Webinar Q&A: MFR and Annual Reporting - CAT 1-3

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Review the transcript below of the questions and answers from the live webinar about Minimum Financial Reporting (MFR) and Annual Reporting - CAT 1-3, recorded on Thursday 28 November 2019

Question

Answer

How do you downgrade to nominee supervisor from a different licence. Do we simply apply for nominee supervisor licence?

To amend your licence to a nominee supervisor grade, you will need to complete and lodge the Change Licence Type Application form with the appropriate fee.

https://www.qbcc.qld.gov.au/sites/default/files/Change_Lic_Type_Individual.pdf

Is there a way to find out if annual figures have been submitted or not?

If you have submitted your annual reporting via our online portal, you should have received a reference number and confirmation email on successful lodgement of the form.

In the coming days, you should receive further correspondence confirming receipt of the submitted documents.

 How do you rectify the figures already lodged?

If a licensee realises they have made an error with the information already lodged, it is advisable that they send an email annualreporting@qbcc.qld.gov.au and we can assist you through the lodgement process.

Given that the end of year is the busiest for the construction industry and that the construction industry closes for a number of weeks around Christmas and so do accountants for the Christmas and new year period and that the deadline for reporting is 31 December, can the deadline for reporting be delayed to 31 January?

Category 1-3 licensees are only required to submit their internal management accounts, which can be prepared straight out of their existing accounting program (i.e. MYOB, xero) and do not require an accountant. From 2020, you will be able to apply to change your annual reporting day and we'll be in touch with further information on how to do this early next year.

If a licensee is SC2 at 30/06/2019 and an MFR Report was lodged in September 2019 to move to a Category 1 license, does an annual reporting form need to be lodged? If so, is it the SC2 annual reporting form or the Category 1-3 annual reporting form?

QBCC is in the process of back-entering accepted financial information through MFR Report submissions from reporting dates of 30 June 2019 and later.  Very shortly, we will advise these licensees that this accepted financial information has complied with their 31 December 2019 annual reporting obligations.

Where a trust holds real property and has a loan against these properties is a market value required to then be able to use the indemnity against the loan? Does this also apply to plant and equipment?

As trustee for a trust, assets held by a trustee under trust arrangements are excluded when calculating the NTA position. However, any liabilities incurred by the licensee as a trustee for a trust must be included in the liabilities.

If, however, the trustee has a recognised right of indemnity to the assets of the trust relevant to the trust liabilities incurred, then the value of the indemnity may be set off against the trust liabilities. 

Assets which are considered as disallowed or intangible are also to be excluded from the assets of the trust when calculating the value of the indemnity.

The trust’s right of indemnity does not apply to individual assets within a trust’s balance sheet against associated liabilities.  Under trust law, the trustee is indemnified from the liabilities of the trust where the assets of the trust are sufficient to discharge the liabilities of the trust.

I should note, pursuant to Section 16 of the Regulation, in calculating a licensee’s Net Tangible Asset (‘NTA’) position the QBCC’s Minimum Financial Requirements are applied to the financial information of the trust and any QBCC NTA deficiency within the trust is a liability of the trustee company in its NTA calculation.

Whether a trust is required to revalue properties to market value is a decision for the trustee’s.  I should note that in providing financial information to QBCC the following would apply:

For QBCC's annual financial reporting obligations, we do accept internal management accounts being provided for SC1/SC2 licensees, and Categories 1-3.  This means, we would accept the internal management accounts with the property disclosed at book value (for annual reporting).

When providing financial information with a MFR Report (i.e. to apply for a licence, or upgrade your Maximum Revenue), the financial statements need to have all relevant accounting standards aplied, which means the assets would likely be written down with depreciation applied.

In applying accounting standards, to revalue an item of property, plant or equipment, the correct accounting standard must apply (i.e. AASB 116/AASB 136/AASB 1041), and if an item of property, plant & equipment is revalued, the entire class of property, plant & equipment to which that asset belong needs to revalued. The revalued amounts need to be included in the company's signed financial statements.

 If I have already lodged my MFR report using 30/6/19 figures, do I still have to do an Annual Report?

