By Vince Dimasi, Partner and Australian Lead, Working Capital Advisory, and Andrew Bath, Director Tax, KPMG Australia
Many corporates may find the reporting requirements challenging for various reasons, including the complex definitional aspects of the legislation, writes Vince Dimasi.
Australia now has a new payment times reporting (PTR) regime, beginning 1 January 2021.
See briefing document: Payment times reporting – legislation in place
Both PTR Acts have now passed the Parliament and received Royal Assent.
It is estimated that over 9,000 PTR Reporting Entities (REs) from large business groups would be required to file reports with the new Payment Times Reporting Regulator (Regulator) on a bi-annual basis.
The Acts to implement the PTR regime (Payment Times Reporting Act 2020 and Payment Times Reporting (Consequential Amendments) Act 2020) are expected to be supplemented with final legislative rules, guidance material, as well as a Small Business Identification Tool (SBI Tool) to be released by the new regulator.
Who must report?
A ‘constitutionally covered entity’ becomes a RE at the start of its income tax year if it carries on an enterprise in Australia; satisfies a ‘total income’ threshold for the most recent income tax year; and, is not a registered charity or not for profit. Alternatively, if the constitutionally covered entity gives appropriate notice to the Regulator, it may elect into the regime.
A constitutionally covered entity is intended to cover most entities (both domestic and foreign entities), apart from those that lie outside the constitutional power of the Commonwealth to regulate.
The total income threshold is defined by reference to the concept of total income in the ATO’s tax transparency reporting regime which is basically gross accounting income. A constitutional covered entity meets the criteria if it carries on an enterprise in Australia, and for its most recent income year:
- the entity had total income of more than $100 million; or
- if the entity is a controlling corporation (e.g. Australian parent company) – the combined total income for all members of the controlling corporation’s group was more than $100 million; or
- if the entity is a member of the controlling corporation’s group – the total income for the entity was at least $10 million.
When will you need to report?
Reporting entities will need to report on a bi-annual basis dependent upon their year-end for tax purposes, they will then have 3 months to upload their report to the Payment Times Reporting Regulator via an online portal.
For most Australian businesses with a 30 June tax year end, they will need to look to its income for the year ended 30 June 2020 to see if it has a PTR obligation and the first reporting window will be from 1 January 2021 to 30 June 2021, with a first reporting deadline of 30 September 2021.
Who is a small business supplier?
An entity will be identified as a small business in the Payment Times Small Business Identification Tool if it carries on an enterprise in Australia and its annual turnover was less than $10m for the most recent income year. The way we understand the SBI Tool will work is:
- a Reporting entity will need to upload their supplier data into the SBI Tool;
- based on your suppliers’ ABN numbers, the SBI tool will flag which of your suppliers’ ABNs were not matched in the SBI Tool and are therefore small business.
What are the content and information requirements?
The new Scheme will require Reporting Entities to prepare and disclose a wide range of information in relation to their payment practices to those suppliers identified as small business suppliers.
The information will need to be submitted every six months and includes:
- basic information such as ABN and description of business activities;
- the shortest and longest standard payment periods;
- the proportion of small business invoices paid within certain time frames;
- details of the principal governing body of the entity; and
- whether supply chain finance or early settlement discounts are offered.
Once submitted, this information will then be lodged on a public Payment Times Reporting Register which will make this information readily available for the public to access free of charge.
What are the potential penalties and fines?
The newly appointed Payment Times Regulator will have significant powers to monitor, investigate, appoint independent auditors and impose fines including:
- up to 300 penalty units per day for failing to provide a report;
- up to 0.2 percent of annual income for failing to keep records of payment times;
- up to 0.2 percent of annual income failing to comply with an auditor appointed by the Regulator; and
- up to 0.6 percent of annual income for providing misleading information.
Immediate actions to consider
We recommend businesses start to prepare early given the 1 January 2021 start date.
In our experience, we expect that many corporates will find the reporting requirements challenging due to:
- numerous complex definitional aspects of the legislation could make determining who needs to report difficult;
- data accuracy and integrity issues may lead to false or misleading reporting;
- ERP systems may not capture the relevant data required for the legislation;
- the requirement to report every 6 months could place strain on finance teams; and
- the impacts of the legislation will extend to many parts of a Purchase to Pay process.
This article was originally published on KPMG Tax Now, KPMG Australia’s subscription news service for tax and finance professionals.