The Payment Times Reporting Rules 2020 supplement the Payment Times Reporting Act 2020 (Cth) (Act) and legislation was introduced on the 1st January 2021. The new scheme requires large businesses and government enterprises to report on their payment times and terms to small business.
The purpose of the scheme is to:
- Increase transparency around large business payment performance and ensure they pay their small business suppliers on time to protect cash flow and liquidity
- Helps small businesses decide who to do business with
- Create incentives for improved payment times and practices; and
- Helps the public make decisions about the large businesses they buy from
Client feedback notes the Act is complex to implement and comply with.
Generally speaking, businesses and government entities with income greater than $100m are required to report on their small business supplier payment terms and practices. However, there are specific rules that define a Reporting Entity (RE) under the Payment Times Reporting (PTR) legislation.
Both Australian and overseas incorporated companies can be classified as a RE.
Registered charities and not-for-profits are excluded from the definition of a RE. Entities or companies not captured under the new legislation can volunteer to report.
Which companies, or RE’s are obliged to comply with PTR?
Under the PTR legislation, a RE is a “constitutionally covered entity” that, at the start of the income tax year carries on an enterprise in Australia, and has a total income that satisfies the income
Corporate groups cannot submit one report to cover all companies within the group. Each entity must submit their own report provided they meet the total income threshold.
A “constitutionally covered entity” is defined as:
- An Australian or foreign corporation covered by the Constitution
- A foreign entity as defined in the income tax law (e.g. foreign trusts and partnerships)
- An entity that carries on an enterprise in a Territory (that is not a body politic) e.g. certain Australian trusts and partnerships
- Certain body corporates incorporated or registered in a Territory; and
- Certain Commonwealth corporate entities
A professional services business, accountancy or legal practice, using a partnership structure and service trust might be captured if they satisfy the income test.
The total income threshold by reference to ATO’s tax transparency reporting regime, 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 or 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
RE’s will need to report bi-annually and will then have three months at the end of every reporting period to lodge this information with the PTR Regulator using an online portal.
The Regulator can consider an extension to reporting time if requested.
Timely and accurate reporting is essential. In addition to potential fines for non-compliance, there is also a reputational risk for reporting entities as this data will be made publicly available via the Payment Times Reporting website.
Payment Times Reporting Register
The Regulator must register payment times reports on a publicly available register, known as the Payment Times Reports Register. A RE may request the Regulator to register a revised payment times report. A RE must give the PTR Regulator a report for each 6 months.
RE’s will need to use the Small Business Identification Tool (SBIT) in order to identify suppliers that will be deemed small business suppliers for the purposes of the Act. The SBIT will be continually updated, and reporting entities must use this tool at least once every six months to ensure they are reporting accurately on relevant small business supplier payments.
When do I first need to report?
For most Australian businesses with a 30 June tax year end, they will need to look to their income for the year ended 30 June 2020 to see if they have a PTR obligation. The first reporting period will be from 1 January 2021 to 30 June 2021, with a first reporting deadline of 30 September 2021.
Large businesses can identify their small business suppliers using the Payment Times Small Business Identification Tool (SBI). A small business is defined as one that carries on an enterprise in Australia and its annual turnover was less than $10m for the most recent income year.
Our understanding of how the SBI tool will work is:
- A RE will need to upload their supplier data into the SBI Tool via a reporting portal
- ABNs uploaded are matched against the database and any ABNs that do not have a match are assumed to be small businesses; and
- The SBI tool returns a list of ABNs that excludes the identified large and medium sized businesses within a reporting entity’s list of supplier ABNs.
What information is reported?
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. A payment times report must comply with a number of requirements relating to its preparation, approval and content.
The information will need to be submitted every six months and include:
- 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
- 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?
Failure to comply with this Act may result in the Regulator publishing the identity of the entity, or details of the entity’s non compliance, on the register. The Regulator will also have significant
powers to monitor, investigate, appoint independent auditors, and impose fines up to 0.6 percent of annual income.
Civil penalties apply to reporting entities (other than volunteering entities) that fail to report or give the Regulator a false or misleading report.
We expect that many corporates will find the reporting requirements challenging due to:
- The many complex definitions of the legislation which 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 additional strain on finance teams; and
- The impacts of the legislation will extend to many parts of a Purchase to Pay process
What to do next
- If your business has turnover of less than $100m for the year ending 30 June 2021 you have no reporting obligations. However, you may benefit from reviewing the Register for your customers and suppliers to better understand their payment terms and your compliance with requirements.
- If your business has a turnover of more than $100m for the year ending 30 June 2021, you will need to register with the scheme, ensure systems are in place to capture data, and report to the Regulator.
Please contact us if you require further information.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.