalised with a value of $1,000, they are now capitalised where their value is $2,000 or more
- the entity has entered into a SSA with another government entity there are changes in the way the entity manages its assets – such as leasing rather than purchasing
- there is an outsourcing of services, which would have normally required the entity to purchase assets – such as engaging cloud computing services instead of using in-house data management.
Movements that result in an operating loss
Some transactions involving asset funding or movements of funds may result in operating losses. Where an NCE is in receipt of a DCB or CDAB, the NCE:
- should adjust the operating result for the relevant depreciation expenses to ensure the resulting operating loss is not a consequence to net cash appropriation arrangements
- may budget for an operating loss up to the relevant amount of unfunded depreciation expenses including their Depreciation on Right of Use (RoU) assets.
Depreciation expenses must be excluded from the calculation of an operating loss where they relate to:
- cost-recovery
- externally-funded operations with a component for the recovery of depreciation expenses.
Movements for operating losses of CCEs that are DCIs
CCEs that are DCIs with a CDAB, are subject to limited net cash appropriation arrangements.
A DCI may budget for an operating loss up to the amount of their heritage and cultural assets depreciation expenses (excluding any building depreciation expenses) for their purchased assets.
