NECA policy briefing paper

Executive summary

• From 1 July 2019, Federal Government procurement processes will exclude businesses that do not have a satisfactory tax record from projects valued at $4m and above.  
• Businesses contracting with any Commonwealth entity will need to provide a Statement of Tax Record (STR) which will be issued on request by the Australian Tax Office (ATO) and will be included as a requirement in tenders from 1^st July.
• Subcontractors doing work individually valued at $4m+ as part of a larger project will need to provide a STR to the main contractor.
• This means that electrical contracting businesses that do not obtain their STR will be unable to compete for Commonwealth work valued at $4m and over.  

Background

As part of the 2018-19 Budget and in response to the Black Economy Taskforce’s Final Report, the Government announced a range of measures to tackle the black economy including the requirement for contractors to have a satisfactory tax record.

The policy is not intended to replace existing due diligence and checks that procurement officers already undertake.  Instead, it complements and is intended to strengthen existing policies.

Statement of Tax Record (STR)

A STR is issued on request by the ATO and states whether or not a business has a satisfactory tax record.  

Businesses can apply for a STR from 1^st June 2019 on the ATO website here.

A satisfactory STR will be issued if:

• The applicant is up-to-date with registration requirements including Australian Business Number (ABN) and GST, and had a Tax File Number;
• The applicant has lodged at least 90 per cent of all income tax returns, Fringe Benefit Tax returns and Business Activity Statements that were due in the last four years or the period of operation if less than four years. Reasonable delays in lodgements due to extensions agreed to by the Australian Taxation Office (ATO) will not affect the receipt of a satisfactory STR; and;
• The applicant does not have $10,000 or greater in overdue debt due to the ATO or has a payment plan in place.

An applicant with an unsatisfactory STR will be provided with supporting reasons on its ‘Statement of Tax Record – Taxpayer Report’. The ATO can be contacted to assist in taking corrective action where possible.

STRs will be valid for twelve months from the time of issue. Applicants that do not hold an Australian tax record with the ATO of at least four years will receive STRs that are valid for only six months.

Subcontractors working under a main contractor

• Where a tenderer is proposing to subcontract a part of their contract, they must obtain (at the time of tendering or engagement if later) and hold a satisfactory STR from all ‘first tier’ subcontractors that will be undertaking work individually valued over $4 million including GST.
• The requirements relating to first tier subcontractors engaged after the awarding of the contract must be specified as contract clauses and included in the finalised contract between the prime contractor and the Commonwealth entity.
• The rules for subcontractors will be reviewed after the first year of operation with a view to strengthening the requirements.

Partnerships, trusts and joint ventures

• If the tenderer or subcontractor is a partnership, a satisfactory STR must be requested on behalf of the partnership and in respect of each partner that is directly involved in the delivery of the contract.
• If the tenderer or subcontractor is a trust, a satisfactory STR must be provided in respect of the trust and trustee.
• If the tenderer or subcontractor is a joint venture, a satisfactory STR must be provided in respect of each party to the joint venture. Where the joint venture operator is not a participant of the joint venture, the operator must also provide a satisfactory STR.
•  If the tenderer or subcontractor is a subsidiary of a tax consolidated group, or a Multiple Entry Consolidated (MEC) group, a satisfactory STR must be provided by the subsidiary and the head company.

Existing contracts

The policy does not does not affect existing contracts or tenders issued before 1^st July.

Further policy developments

In the first year of operation, the policy will be implemented as outlined above. Learnings from the first year of operation will be assessed and updated guidance may be issued. This could result in further criteria to determine a satisfactory tax record such as whether:

• the business meets its superannuation law requirements, withholding tax obligations and third party reporting obligations;
• it discloses information about its tax affairs under the voluntary tax transparency code;
• court order penalties have been imposed on its directors; and
• there have been convictions for phoenixing behaviour, bribery or corruption.

Next steps

NECA urges all members undertaking work for the Commonwealth to familiarise themselves with the new policy using this document and online here.

We also recommend affected members request a STR from the ATO on 1^st June 2019.