QBCC is in the process of back-entering accepted financial information through MFR Report submissions from reporting dates of 30 June 2019 and later.  Very shortly, we will advise these licensees that this accepted financial information has complied with their 31 December 2019 annual reporting obligations.

My accountant prepares financial statements for tax purposes.  Assets are recorded at tax WDV i.e. assets less than $30,000 have a nil value on the balance sheet.  Do the plant & equipment and motor vehicles need to be revalued for annual reporting purposes? If so, on what basis?

The information provided for annual reporting purposes can be based solely on your internal management accounts which do not have accounting standards applied.  Depreciation and revaluations are accounting concepts, and would only apply if a licensee chose to provide signed financial statements (which are not required or mandatory for annual reporting purposes).

 What if the builder runs on cash and not accrual accounting and do not have aged debtors/creditors?

The information provided for annual reporting purposes can be based solely on your internal management accounts which do not have accounting standards applied.  Cash and accruals are accounting concepts and would only apply if a licensee chose to provide signed financial statements (which are not required or mandatory for annual reporting purposes).  However, it is a requirement for Category 1-3 licensees for annual reporting to provide an aged debtors and creditors listing in their submission.

In earlier webinars we have been informed the cash flow statement was not required if it hadn't been prepared previously (transitional provision for first year). Has this since changed?

Cash flow statements are required for financial information with a period end date after 1 January 2019.

The transitional provisions only applied to a requirement that was not in place when the Regulation commenced.  The financial information being provided for the 31 December 2019 annual reporting should be prepared after the Regulation commenced on 1 January 2019. 

As I don't have a business anymore but want to keep my licence, how do I change it to a nominee supervisor licence so I don't have to do annual reporting?

To amend your licence to a nominee supervisor grade, you will need to complete and lodge the Change Licence Type Application form with the appropriate fee.
https://www.qbcc.qld.gov.au/sites/default/files/Change_Lic_Type_Individual.pdf

How do I move from Category 4 to 3 as my turnover is around $20 million but QBCC is basing it according to net assets? My net assets are $2.5 million but in fact I need to report only $800k.

To amend your Maximum Revenue, you will need to consult with your accountant to prepare a MFR Report.

A MFR Report must be prepared off signed financial statements no longer than four months old.

You said that income that is not building income is to be included, but what about the expenses that relate to the non-construction income, where is that entered?

The information required for annual reporting purposes should include all income and similarly all expenses for that licensed entity.  The non-construction liabilities would be entered into "other liabilities"

For trusts - should beneficiary entitlements be included in related entity payables.  These are really equity accounts in the financials, not current assets or liabilities of the business.

The unpaid beneficiary entitlements are obligations that the trust must remit.  As such they are a current liability (as they are payable on demand).

In completing the annual reporting form, they should be included with related entity payables.

I am an individual licensee and trade as a partnership. In discussions with QBCC staff I have been advised that it is only the trading entity figures that are to be included in the assets and liabilities on the annual reporting form.  I note the declaration shown on your webinar slides states that the figures must include both my partnership figures and my personal figures.  Is it only the partnership or partnership and personal figures that need to be entered on the annual reporting form? Is it 100% of the partnership assets and liabilities or just my share?

The information required would be based on the trading entity, so if you trade through a partnership as well as trade personally, it would be the combination of both.  If you only trade through the partnership, it would just be the partnership information required.

Does the Statement of Cash Flow have to be in accordance with Australian Accounting Standards?

There is no requirement for internal management accounts to be prepared in accordance with the Australian Accounting standards (AAS).  As such for Category 1-3 annual reporting the cash flow statement does not need to be in accordance with the AAS.

When providing an MFR Report, or signed financial statements, all applicable AAS must be applied and the cash flow statement must be prepared in accordance with the AAS.

Is the profit and loss and balance sheet for the calendar year period?

The balance sheet and profit and loss statement would be for the most recent financial reporting year, i.e. year ending 30 June, unless you have an alternative financial year.

If you have a trust with a trustee company do you have to upload both financial statements - the trust and the trustee company?

For annual reporting, only the financial statements of the trading entity are required to be provided.

