Insights – QBCC Requirements – Getting it right for your construction business.
Businesses operating in Queensland construction industry are governed by the Queensland Building and Construction Commission (QBCC) and are required to be licenced to continue to operate.
As well as paying your licence fees, compliance with licencing requirements includes adhering to annual financial reporting including meeting certain financial ratios and providing information to the QBCC by the deadline each year.
So what exactly do they expect?
This article provides a summary of the key requirements for businesses to ensure they stay on the right side of the QBCC each year.
1. License Renewal: To keep your license current, you need to pay a renewal fee, which can be for one year or three years. It is important to ensure that the right license is held in the right entity and understand that your construction entity is required to be licensed as well as an individual who is the nominated representative of that business.
2. Annual Reporting: Financial reporting is mandatory and is done once a year. You must submit financial information to QBCC, which they use to assess whether you meet the Minimum Financial Requirements (MFR). The specific information you need to submit, and the reporting date depend on your financial category (shown below), which is determined by your maximum allowable revenue. The goal is to ensure the financial health of your business and reduce the risk of financial failure, liquidations, and bankruptcy in the industry.
|Up to $200,000
|Profit and loss figures, asset and liabilities figures
|Up to $800,000
|Categories 1 to 3
|$800,000 to $30,000,000
|Profit and loss statement, balance sheet, aged debtors and creditors, statement of cash flow.
|Categories 4 to 7
|As above plus notes to the financial statements, written declaration and description of the basis and accounting policies.
3. Minimum Financial Requirements (MFR): To maintain your license, you need to demonstrate annually that you have an appropriate level of working capital by meeting the Net Tangible Assets position and minimum Current Ratio. These two important financial metrics are used to assess the financial health and stability of a business or entity. Let’s break down each of these concepts:
Net Tangible Assets (NTA): NTA is a measure of the entity’s financial position, specifically focusing on tangible assets after adjusting for intangible assets and disallowed assets.
The formula to calculate NTA is: NTA = [Entity’s Assets] – [Entity’s Liabilities] – [Entity’s Intangible Assets] – [Entity’s Disallowed Assets]
- Entity’s Assets: These are the total assets owned by the entity, which could include physical assets like cash, property, equipment, and inventory. This will also include assets such as Work in Progress or Debtors.
- Entity’s Liabilities: These are the total debts and obligations of the entity, including loans, accounts payable, and other financial obligations.
- Entity’s Intangible Assets: These are assets without a physical presence, such as goodwill, patents, and trademarks.
- Entity’s Disallowed Assets: These are assets that are not considered in the calculation, such as personal items like boats, collector items, and superannuation.
A licensee’s NTA cannot decrease by more than a certain percentage (e.g., 30% or 20% for specific categories) from the amount previously stated to the relevant authority.
The QBCC’s expectation is that NTA should be considered on a daily basis to ensure compliance with financial requirements.
For sole traders, the calculation is simpler and is based on personal assets and liabilities.
Current Ratio: The current ratio is a liquidity ratio that assesses the ability of an entity to meet its short-term financial obligations with its short-term assets. It’s a measure of the business’s ability to cover its current liabilities.
The formula to calculate the current ratio is: Current Ratio = [Current Assets] / [Current Liabilities]
- Current Assets: These are assets that are expected to be converted into cash or used up within one year, such as cash, accounts receivable, and inventory.
- Current Liabilities: These are the company’s short-term financial obligations due within one year, including accounts payable, ATO liabilities, short-term loans, and accrued expenses.
The ideal current ratio is typically 1:1 or higher, meaning that for every dollar of current liabilities, there should be at least a dollar in current assets. This indicates that the entity has sufficient assets to cover its short-term obligations.
Both NTA and the Current Ratio are essential financial metrics for assessing the financial health and stability of a business or entity. They provide insights into solvency, liquidity, and financial viability, which are crucial for making informed financial decisions and for compliance with specific regulatory requirements..
4. MFR Report: This report is required in specific situations, including when applying for a new license, significant changes in your financial position, changes in business structure, or when requested by QBCC. It’s important to note that the need for an MFR Report may be triggered during the annual reporting process, such as when you exceed your Maximum Allowable Turnover (MAT) by more than 10%.
5. Changes in MFR Reporting: Starting from July 1, 2022, licensees required to submit an MFR Report must now provide General Purpose Financial Statements (GPFS), which is more complex than the previous standard of Special Purpose Financial Statements.
6. Licensing Consequences: Failing to submit your annual report can result in QBCC cancelling your license. Therefore, it’s crucial to provide your financial information to your accountant early to ensure timely preparation of financial reports and compliance with the financial requirements.
It’s essential to stay informed about these requirements and meet your reporting deadlines to avoid any issues with your QBCC license. Consulting with a professional accountant experienced in the construction industry can be beneficial to ensure compliance with these financial regulations.
How Can Alto Help?
The Alto team can help you understand your QBCC reporting requirements as well as prepare financial reports in the correct format to provide to QBCC each year. We also provide strategic planning that not only minimises tax, but takes into consideration your financial position for QBCC ratio requirements.
Author: Evan Jones