New tax rules for government tender bids

This article was current at the time of publication.

According to the Australian National Audit Office (ANAO), as of June 2018 small businesses owed $15 billion in tax debt to the Australian Taxation Office (ATO), which is higher than the collective amount for individuals and larger corporates.

In a measure designed to claw back some of the unpaid tax, on 1 July 2019 the Australian Government introduced new compliance requirements for government tenders.

Businesses tendering for federal government contracts worth more than $4 million, including goods and services tax (GST), must have their tax obligations and lodgments up to date. If they owe more than $10,000 to the ATO, the debt must be subject to an agreed repayment plan.

"While the percentage of small businesses still working the black economy is small and getting smaller, there is still an element of truth to the old saying that some small businesses are using the ATO as an overdraft facility."

Statement of tax record

To be considered valid, all open tenders for government contracts need to include a Statement of tax record (STR) showing satisfactory engagement with the tax system. Key points to note include:

• once issued, STRs will be valid for 12 months for a business with an Australian tax record of four or more years. Businesses that do not have an Australian tax record of at least four years – such as new and/or foreign businesses – must make a declaration to the ATO about their tax compliance, and their STR will only be valid for six months from the time of issue
• the $4 million threshold refers to the value of the entire project. Even if a business is tendering for only a smaller part of a project, the new rules still apply
• the STR must be valid at the tender closing date
• the taxpayer or their tax agent can apply online for an STR and they should apply early rather than risk missing the tender closing date
• there are different rules depending on the nature of the tenderer or subcontractor; for example, whether it is a partnership, trust, joint venture, subsidiary of a tax consolidated group or member of a GST group.

CPA Australia’s nominee on the ATO’s Tax Practitioner Stewardship Group (previously known as the ATO Tax Practitioner Advisory Group), Phil McCann FCPA, has been involved in the consultative process on the new requisites.

McCann agrees the changes were an effort to reduce debts outstanding to the ATO.

“Small business has had this big gap with the ATO for many years and this is a compliance exercise to improve the tax take,” he says.

“This flows from the tax gap analysis which the ATO has done in recent years, and they’ve been beating the drum now for a while on the black economy and small business.

While the percentage of small businesses still working the black economy is small and getting smaller, there is still an element of truth to the old saying that some small businesses are using the ATO as an overdraft facility.”

How the new rules work

Accountants have a critical role to play in educating clients on the new rules and helping them to comply. This not only applies to regular channels of communication such as newsletters and blogs but targeted one-on-one advice.

“I was talking with one of my clients who does roadworks for government contracts and infrastructure, and it’s likely he will be impacted by these new procurement rules, and it’s going to have a wider impact,” McCann warns.

“It’s incumbent on the accountancy profession to spread the word among our clients and make sure they have everything up-to-date.”

Apply early

“Practitioners will also need to ensure clients apply for STRs in advance because they won’t be issued on the spot,” he adds. Clients won’t want to miss tender deadlines simply because they don’t have valid STRs.

It is important for potential tenderers to understand that they can’t suddenly attempt to bring their tax affairs into order and then hope to win government work.

Applicants must have lodged at least 90 per cent of all income tax returns, fringe benefits tax (FBT) returns and business activity statements (BAS) that were due in the last four years or the period of operation if less than four years. Reasonable delays in lodgements due to extensions agreed to by the ATO will not affect approval.

The rules may be updated after the first year of operation and a government post-implementation review. Compliance with superannuation guarantee payments and pay as you go (PAYG) withholding obligations, for example, are not initially included, nor is there anything about convictions for phoenixing, bribery or corruption.

Further information on a Statement of tax record, including action to take to correct an unsatisfactory STR, is available at the ATO website.