To alleviate cash flow concerns for SMEs, the Australian government has passed a public Payment Times Reporting Scheme. Both businesses and government enterprises with an annual income of more than $100 million will be required to report on payment activity for their small-business suppliers as of January 1 2021.
“Australian small businesses have been hit hard by the COVID crisis so getting paid on time is key to their survival.” The Australian Small Business and Family Enterprise Ombudsman Kate Carnell states.
Taking effect in less than two months, a huge 3,000 organisations are left with little time to find a compliant reporting solution.
To make things a little easier, we have outlined everything you need to know about the new bill below.
Which entities will be defined as a 'reporting entity'?
The reporting requirement applies to entities that are constitutionally covered, that carry on an enterprise in Australia and its income in the most recent income year was greater than $100 million or more than $10 million if the entity is a part of a corporate group with a combined total income more than $100 million.
Entities are to self-assess if they are a reporting entity.
Constitutionally covered entities can include private companies, public companies, trusts, partnerships, joint ventures, sole traders, foreign entities, a Commonwealth corporate entity or Commonwealth company and a body corporate incorporated in a territory.
Entities which are not-for-profit and are registered under the Australian Charities and Not-for-profits Commission Act 2012 are exempt from the Scheme.
Constitutionally covered entities with less than $100 million total annual income and other types of businesses (i.e. non-constitutionally covered entities) can volunteer to be part of the Scheme.
How is the income test determined?
The income threshold is based on the Australian Taxation Office’s definition under its tax transparency reporting regime. That is, total income is gross accounting income, which means revenue earned from all sources (both assessable and non-assessable income). If an entity is part of a group where the controlling entity aggregates income for the group for tax purposes, then the gross income of each entity is to be used.
Payment times reporting requirements
From 1 July 2021, eligible entities will need to submit biannual reports to the Payment Times Reporting Regulator (the regulator). The regulator will publish these reports on a central public register known as the Payment Times Reports Register.
To reduce the burden of these new reporting requirements, a Payment Times Reporting Small Business Identification (SBI) Tool will be available to help businesses identify which of their suppliers are small businesses. The tool allows businesses to enter supplier information, with the tool returning a negative result for suppliers that are large or medium businesses.
Once it’s produced, the reporting entity’s Payment Times Report must be approved by a responsible member for the entity, provided to its governing body (e.g. the Board) and be submitted to the regulator within three months of the end of the biannual reporting period (based on the entity’s financial year).
What information will need to be reported?
The information on how and when a business pays their small-business suppliers will include, among other things:
- standard payment periods including the most frequent, shortest and longest, that the business offers to small businesses;
- the proportion, determined by total number and total value, of small-business invoices paid by the business during the reporting period within certain payment periods;
- the proportion (by value) of procurement that was from small-business suppliers during the reporting period.
Penalties for non-compliance
Entities which fail to provide a report, don’t maintain the required payment records, or provide false and misleading information may contravene a civil penalty provision. The regulator will have powers to monitor the compliance of reporting entities, investigate suspected non-compliance, issue infringement notices for breaches, and apply to a court to impose civil penalty orders against non-complying entities.
Maximum civil penalties can be applied for non-compliance under the Payment Times Reporting Scheme. As of 1 July 2020, a penalty unit equals $222. The current maximum penalties for incorporated entities (body corporate) are as outlined below.
| Nature of contravention |
Maximum penalties for incorporated entities (body corporate) |
| Failure to report |
300 penalty units (can be applied per day of non-compliance) |
| False or misleading reports |
0.6 per cent of the total income year in which the contravention occurred |
| Failure to keep records |
0.2 per cent of the total income for the income year in which the contravention occurred |
| Failure to comply with audit notice |
200 penalty units (can be applied per day of non-compliance) |
| Failure to reasonably assist the auditor |
0.2 per cent of the total income for the income year in which the contravention occurred |
Reporting entities may also be directed to undertake and pay for independent audits where there is a reasonable suspicion of an entity’s wrongdoing in relation to the reporting requirements. In these cases:
- The business can appoint an auditor, but it must be approved by the regulator. If the regulator does not approve of the business’s choice of auditor, the regulator may appoint an auditor.
- The regulator can request a business’s compliance with the legislation, for example, requesting that the auditor investigate whether the information provided by the business is correct.
- The regulator must stipulate the required qualifications and independence of the auditor, matters to be covered in the audit and the form and content required in the audit report.
- The business must provide reasonable facilities and assistance for the auditor to complete their duties effectively.
The regulator will not enforce the compliance and enforcement provisions for the first 12 months of the Scheme’s implementation. This provides time for businesses to familiarise themselves with the Scheme.
What steps do you need to take?
If your business falls within the “Constitutionally covered entity” category and your annual income is over $100 million, please get in touch by clicking here.
Almost identical legislation was passed in the UK two years ago, and the reporting requirement has proven to be very painful. Our payment reporting tool is being used by some of the largest UK companies to automate this reporting and ensure compliance. We have all the learnings from the UK experience and would love to support your business in the same way.
*Content from this post was directly sourced from Accounts Daily*