This is separate to an MFR Report, where signed financial statements of both the company and trust must be provided.

Can assets held in the director's name be used as an asset for the company? For taxation purposes we have been advised not to have certain assets in our company name, but we know that the director is liable (and their assets used) for the company should anything go wrong.

No, a director's assets are legally owned by the director, and not by the company.  If a company wants to include a director's assets to increase its own net tangible assets, this would be through an MFR Report and a Deed of Covenant and Assurance (this is not relevant for annual reporting purposes).

We have a client that is a partnership (trading entity). The licence is held in one of the partner's names. With the asset level required, is it for the trading entity or the licence?

For annual reporting, the financial information disclosed should be for the trading entity (i.e. the partnership).

In relation to completing an MFR Report or self-certifying declaration the Minimum Financial Requirements apply as follows for a licensee trading in partnership:

  • Current ratio: A calculation based on the QBCC current assets and current liabilities of the licensee and partnership combined.
  • Revenue: A calculation based on the income from all sources of the licensee and partnership combined.
  • Net Tangible Assets: A calculation based on the QBCC assets and all liabilities of the licensee.  However as a partner in the partnership, the licensee's share of the partnerships equity is an asset (or liability) of the licensee.

Could I please check whether a company that is MFR-exempt, still needs to complete annual reporting?

Contact QBCC on 139 333 or email to annualreporting@qbcc.qld.gov.au to confirm.

If I am operating as a trust, do I just report the income and expenses and balance sheet figures, or do I also add the figures from my company which holds the licence?

For annual reporting, only the financial information for the trading entity should be provided (i.e. the information for the trust).

We have a client that hasn't traded but holds a licence. As there has been no activity what do they do (they want to keep their licence).

If you are not actively using your licence you will still be required to provide your financial information to QBCC annually. You can report that your turnover is $0, but you still need to hold the required Net Tangible Assets to support your licence category.

If you were originally around $700k and now fall under the $800k limit - which was $600k originally - do we apply for a change of maximum revenue to go down to Self-certifying category 2

If you were a Category 1 licensee with a Maximum Revenue of $800K (or below) at 1 January 2019, you were automatically transitioned to a SC2 by the legislation.

We are a partnership. The tick box at the end asks for licensee financial statement and partnership financial statement.  We only record our partnership financials - not my husband's individual licensee information.  I can't physically get that report?

The information required would be based on the trading entity, so if you trade through a partnership as well as trade personally, it would be the combination of both.  If you only trade through the partnership, it would just be the partnership information required.

What do I do if the entity is a trust but not currently operating?

If you are not actively using your licence you will still be required to provide your financial information to QBCC annually based on the Ftrust information. You can report that your turnover is $0, but you still need to hold the required Net Tangible Assets to support your licence category.

Does cost of sales include opening and closing stock?

Yes

 If a company or trust fail to meet the net assets test, will deed of assurance be required to be submitted to QBCC straight away after submission of MFR report?

A deed of assurance can only be provided if the company has at least $0 net tangible assets, so cannot be in a negative net asset position.  The QBCC will work with licensees in Categories 1 to 3 until 31 December 2020 to help them strengthen the financial health of their business.

If a trust is doing the construction work and the licence is held in the trustee company, which entities figures do we use? The trustee company also earns income and has assets in its own right. Or do we add the income from the trust and the income from the company for revenue/expenses/assets/liabilities?

If both entities are trading, the financial information should be provided for both entities. 

In completing the annual reporting form you would combine both financials and upload both accounts.

We have recently sold our business and are no longer in the construction industry. Do we still need to lodge?

If you are not actively using your licence you will still be required to provide your financial information to QBCC annually based on the trust information. You can report that your turnover is $0, but you still need to hold the required Net Tangible Assets to support your licence category.

How can I tell if we are required to submit MF Reporting or MF Requirements as they seem to be used interchangeably however you have said that they are different and the notice I have received refers to Requirements however it appears to only refer to Reporting?

A MFR Report is required:

  • on application for a licence;
  • to amend your advised NTA;
  • to amend your issued Maximum Revenue;
  • on written request by QBCC.

A MFR Report is NOT required to be provided to comply with the annual reporting requirements.

