By Domenic Festa (Accredited Tax Specialist and Chartered Tax Adviser
- QBCC is again closely monitoring the financial state of licensed businesses in the construction industry.
- A number of licensed businesses are failing the financial requirements due to the way certain assets and liabilities are treated by QBCC in calculating net assets.
- These problems arise due to poor structuring.
- There are a number of mechanisms to address the issue which result in the business satisfying the financial requirements.
- Appropriate solutions require use of advisers with a thorough understanding of QBCC financial requirements, available structuring alternatives, and the tax implications of making changes.
The Queensland Building and Construction Commission (QBCC) regulates the licensing of the businesses performing construction services in Queensland. A condition of obtaining and retaining a construction license is for the business to satisfy certain minimum financial requirements.
In essence, to satisfy the financial requirements of the entity operating the business must be capitalised to a minimum level, which increases with the turnover of the business.
The turnover and net asset requirements for QBCC as of 1 January 2019 are:
|License Category||Turnover||Net Tangible Asset Requirement|
|Builder contractor’s licence||Greater of $46,000 and requirement of license category|
|Category SC1 (TO $200,000)||$200,000||$12,000|
|Category SC2 (TO $200,000 – $800,000)||$200,000 – $800,000||$46,000|
|Category 1||$800,000 – $3M||$46,000-$156,000|
|Category 2||3M – $12M||$156,000-$480,000|
|Category 3||$12M – $30M||$480,000-$1.2m|
|Category 4||$30M – $60M||$1.2m-$2.4m|
|Category 5||$60M – $120M||$2.4m-$4.8m|
|Category 6||$120M – $240M||$4.8m-$24m (it appears there is an error in the formula and the maximum intended is $14.4m)|
|Category 7||Over $240M||6% of revenue|
For categories 1 to 7, the actual net asset requirement for businesses with a turnover less than the maximum is based on a formula.
Companies can be capitalized to the required extent either by shareholder investment in issued capital or retention of profits.
Despite being capitalised, many businesses fail the financial requirements because of poor structuring. The reason for this is the rules for calculating QBCC net assets have restrictions on the assets that can be taken into account and disallow certain assets. These restrictions generally exclude intangibles, related party loans and unlisted investments.
In many instances, restructuring of the following elements can rectify financial woes:
- Ownership of intangible assets;
- Inter-entity loan balances;
- Various kinds of disallowed assets;
- Liabilities in respect of disallowed assets;
- Capitalisation of certain financial elements.
Devising an effective solution requires a thorough understanding of the financial rules.
Affected businesses should contact one of our specialists to undertake a review and provide options for addressing the issues.
NOTE: This article is for general information only and should not be relied upon without first seeking advice from one of our specialist solicitors.