Payment Times Reporting Amendments

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.

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. 

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’.

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. 

• Clarification on whether Australian groups which control foreign entities are to include the revenue of those foreign entities when assessing the $100 million threshold, and to confirm whether the payment times statistics of controlled foreign entities are to be included or excluded from the consolidated payment times report. 

• The meaning of a ‘qualifying payment time of 30 days or less’ to be exempted from being a slow small business payer. 

• 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.

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: 

• Provide an assessment of how the PTRS amendments will impact your business; 
• Review whether your group will exceed the new revenue threshold by reference to consolidated accounting revenue;
• Assist with determining how your payment times report preparation process will need to change to take account of the new consolidated reporting requirements;
• Determine where you rank among the slowest 20 percent of small business payers in your ANZSIC Division based on your last 12 months of payment times reporting data, to assess the risk you will receive a direction as a ‘slow small business payer’, and determine what improvements would be required to your payment times to mitigate this risk;
• Assist with understanding whether you can apply for entities to be subsidiary reporting entities and how this will impact your reporting requirements, where these subsidiary reporting entities would rank among the slowest 20 percent of small business payers in their ANZSIC Division, and assist with submitting subsidiary reporting entity applications through to the Regulator on your behalf. 
• Assist with understanding whether you can apply to be an ‘exempt entity’ under the new exemption rules based on your facts and circumstances, and to assist with submitting an application to the Regulator.
• Assist with outsourced preparation of your payment times reports for your entity or group, utilising our PwC Payment Times Reporting Solution.