Are 30 June 2019 financials sufficient for these categories?

Yes, if that is your most recent financial reporting year.

Our company is a trustee for a trust, please confirm for purposes of annual reporting we use the trust financials?

For annual reporting, only the trading entity financials are required.

When preparing a MFR Report, signed financial statements for the trustee and the trust must be provided.  However a MFR Report is not required to be provided for annual reporting.

What date do the financial statements need to be that are being lodged?

30 June 2019, or your most recent financial year if you have an alternative financial year.

The director of the company has a builder's licence and the company has a licence.  Do we need to lodge reports for the company licence only or both licences?

Yes, all licensees who hold contractors licences are required to submit information for annual reporting purposes.  If you do not trade through your personal licence, your personal revenue would just be nil.  You could also consider downgrading your personal licence to a nominee supervisor licence.

I'm a painter, is my income to be entered in the other income field rather than construction income field?

Your painting income would still be classed as construction income.

Why do you think I know what a current asset or liability is? Won't I need to talk to my accountant?

The Guide to Annual Reporting, found on QBCC's website, provides valuable information which can assist with this question.

If you don't have any debtors or creditors will this be an issue?

No, this won't be an issue, you would just record nil in those fields.

What is work in progress?  If we are reporting from financial year end 30 June how do we report work in progress?

This depends on how your business is structured.  Some licensees calculate work in progress as percentage complete, some licensees record work in progress as costs incurred but not yet invoiced. Both are acceptable.

My financial year is December to January, I won't have completed financials until a week into January 2020.

For annual reporting purposes, the information provided is based on the most recent reporting year.  If your most recent reporting year is as at 31 December 2018, this is the information you would provide.

If we are a small building business that earns under $800,001, do I just fill in an SC2 form?

If you meet the requirements for an SC2 licence, then you may complete a Self-Certifying 2 declaration and lodge the annual reporting on the SC1-2 form.

If you are Category 1-3 you will be required to lodge the Category 1-3 annual reporting form and provide your internal management accounts.

If an individual has a license but has not used it at all (operates only through their company license), do they need to lodge? Note, the individual does not have any assets and liabilities relating to their license.

Yes, all licensees who hold contractor licences are required to submit information for annual reporting purposes.  If you do not trade through your personal licence, your personal revenue would just be nil. You could also consider downgrading your personal licence to a nominee supervisor licence.

Do the number that we report for need to be less than 4 months old?

No, the annual reporting should be prepared for your last financial year.  There is no age limit on the annual reporting information.

Are assets such as scaffold, trestles etc. eligible for submission and if so is it based on market value, replacement value or after depreciation?

Yes, those assets would be considered as plant and equipment.  Market value and depreciation are accounting concepts and would only apply if a licensee chose to provide signed financial statements (which are not required or mandatory for annual reporting purposes).  However, it is a requirement for Categories 1-3 licensees for annual reporting to provide aged debtors and creditors listing in their submission.

If I have an SC2 licence holder that just got their licence granted in May 2019, are they still required to report by 31 Dec 2019?

Yes, if your most recent reporting year is later than May 2019, such as 30 June 2019.

If I did an MFR report based on 31 March 2019, do I have to submit reports again at 30 June 2019?

Yes, if 30 June 2019 is your most recent reporting year.

We submitted an MFR for a turnover increase in May 2019, is this going to require and annual report for this year?

Yes, if your most recent reporting year is later than May 2019, such as 30 June 2019.

My NTA are $56,000 per my trading entity. My turnover is $3M. My last lodged MFR included a deed of covenant from the director to the value of $100,000. Where do I include that in the annual reporting? As if I just submit based on my NTA of $56K I don't appear to have sufficient NTA.

The QBCC is aware of the Deed of Covenant and Assurance and our system will include it when reviewing the submitted information.  It is not required to be included in the annual reporting submission, and the forms do not include a space to notify QBCC of the Deed amount.

Are retention amounts recorded as work in progress?

Work in progress, debtors and retentions are all different (but all acceptable) assets.  Work in progress is an amount not yet claimed for work done on a project.  A debtor is an amount already invoiced for work done on a project. Retention is an amount set aside for assurances of work done on a project.

