The Queensland Building and Construction Commission (QBCC) has banned Kevin Fleiner of PJC Business Consulting from being a ‘Qualified Accountant’ for the purposes of MFR reporting.

Mr Fleiner is excluded from providing MFR Reports but can provide annual financial reporting services to building industry clients.
Queensland is the only jurisdiction in the nation where the building regulator requires licensees to submit annual financial reporting information.

The privacy and confidentiality requirements of the Queensland Building and Construction Commission Act 1991 prohibit the QBCC from disclosing information that does not appear on a publicly available QBCC register.

Accountants excluded under the QBCC Act appear on the register of excluded accountants.

QBCC Commissioner, Anissa Levy, says financial reporting helps to provide reassurances about the financial wellbeing of a licensee, and an accountant’s role in preparing reports is an important one.

“Our strict financial reporting laws help protect industry members and home owners, so the QBCC carefully monitors information provided by accountants and takes exclusion action against accountants in appropriate cases,” Ms Levy says.

An accountant can be excluded by the QBCC if, within the previous three years, the accountant has:

• given information they knew to be false or misleading to a licensed contractor, or to the QBCC, in relation to a licensed contractor's satisfaction of the MFR, or
• failed to comply with the MFR in relation to information required to be given to the QBCC, or
• not complied with a requirement in a previous exclusion notice given to the accountant

The last time the QBCC excluded an accountant was in September 2020.

“We liaise regularly with accountants and their representative bodies to ensure they are aware of their responsibilities regarding MFR reporting and any other relevant legislation,” Ms Levy says

The QBCC provides regular educational newsletters to accountants and meets quarterly with leading accountancy organisations, the Institute of Public Accountants, Chartered Accountants Australia and New Zealand, and Certified Practising Accountants.

The Queensland Building and Construction Commission (QBCC) has given the companies a deadline of 6 March 2023 to lodge their reports or face the prospect of licence suspension.

QBCC Commissioner Anissa Levy says the licensees are in financial categories 1-7, with category 1 having a maximum revenue amount of $800,001 right up to category 7 with a maximum revenue amount of over $240m.

“The licensees were contacted by the QBCC several times but failed to submit the required information to us by the annual deadline of 31 December 2022,” Ms Levy says.

“While the majority of these licensees have already submitted their reports, there are at least 538 who have not.”

The conditions imposed on these licensees prevent them from entering into any new contracts for building work until they have provided the required financial information to the QBCC.

“We take this action because companies could under-report their annual turnover and escape the scrutiny that comes with us properly assessing their financial viability.

“Licensees who do not submit their reports to the QBCC face potential regulatory action, such as no-new-work conditions, licence suspensions, and licence cancellations.

“The minimum financial requirements and mandatory reporting laws enable us to more easily detect when a licensed company might be in trouble financially,” Ms Levy says.

The conditions imposed on these licensees represent 4.8% of licensed companies in Category 1-7 that were due to report their financials by 31 December 2022.

QBCC Commissioner Anissa Levy says 170 SC1 and SC2 company licensees were given up to four warnings to lodge their annual financial information by 31 March 2022.

“Queenslanders expect the QBCC to take action against those tradies who aren’t complying with the law,” Ms Levy says.

“The majority of licensees have done the right thing and they’re helping to improve the industry.

“Those who continue to flout the law are in the firing line for potential regulatory action that starts with licence conditions and in this case ended with 170 licence cancellations.”

The 170 licensees are in category SC1, with an annual allowable turnover of up to $200,000 and category SC2 (maximum revenue up to $800,000).

Ms Levy says the annual financial reporting requirements help the QBCC to monitor the financial viability of these licensees.

“The process provides the QBCC with a snapshot of the licensee’s financial health and means we can step in sooner if there is a risk that the licensee is operating beyond their means,” she says.

“The licensees only need to provide us with a three-page form which captures high-level financial information from 30 June 2021, so that we can do an assessment of their financial situation.

“The benefit to the industry is that subcontractors and suppliers can be more assured they’re doing business with viable operators.

“It’s also a huge benefit for home owners and consumers who are looking to engage tradespeople.

“If the QBCC can weed out the unviable operators, it means consumers are more likely to hire someone who will be able to complete the contract and not go into insolvency.”

The 170 cancelled companies represent less than 1% of all SC1 and SC2 licensed companies in Queensland.

Background

Annual financial reporting is required under the Minimum Financial Requirements (MFR) Regulation 2018.

The Queensland Building and Construction Commission (QBCC) has cancelled the licences for failing to lodge mandatory annual financial reporting that was due on 31 December, 2021.

QBCC Commissioner, Anissa Levy, says financial reporting requirements help ensure licensees are financially sustainable, can complete the projects they take on, and can pay their employees and suppliers.

“It is only fair and right that people are paid what they are owed for their labour and materials, and our reporting requirements help to ensure that this happens,” Ms Levy says.

The QBCC cancelled the licences after issuing multiple reminders over a prolonged period to encourage the licensees to comply with their financial reporting requirements.

As at 20 May 2022, almost 99 per cent of the 10,709 licensees Category 1-7 licensees have lodged the required annual financial information.

Ms Levy encourages any licensee with concerns or questions about their financial reporting to contact the QBCC to discuss potential options available to help them.  

For annual reporting purposes, the financial information is submitted on the trust as the trading entity, noting in the appropriate section that the licensee trades through a trust structure.  When providing an MFR report, financial statements are required for both the trust and the trustee.  

