The amendments were introduced in order to implement the Government’s response to the two-year independent Statutory Review of the Act. The Statutory Review specifically considered the following:
whether the operation of the Act meets the relevant objects
whether related government policies, including policies relating to electronic invoicing, have improved the payment terms and practices of reporting entities; and
whether other measures such as mandating one or more maximum periods for the payment of small business invoices by reporting entities would be more effective in improving those payment terms and practices.
The Statutory Review made a number of recommendations, which have been incorporated into the amendments as follows.
The key $100 million revenue threshold test for determining whether an entity is a reporting entity has been updated to refer to the total revenue worked out in accordance with the accounting standards.
In the case of groups, the $100 million revenue threshold will be assessed against the head entity’s consolidated accounting revenue, which will cover all entities which the entity controls for accounting purposes.
Below are some key observations from this change:
This should simplify the process that applied under the former rules where each reporting entity within a group needed to be determined against an individual $10 million threshold.
Based on the amended rules, it would seem that the revenue of foreign subsidiaries in a group are to be included as part of the consolidated accounting revenue of the group when assessing against the $100 million threshold. We expect this to be clarified by the Regulator in the PTR Rules. This will likely result in a number of groups being pushed over the $100 million revenue threshold for the first time from 1 July 2024.
Based on the amended rules, corporate groups which previously may have excluded the revenues of controlled trusts (which fell outside the meaning of a ‘constitutionally covered entity’) may now need to include the revenues of these controlled trusts, and this may push those groups over the $100 million threshold for the first time from 1 July 2024.
Updates to the determination of reporting entities look to ensure that, for a group with a number of entities, only the ultimate controlling entity of the group will be a reporting entity, and it will need to submit a single payment times report for the consolidated group.
In this regard, the Explanatory Memorandum to the amendments reiterates that the Scheme now involves consolidation in multiple respects, being:
to determine if an entity is a reporting entity, by using concepts of consolidated revenue and control; and
to determine the data to be included in an entity’s payment times reports.
The purpose of this change is to ensure the revenue and reporting requirements mirror each other. That is, the total revenue of all entities is included, and information related to all those entities is also included in a consolidated payment times report.
Below are some key observations from this change:
While consolidated reporting simplifies the payment times report from the former entity-by-entity approach, it will mean that groups must include the payment times results for all of their controlled entities in their reports, and not just those subsidiaries which had revenue over $10 million under the former rules. This may require groups to spend substantially more time preparing their six-monthly reports.
It would seem that Australian groups which control foreign entities are to include the revenue of those foreign entities when assessing the $100 million threshold. However it is unclear whether the payment times statistics of those controlled foreign entities are to be included or excluded from payment times reports. We expect this will be clarified in the PTR Rules to be released by the Regulator. If it is the case that payment times statistics are to include trade payments made by all entities, including foreign entities, this will likely create a significant compliance burden when calculating some of the disclosures in the payment times report.
Large groups which have relied on decentralised preparation of their subsidiaries’s payment times reports may now need to revise their preparation processes to a more centralised method, as we expect consolidated payment statistics will need to be calculated for the entire group. For example, the “Percentage of Value Invoices Paid Within 20 Days” for a group will likely require a central team to aggregate payment times for all payments made to small business by all entities in the group, then calculate the percentage of those paid under 20 days.
Notwithstanding the above, groups may be able to retain decentralised preparation where they apply for ‘subsidiary reporting entities’ to report. This will depend on the details to be released by the Regulator in the PTR Rules.
The changes also allow a subsidiary in a group to apply to be a ‘subsidiary reporting entity’ that can submit a separate payment times report to its head entity. Reporting entities will also be able to nominate an entity to report on their behalf.
Further guidance will be provided in time by the Regulator in the PTR Rules to clarify what is to be disclosed by subsidiary reporting entities. Some questions yet to be answered include:
Will a subsidiary reporting entity report on the payment times results for itself and the entities it controls (ie. a sub-consolidation)?
Where a group has subsidiary reporting entities, does the head entity still need to lodge a consolidated payment times report on behalf of the entire group, or will it report only on those controlled entities that are not included in a subsidiary reporting entity’s report?
Where a group divides its operations into operating segments (e.g. within its financial statements), can the group choose to include all entities within an operating segment within one particular sub-consolidation report even where the entities are not commonly controlled by one particular subsidiary reporting entity?
Once clarity is provided in the PTR Rules to be released by the Regulator, large groups should consider whether there is benefit from reporting as one consolidated group, or as a number of sub-consolidated groups. This should take into account what industry divisions such sub-consolidated groups would be tagged to, and whether any sub-consolidated groups could fall within the slowest 20 per cent of small business payers.
The legislation empowers the Minister to make a written direction to a reporting entity that it is a ‘slow small business payer’, requiring the entity to take certain actions. These actions include:
directing the entity to publish that is a ‘slow small business payer’:
on the company website
in documents relating to procurement processes, including requests for quotes and tender documents
in documents relating to the environmental, social and governance policies or performance of the entity or the controlled entity (such as annual reports)
in invoices
in other kinds of commercial documents, or
in any other way that the Minister considers appropriate, and
directing that the above be set out at a specific location in those documents / locations, and with a specified level of prominence (this may include prescribed font and font size).