I'm fine with the profit and loss and balance sheet but where do I get the other figures from if I don't use an accountant for the forms?

The information would be from your own internal bookkeeping system, such as Xero or MYOB.

Can we use figures that were prepared at 30 June 2019 for the annual reporting?

The financial information lodged for annual reporting should be for your most recent financial year (i.e. 30 June 2019 for most licensees).

How do I do a statement of cash flows? It's not a report listed in my software.

Cash flow statements are required for financial information with a period end date after 1 January 2019.

The transitional provisions only applied to a requirement that was not in place when the Regulation commenced.  The financial information being provided for the 31 December 2019 annual reporting should be prepared after the Regulation commenced on 1 January 2019.

Refer to Page 9 of the user guide for more information about what information the Statement of Cash Flow needs to show.

I hold an occupational licence as a plumber and a contractor licence. I am a plumber trading as a trust. Am I required to report anually? The QBCC builder licence or contractor licence doesn't trade however we use that as a requirement for our contracts but we are solely a plumbing company. And if so, do I need to submit two - one as a plumber and one for my builder licence.

All licensees who hold contractor licences are required to submit information for annual reporting purposes.  If you do not trade through your personal licence, your personal revenue would just be nil.  You could also consider downgrading your personal licence to a nominee supervisor licence.

The information submitted for the company would be based on the trading entity.

I'm a residential building inspector trading in the family trust. I'm having to personally guarantee my company. I am not actually doing any building work, why am I forced to have a turnover of over $800,001. My turnover will be below $200 000.

To meet MFR to obtain the company, you would have been required to provide an MFR Report (instead of a self-certifying declaration) as you trade through a trust structure.

The Maximum Revenue amount set for your licence is the maximum limit you can trade up to, you do not need to complete that level of turnover though.  You still need to hold the required Net Tangible Assets to support your licence category however. You may wish to apply to downgrade your licence category.

My accountant hasn't done my tax for 2018-2019 and goes on holidays in a week or two. What if my financials aren't available?

Category 1-3 licensees are only required to submit their internal management accounts, which can be prepared straight out of their existing accounting program (i.e. MYOB, xero) and do not need an accountant.

What if 30/06/2019 figures are not done by 31/12/2019?  Can we use earlier year figures?

The financial information lodged for annual reporting should be for your most recent financial year (i.e. 30 June 2019 for most licensees).

The cash flow statement report generated through MYOB etc. is this acceptable?

Yes, absolutely.

It seems the QBCC is redefining what financial statements are and what reports should be included. No financial statements, even those lodged with ASIC include aged debtors and creditors reports. Is QBCC changing the definition of financial statements as this is not in accordance with IFRS/accounting standards?

The definition of signed financial statements is set out in the MFR Regulation, which is legislation adopted by the Queensland Parliament.

Can we use more up-to-date figures for MFR such as those as at 30/11/19 and for the records for the preceding year?

An MFR Report is a separate and higher requirement than annual reporting. 
For any financial information later than 30 June 2019 and used in an MFR Report to upgrade Maximum Revenue amounts, this information can also be used for annual reporting purposes.

Does that partnership have to hold the assets or can the asset be held in one of the partner's names?

The assets required to obtain and maintain a QBCC licence are required to be in the licensee's name.
For annual reporting purposes, if you trade through a partnership, you would provide the annual reporting information based on the partnership as the trading entity.

When a builder applies for their licence are they given the NTA that they must hold to continue to hold their licence?

Yes, that is correct.

What exactly is the 4 month rule? Does it mean you can't use 30 June accounts if submit after 31/10/19?

The 4 month rule is the age of the financial information for an MFR Report (which is separate to annual reporting).
If 30 June 2019 is your most recent reporting year, that is the information you would provide to QBCC for the 31 December 2019 annual reporting day.

As a sole trader, we are not required by the ATO to prepare formal financial reports.  We do not run on finance software, and do not have a balance sheet or cash flow statement.  What do we submit?

Cat 1-3 licensees are only required to submit their internal management accounts, which can be prepared straight out of their existing accounting program (i.e. MYOB, xero). 

