Key Points

• The purpose of the Payment Times Reporting Act 2020 (Cth) (Act), which came into effect on 1 January 2021, is to help small business understand payment terms being offered by large businesses and government.
• The Act is quite complex and requires entities falling within its ambit to register and report payment terms so that they are available for scrutiny by small Australian businesses. Reporting must be undertaken every 6 months.
• A 12 month “grace period” has applied since the Act came into effect. Penalties will apply from 1 January 2022, so companies caught by the Act will need to move very quickly to comply if they are not already compliant. Sanctions include significant civil penalties and “naming and shaming” those companies who do not comply.

Background

The purpose of the Payment Times Reporting Act 2020 (Cth) (Act), which came into effect on 1 January 2021, is to help small business understand payment terms being offered by large businesses and government. The Act does not apply to charities and not for profit companies.

What's involved?

The Act is quite complex and requires entities falling within its ambit to register and report payment terms so that they are available for scrutiny by small Australian businesses. Reporting must be undertaken every 6 months and details include:

1. The standard payment periods at the start of the reporting period, including the shortest and longest standard payment periods (and any changes);
2. The proportion (in terms of total number and total value) of small business invoices paid within 20 days, between 21 and 30 days, between 31 and 60 days, between 61 and 90 days, between 91 and 120 days and more than 120 days after the invoice was issued; and
3. The proportion (by total value) of procurement that was procurement from small business suppliers.

Broadly speaking, the Act binds an entity to the effect that it becomes a “reporting entity” if it has both the characteristics described below:

1. It is a constitutionally covered corporation (CCE) which includes Australian companies and “foreign entities” (as defined in the Income Tax Assessment Act 1997 (ITAA)); and
2. It is a CCE “carrying on an enterprise “in Australia” and any of the following apply:
   • It has “total income” for itself from all sources (including foreign sources) in excess of AU$100 million; or
   • It is an Australian holding company of a group where the group has aggregate income excess of AU$100 million; or
   • It is an Australian company as part of a group with income of more than AU$100 million, and the company’s total income is more than AU$10 million.

Carrying on as an enterprise

In section 5 of the Act, an “enterprise” has the same meaning as in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

The GST Act defines an “enterprise” to include (among other things) an activity, or series of activities, done “in the form of a business”.

The concept of “enterprise” is broader than a “business” and captures a wider range of activity. It includes activities done “in the form” of a business. The Australian courts have observed that the words “in the form of” have the effect of extending the reach of “enterprise” to capture activities which are in the form of a business but would not ordinarily be sufficient to amount to carrying on a “business”.

Non-compliance

A 12 month “grace period” has applied since the Act came into effect. Penalties will apply from 1 January 2022, so companies caught by the Act will need to move very quickly to comply if they are not already compliant. Sanctions include significant civil penalties and “naming and shaming” those companies who do not comply.

Next steps

Entities caught by the new legislation will need to review their systems and educate their personnel to ensure they satisfy the new requirements.

Please contact Hamish Walton if you have any questions.