A reporting entity is a slow small business payer if it was within the slowest 20 per cent of small business payers and / or the slowest 20 per cent of small business payers in a particular ANZSIC Division for two consecutive reporting cycles (ie. a 12 month period).
Reporting entities with a ‘qualifying payment time of 30 days or less’ are exempted from being classified as a slow small business payer. The precise meaning of a ‘qualifying payment time of 30 days or less’ will be set out in the PTR Rules to be released by the Regulator.
This amendments acknowledge that industries with slow payment terms as a standard practice may be more affected than other industries. This is intentional as it recognises that some industries need more improvement, and incentives, than others.
Below are some key observations from this change:
Given the reputational impact on businesses for receiving a slow small business payer direction, we expect the importance of the Payment Times Reporting regime will be elevated within the corporate governance of businesses.
Boards of Directors and company management should take active steps to manage the risk of their business being within the slowest 20 percent of small business payers in their ANZSIC Division.
Reporting entities in the slowest 20 percent who are at risk of receiving a slow small business payer direction should carry out work to understand what improvements are required to their payment times in order to mitigate this risk.
Businesses should monitor the release of the Regulator’s PTR Rules to understand the exemption for having a ‘qualifying payment time of 30 days or less’.
During the course of its approval through Parliament, an additional change was added to the amendments to provide a ‘carrot’ for ‘fast small business payers’.
Under this change, the Regulator is required to maintain and publish on the register a list of all entities that are fast small business payers. Broadly, an entity will be a ‘fast small business payer’ if it has a ‘qualifying payment time of 20 days or less’, with the precise meaning of this phrase to be set out in the PTR Rules to be released by the Regulator.
Below are some key observations from this change:
Businesses should consider the reputational benefit of being publicised by the Regulator as being a fast small business payer, and consider what improvements would be required to small business payment times in order to fall under a ‘qualifying payment time of 20 days or less’.
Businesses should monitor the release of the Regulator’s PTR Rules to understand the specific criteria for having a ‘qualifying payment time of 20 days or less’.
Under the amendments, entities and groups will be allowed to apply to the Regulator for an exemption from their obligation to give reports under the PTRS where appropriate with regard to the objectives of the PTRS.
This may include where an entity that would not ordinarily satisfy the criteria has a one-off sale of assets that leads to its consolidated revenue being more than $100 million for a financial year.
The amendments give the Regulator power to implement all reporting requirements into the Payment Times Reporting Rules 2020 (PTR Rules), which constitute a legislative instrument that implements the PTR Scheme. The PTR Rules will set out the specific reporting requirements for payment times reports.
No proposed drafts of the PTR Rules have yet been released, but the matters we expect they will cover include:
Information and documents that need to be provided relating to the entity’s payment terms, times or practices in relation to small business suppliers.
Rules on the reporting requirements for a consolidated payment times report, and the reporting requirements for any subsidiaries that apply to be a subsidiary reporting entity.
The meaning of a ‘qualifying payment time of 20 days or less’ to qualify as a fast small business payer.
No information has been provided on the expected timing of the release of these PTR Rules, nor whether a draft set of PTR Rules will be released for consultation. We will provide a further update when additional information is made available.
The amended legislation will take effect for the first six-month reporting periods commencing on or after 1 July 2024. For all periods up to that date, reporting entities are required to continue reporting under the 'old' rules.
An automatic extension of time has been granted to all reporting entities. Specifically, no reporting entity will have an obligation to provide a payment times report under the 'new' rules until 1 July 2025 at the earliest.
In light of the new legislation, entities should review and update their payment times reporting practices to ensure they are in line with the latest amendments. Payment times continues to be a focus of the government, which is clear from the significant penalties that remain in force (for example, 0.6% of an entity’s total income, or $600,000 for an entity with income of $100 million).
Groups that have been reporting as multiple entities should take time to get a proper understanding of the law changes, and the changes that will be required to their payment times report disclosures and preparation activities.
Groups which have foreign controlled entities should monitor closely when the Regulator releases further information in the PTR Rules as to whether the revenue of these foreign entities should be included when assessing the $100 million threshold, and whether the payment times statistics of controlled foreign entities are to be included or excluded from the consolidated payment times report.
All reporting entities should undertake work to understand where they stand against the slowest 20% of small business payers in their ANZSIC Division, and understand what improvements are required to their payment times if they are at risk of receiving a small business payer direction.
Now that the PTRS has been in force for more than three years, and as the scheme’s requirements increase, the Regulator’s expectations of reporting entities have increased. In order to meet these expectations, we recommend entities undertake some form of internal and/or external review to confirm its PTRS policies and practices are updated to reflect the law changes, are adequately documented, and any gaps are rectified. This will ensure the preparation of the payment times report in line with the amended rules and the latest Regulator’s guidance, and that businesses are ready in the event of any review or audit by the Regulator.
PwC can provide assistance to your business to prepare for these rule changes in a number of areas:
If you would like to discuss any aspects of the above amendments to the PTRS, reach out to our Payment Times Reporting specialist team or your PwC adviser.