Guide to QBCC Financial Requirements and Reporting
As a QBCC licence holder, you need to report financial information to QBCC annually to maintain your licence.
The QBCC financial requirements can be confusing. At Mulcahy & Co, we can help you determine if you are meeting your financial requirements.
There are three aspects to your licence:
- Licence renewal – the payment of a renewal fee to keep your licence current. This can be paid for one year or three years.
- Annual Reporting – is a once-a-year submission based on the information that is required for each licensee’s maximum revenue. These will be assessed to confirm licensees are meeting the Minimum Financial Requirements (MFR) of the regulation.
- MFR Reporting – applies when you apply for a new licence or when certain events occur.
Jodie Thompson
Annual Financial Reporting
Annual financial reports were introduced to check the financial strength of contractor-grade licensees in Queensland. Annual reporting is mandatory. When you submit your financial information, QBCC checks the financial health of your business to assess whether you meet the MFRs. The goal of these requirements is to reduce financial failure, liquidations and bankruptcy in the industry and ensure that people are paid for their work.
Annual reporting is a once-a-year submission. The information you’ll need to submit and reporting date differs for each QBCC financial category. How do you know what financial category you fit into? Your financial category is based on your maximum allowable revenue ranging from self-certifying category 1 at the lowest end to Category 7 at the highest end.
QBCC Annual Reporting:
| Financial Categories | Annual Turnover | Reporting Date | Required information |
|---|---|---|---|
| Self-Certifying 1 | Up to $200,000 | 31 March | Profit and loss figures, asset and liabilities figures |
| Self-Certifying 2 | Up to $800,000 | 31 March | As above |
| Categories 1 to 3 | $800,000 to $30,000,000 | 31 December | Profit and loss statement, balance sheet, aged debtors and creditors, statement of cash flow. |
| Categories 4 to 7 | Over $30,000,000 | 31 December | As above plus notes to the financial statements, written declaration and description of the basis and accounting policies. |
If you don’t submit your annual report, the QBCC can cancel your licence. Make sure you provide your information to your accountant as early as possible so they can prepare your financial reports and ensure you meet the financial requirements.
Minimum Financial Requirements
To maintain your licence, 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.
MFR Report
At times, you may be required to demonstrate that you meet the Minimum Financial Requirements by supplying an MFR Report. This report is different to an Annual Report and is only required when:
- you apply for a new licence (Category 1 or above);
- your Net Tangible Asset position decreases by more than 20% for Categories 4-7 licensees and 30% for all other licensees;
- you no longer meet the minimum Current Ratio of at least 1:1;
- your Maximum Revenue (MR) requires adjusting (only for Categories 1-7);
- there is a significant change to your business structure (e.g. change of ownership or executive officers);
- there is a restructure of a partnership; or
- QBCC requests it.
MFR reports can only be prepared by a qualified accountant and must be accompanied by signed financial statements. The accountant must be independent of you as the licensee (i.e. not an employee, company officeholder, investor, shareholder, partner or an immediate family member). Accountants can be excluded by the QBCC if they have given false or misleading information within the previous 3 years so it’s worth checking the register of excluded accountants to make sure your accountant is allowed to prepare your reports.
Meeting the QBCC Minimum Financial Requirements
1.Current Ratio
Current ratio is worked out by comparing a licensee’s current assets to their current liabilities. This helps to determine the business’s financial viability. The current ratio is your current assets divided by your current liabilities and must be at least 1:1. This means that for every dollar of current liabilities, you must have at least a dollar in current assets.
What are current assets?
A Current asset is an amount owing to you by someone else that you expect to receive within the next 12 months, or that you can convert into cash within the next 12 months. For example, accounts receivable (debtors), stock (or work in progress) and obviously cash.
What are current liabilities?
A current liability is an amount owing by you to someone else that you expect to pay within the next 12 months such as; accounts payable (creditors), credit cards, GST, BAS and also repayments of loans and leases.
For example, if the business has a car loan, then 12 months of repayments are current liabilities.
As you can see, you need to be careful about how you buy assets and finance them to ensure that you do not fail the ratio by having too many current liabilities. The simple act of financing a new car for the business may have an unintended knock-on effect.
The Current Ratio must be met every single day. It’s not an end of year calculation, it’s an everyday calculation.
2. Net Tangible Assets
The other financial requirement for a QBCC licence is maintaining a minimum level of Net Tangible Assets (NTA). The required NTA differs for each of the QBCC financial categories and is calculated on that category’s Maximum Revenue (turnover). For example, for a sales turnover of $1.2m you need to have $66,000 in NTA.
Maximum Revenue is the turnover that your business is allowed to do over a 12-month period. The 12-month period is a rolling 12 months and not based upon a financial year. For example, the period can be 1/10/21 to 30/9/22 or 15/3/21 to 14/4/22.
Why does QBCC put a limit on the revenue a licensee can earn? This is to ensure that it has sufficient working capital to be financially sustainable.
QBCC Net Tangible Assets Requirements:
| Financial Categories | Maximum Revenue | Net Tangible Assets |
|---|---|---|
| Self-Certifying 1 | Up to $200,000 | $12,000 |
| Self-Certifying 2 | Up to $800,000 | $46,000 |
| Category 1 | $800,001 to $3,000,000 | $46,001 to $156,000 |
| Category 2 | $3,000,001 to $12,000,000 | $156,001 to $480,000 |
| Category 3 | $12,000,001 to $30,000,000 | $480,001 to $1,200,000 |
| Category 4 | $30,000,001 to $60,000,000 | $1,200,001 to $2,400,000 |
| Category 5 | $60,000,001 to $120,000,000 | $2,400,001 to $4,800,000 |
| Category 6 | $120,000,001 to $240,000,000 | $4,800,001 to $14,400,000 |
| Category 7 | >$240M | >$14.4M |
Calculating NTA:
Your NTA is an adjusted amount based upon your assets (everything you own) less your liabilities (everything you owe). If you have a company structure, this means everything the company owns and owes.
NTA = [Entity’s Assets] – [Entity’s Liabilities] – [Entity’s Intangible Assets*] – [Entity’s Disallowed Assets**]
* Examples of intangible assets are goodwill, borrowing costs, patents and trademarks.
** Examples of disallowed assets are boats, collector items, personal furniture, superannuation, jet skis etc.
Your NTA cannot decrease by more than 30 per cent (or 20 per cent if you are a category 4-7 licensee) from the amount previously stated to the QBCC.
Just like the Current Ratio, the NTA calculation is per day (not an end of year calculation), so you need to ensure you always comply.
For sole traders, calculating NTA is simple: Personal assets less personal liabilities.
For companies, partnerships, and especially trusts, calculating NTA becomes more complex and therefore, more prone to errors. This is where a lot of licensees find themselves in trouble. Having the right business structure and keeping a watchful eye on who owns what is vital.
Frequently Asked Questions
How can Mulcahy & Co help you?
It is important to review your financial situation to ensure you can meet these financial requirements. We can assist you with this before periodically, tax planning time before financial year end and when we complete your 30 June financial year end statements. It gives you the opportunity to identify and solve any problems well before you lodge your annual report. This is particularly important if you are worried about:
- Exceeding your Maximum Revenue;
- A decrease in your Net Tangible Assets; or
- Not meeting the Current Ratio (1:1 ratio of current assets to current liabilities) requirements.
Come and speak with one of our QBCC advisors who will be able to make sure that you are meeting your QBCC financial requirements for your licence. You can contact us on (07) 5413 9300 or at queensland@mulcahy.com.au
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