It is a requirement under the Corporations Act 2001 to keep financial records, and the QBCC doesn’t have the discretion to waiver this requirement for MFR reports.  Even if the trustee entity only has paid up capital of $2, the balance sheet would show assets of $2 and the P&L would show $0 income.

Q&A

Can the myQBCC be used to submit an MFR report?

No, the online portal is only set up at this stage for annual reporting purposes.  To lodge an MFR report, the information would need to be submitted either in person at a QBCC office, or via email to MFRQueries@qbcc.qld.gov.au

Why doesn’t QBCC accept goodwill that has been physically paid for via a business purchase?

When assessing financial information, the QBCC is bound by the legislation set out in the MFR Regulation.  The regulation specifically excludes intangible assets from calculations, and the QBCC does not have the discretion to waiver this requirement.

Can SC1 or SC2 rely upon a deed of covenant and assurance?

Legislation as it currently stands does not allow a SC1 or SC2 licensee to rely on a deed, only financial categories 1 - 7.  

For a SC1 entity to trade through a trust structure, the trustee entity would need to: 

• be sufficiently capitalised, with an NTA of $12,000 (in its own right), potentially undermining the purpose of having a trust (if those assets are then held by the trustee) 
• meet category 1 requirements and rely upon a deed, which means increases its NTA to a total of $46,001.

Unfortunately, the QBCC does not have any discretion in relation to this legislative requirement.

NTA of trust structures

The MFR Regulation outlines how trust assets are to be calculated. 

The regulation defines a reference to:

• NTA as a reference to trust assets
• a licensee as a reference to the trustee of the trust.

The regulation specifically disallows items such as intangibles, contingent assets, debtors between 180 and 365 days or debtors over 365 days.

This means if the trust records one of these items as an asset, they must be disallowed. If the trust records borrowing costs or includes goodwill, these amounts need to be deducted.

If deducting disallowed or intangible asset amounts from the trust’s net asset position results in a negative NTA position for the trust, this negative NTA position would then flow back to the trustee (licensee) entity. The licensed entity (trustee) would then need sufficient NTA of its own to absorb any deficiency in the trust.

Asset write-off/PPE/Tax vs Accounting FS

Instant asset write-off occurs due to the tax treatment of assets. It should be noted that the depreciation and write-off treatment off assets under the Australian Accounting Standards differs from treatment for tax purposes. 

The QBCC’s annual financial reporting obligations do accept internal management accounts being provided for SC1 and SC2 licensees and those in financial categories 1 - 3. This means we can accept the financials at book value (for annual reporting).

When providing financial information for other MFR obligations such as applying for a licence, or upgrading maximum revenue, the financial statements need to have all relevant accounting standards, which means the assets would likely be written down for tax depreciation purposes.

If applying accounting standards to revalue an item of property, plant or equipment, the correct accounting standard must apply (ie AASB 116 / AASB 136 / AASB 1041). 

It should be noted, that if an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs needs to be revalued. These revalued amounts would then need to be included in the company’s financial statements, which should also reflect the increase in income as well as accumulated in equity under the heading of revaluation reserve.

Gifts

The QBCC accepts accounting treatments applicable under the Australian Accounting Standards. For assistance with applying these standards it is recommended you seek guidance from your professional accounting body. 

It should be noted, during an MFR assessment, an amount gifted to the trust may require evidence of the gift (such as a copy of the deed of gifting).

Related entity loan assets 

The NTA of a related entity must be calculated under normal MFR provisions. This means that all liability items must be included as liabilities of the related entity regardless of whether the liability is owing to a related party (such as the licensee).

Related entity asset loans can be included as an asset of the licensee if the related entity’s financial position meets the criteria set out in section 15(1)(l) of the MFR Regulation (the related entity needs to have a current ratio of not less than 1:1 and NTA of at least $0).  

If the related entity asset loan is included in calculations for an MFR report, supporting evidence such as a balance sheet (for a related company) or statement of financial position (for a director) would be required to confirm that the related entity meets the criteria of section 15(1)(l).  

If the related entity asset loan is not material to the licensee’s current ratio or NTA requirement, you can elect not to include the amount in calculations.  However, related entity liability loans cannot be deducted under any circumstances.

Unpaid present entitlements

An unpaid present entitlement (UPE) is usually a current liability in the trust, unless the parties have entered into a legally binding agreement for its repayment, for example, a div 7A loan. This is because the trust does not have an unconditional right to defer settlement outside 12 months.

In the case of a UPE being recorded as a current asset, the QBCC would need information to confirm previous years’ trust distributions, including a copy of the resolution relating to the current years’ distributions or a copy of the beneficiary account (breakdown) from the ledger.

For UPE’s recorded as assets, the QBCC will treat these in the same way as related entity asset loans, requiring evidence that these amounts meet the MFR Regulation test by means of a balance sheet.

If a trust has a loss, how does that impact NTA?

If the loss in the trust causes the trust to have a negative NTA position, the deficiency of trust assets will be considered a liability for the trustee. This liability will be included in the licensee's calculations of NTA.

Licensee who trades through a trust later changes structure to trade in their own right

If a licensee, who is trustee of a trust, chooses to restructure their business to a standalone entity, they would be required to: 

• notify the QBCC under section 11F of the MFR Regulation (significant change to business) and 
• provide an MFR report demonstrating that the licensee continues to meet the MFR after the change. 

The licensee will need to show that they are no longer operating through a trust, so they may choose to provide a deed of amendment or deed of vesting to do so.