The building and construction industry has always been one of the most heavily scrutinised and regulated industries, with 2019 shaping up to be a year re-enforcing this view, with new reforms from the QBCC commencing 1 January 2019.
Why the need for change:
We will not get into the debate as to whether this is a good thing that will stamp out a few bad eggs in the industry, or whether it’s just another layer of compliance that is going to add further to the costs of operating a licensed building & construction business in QLD.
However, the policy reasons behind tightening up some of the requirements is ultimately one of wanting to avoid/minimise the chance of insolvencies & corporate collapses in the building & construction industry, which can have a devastating and wide ranging financial & social impact on the community.
The key reforms are designed to enable the QBCC to more promptly and effectively detect and minimise the impact of potential insolvencies and corporate collapses by:
- Strengthening reporting requirements;
- Providing clarity about what can be included when calculating a licensee’s assets and revenue;
- Improving data quality and availability for the QBCC.
What are the key changes?
Strengthening reporting requirements:
- All licensees will need to provide financial information to the QBCC annually (varying timeframes apply as to when the first year of data is to be provided);
- All licensees need to report significant decreases in Net Tangible Assets (threshold reduced to 20% for categories 4-7; threshold remains unchanged at 30% for other licensees);
- Category SC1 and SC2 licensees (lower revenue licensees) will continue to self-certify that they are meeting the requirements with the threshold limit increasing for SC2 licensees from $600,000 to $800,000 annual revenue. Self-certifying licensees will also now need to report their current ratio of assets to liabilities to provide “more complete financial information” to the QBCC. A new online reporting tool is proposed to be available to support this;
- Category 4 – 7 licensees (those with higher revenues > $30,000,000) must provide more detailed financial information in the form of a “balanced scorecard”.
Provide clarity when calculating a licensee’s assets & revenue:
- Personal recreational & unregistered vehicles can no longer be used to meet minimum asset thresholds (eg. Dirt bikes, golf carts);
- When money is held in a Project Bank Account (PBA), the below position clarifies when these funds can be included as a licensees asset:
- Both head contractors & subcontractors will be able to include any amount in the general trust account they have a beneficial interest in as an asset;
- Subcontractors will also be able to include retention amounts and disputed funds that are related to them
Improving data quality and availability for the QBCC:
- If a licensee is relying on a Deed of Covenant and Assurance, they will need to provide the QBCC with detailed financial information about the covenantor to show they can honour their agreement;
- Similar requirements will be introduced for related entity loans included in a licensees Net Tangible Asset calculation, so the QBCC can assess recoverability;
- QBCC will have greater ability to obtain independent verification of an MFR Report and recover costs from the licensee;
- Any “material changes” made by an accountant to an MFR report will need to be clearly identified and supported by updated financial information.
There will also be an increased enforcement framework, including a range of new penalties and offences in addition to existing penalties, for failing to comply with the requirements.
So what does this all mean for me:
All licensees should contact their building & construction industry expert accountant at Hoffman Kelly to discuss how and when these changes will affect your particular circumstances. All licensees will be affected by these changes in some way.
Phase 1 commenced 1 January 2019 and:
- Re-introduces mandatory annual reporting;
- Requires larger licensees to report decreases in Net Tangible Assets of 20% or more;
- The “clarity” as to what can and cannot be included as an asset with regard to recreational vehicles & PBA’s will take effect.
With regard to the re-introduction of mandatory annual reporting, this information is required to be provided by the licensee’s renewal date each year. For existing licensees as at the commencement of this legislation, this reporting requirement applies for the first time as if the annual reporting day is 31 March 2019 for category 4-7 licensees and 31 December 2019 for category 1 – 3 licensees.
Phase 2 will implement all remaining reforms discussed above, and will commence on 1 April 2019.
Hoffman Kelly are here to help
Hoffman Kelly’s team of construction industry experts are at the cutting edge of all matters that affect their clients, including the ins and outs of this new legislation. Everyone with a QBCC licence will be affected by these changes, so if you would like further information on the above do not hesitate to get in touch with the team at Hoffman Kelly.