Treasury has published the new procurement policy that explains how the federal government plans to make “a satisfactory tax record” a condition of tendering for Commonwealth contracts from July 1.
We already knew the main new rule coming into play: bidders for contracts worth over $4 million will need a statement from the Australian Taxation Office saying their past tax affairs are good enough, for contracts signed after the 2019-20 financial year begins. The official details are out now, in a new procurement-connected policy.
A statement of tax record (STR) has to be submitted with the tender, or a receipt from the ATO showing one has been requested, followed by the STR within four days.
The same goes for first-tier subcontractors whose share of the work would be worth $4m or above, including GST. Prime contractors must ensure their subcontractors have a satisfactory STR, regardless of whether they are engaged before or after the deal is struck. Second-tier subcontractors are not covered at this point but may be in future as this is under review.
Having a satisfactory tax record in line with the policy it not particularly onerous. It requires:
- Up-to-date registrations, such as for an Australian Business Number, GST or Tax File Number.
- A record of lodging 90% of all income tax returns, Fringe Benefit Tax returns and Business Activity Statements that were due in the last four years, or however long the business has been in operation if less than four years.
- Not owing $10,000 or more to the ATO.
As always, there are exceptions. The Tax Office is still to declare a “satisfactory” STR under the policy if it has agreed to extensions for overdue returns, and if there is a debt more than $10,000 but it is “subject to a taxation objection, review or appeal” under the Taxation Administration Act, or if the applicant has agreed to enter a payment plan.
Government departments — the policy doesn’t apply to corporate entities — will have to start including all the relevant rules in request-for-tender documents, including if the agency “chooses” to make it a requirement that the supplier and its subcontractors must maintain their satisfactory STR over the life of the contract. That is optional.
There is also a whole section on applying these requirements to foreign companies and firms that are less than four years old, meaning the ATO doesn’t have the required records on them. Essentially, they have to provide a statement pledging they will follow Australian tax laws and haven’t got in trouble over tax matters in the past.
Other parts of the policy explain how it applies to partnerships, trusts and joint ventures as well as procurement panels, but only if they are established after July 1 — it doesn’t apply to existing panels, even when they are refreshed.
Publication of the new procurement-connected policy this week follows a discussion paper released last May by the black-economy taskforce, which sought views on other details that could be included.
Some of the questions were about how the policy could become stricter in future, such as whether the government should also avoid awarding contracts to companies in the business of finding tax loopholes, or “providing tax related advice that has involved current or recent promotion of tax schemes that are not reasonably arguable” in Treasury-speak.
Assistant Minister Stuart Robert said this week the consultation “found general support for the criteria proposed to demonstrate a satisfactory tax record” and detailed the next round of changes that might happen:
“The guidance will be refined after the first year of implementation and may include additional criteria to determine a satisfactory tax record, such as compliance with superannuation guarantee and PAYG withholding obligations, and no convictions for tax misconduct in connection with phoenixing, bribery and corruption.”
The idea is that leaving these additional checks out for the first year will “ensure a smooth transition of the policy” but there is no guarantee they will be introduced at all.