Refer to the user guide for more information about what a Balance Sheet and Statement of Cash Flow needs to show.

We have purchased a franchise (construction), is the franchise (a sellable asset) can this be included as an asset on our MFR reporting?

An MFR Report is a separate requirement to annual reporting.
For annual reporting, you would list the franchise cost as an intangible asset.

Are retention amounts recorded as work in progress?

Work in progress, debtors and retentions are all different (but all acceptable) assets.  Work in progress is an amount not yet claimed for work done on a project.  A debtor is an amount already invoiced for work done on a project. Retention is an amount set aside for assurances of work done on a project.

If I did an MFR report based on 31 March 2019, do I have to submit reports again at 30 June 2019?

Yes, if 30 June 2019 is your most recent reporting year.

Do my figures need to be finalised by an accountant?

No, definitely not. They can be the information you already have off your own internal bookkeeping system such as Xero or MYOB.

Our business is brand new and 2019 will be our first financial year, however it will not be completed until January, how do I report?

Cat 1-3 licensees are only required to submit their internal management accounts for the most recent financial reporting year, which can be prepared straight out of their existing accounting program (i.e. MYOB, xero). An accountant is not required.

Does the number that we report for need to be less than 4 months old?

The annual reporting should be prepared for your last financial year.  There is no age limit on the annual reporting information.  The four-month rule applies to MFR Report, which is a separate requirement to annual reporting.

Does a licence holder that just acts as a nominee for a company still need to report to the QBCC by 31 December or are they exempt as they have no construction income in their own name?

The following licensees and applicants do not have to meet any MFR obligations:

  • Nominee supervisor
  • Site supervisor
  • Occupational licensees.

Is there a paper form that can be completed instead of the online portal?

Yes, you can find manual forms to lodge on our website at qbcc.build/forms

If you have a partnership of trusts as the business structure, do you need to only supply the partnership financials?

It would be the financials provided for the trading entity (which may be the partnership).

What if the accountant hasn't had time to do our financials?

Category 1-3 licensees are only required to submit their internal management accounts, which can be prepared straight out of their existing accounting program (i.e. MYOB, xero).

If NTA position didn't meet the turnover e.g. if NTA about $48K but the turnover is about $1.8m at the end of June 2019, what do we have to do?

It is important that you lodge your financial information by 31 December 2019 even if you don't meet the target working capital. The QBCC will give you until 31 December 2020 to strengthen the financial health of the business. 

If a sole trader uses assets legally owned by a related company (with assets financed with sole trader's personal guarantee), do you include company loans on sole trader annual reporting?

If the assets are owned by a company, they would not be included in the sole trader's financials, as they are two separate legal entities.
Loans from the company to the sole trader (or vice versa) would be included in the licensee's financial position.

We are registered in Category 2 but we have not yet started building in Queensland. Our financial statements are currently zero, do we still need to submit the financial statements and debtors and creditors reports and cash flow?

If you have not started trading, you will still be required to provide your financial information to QBCC annually. You can report that your turnover is $0, but you still need to hold the required Net Tangible Assets to support your licence category.

If you are operating as a sole trader do you have to include 12 month's worth of mortgage payments into your current liabilities? They are not a business asset.

If you are including your personal house as an asset, you would need to include any corresponding liabilities attributed to that asset.

At the Townsville seminar we were told that for these categories we were not required to lodge cash flow reports however calling the hotline we are now told that we have to.

Cash flow statements are required for financial information with a period end date after 1 January 2019.

The transitional provisions only applied to a requirement that was not in place when the Regulation commenced.  The financial information being provided for the 31 December 2019 annual reporting should be prepared after the Regulation commenced on 1 January 2019. 

Aged debtors - what consideration will QBCC be taking for business' working in Townsville due to the floods. Many may be waiting on insurance companies that will take their time paying out their invoice.

The debtor amount would still be included as an asset of yours, as it would still be considered as collectible, depending on the age of it.

Do we need to report for the nominee supervisor licence class?

The following licensees and applicants do not
have to meet any MFR obligations:

  • Nominee supervisor
  • Site supervisor
  • Occupational licensees.

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