From 1 July 2019, businesses with a sub-standard tax record will be excluded from certain Commonwealth government procurement processes.

Treasury has spelt out the policy in the Black economy – increasing the integrity of government procurement.

Which procurements will be affected?

The policy is mandatory for Government Departments (and optional for corporate Commonwealth entities) and will apply to:

  • new approaches to market for open tenders on or after 1 July 2019; and
  • procurements valued over $4 million (including GST), for all goods and/or services to which Division 2 of the Commonwealth Procurement Rules apply.

Existing contracts and procurements already on foot won’t be affected.

What is changing?

  • From 1 July 2019, for procurements over $4 million, the tender documentation will require a Statement of Tax Record (STR) for tenderers and any first-tier subcontractors (see further about first tier subcontractors below).
  • Evaluation panels will be required to exclude from evaluation tenders that do not contain a valid and satisfactory STR (or STR receipt).

What will I need to provide?

  • You will need to ensure you have applied for an STR in time for you to meet the tender deadline. You can apply online at the ATO’s website.
  • If the ATO does not issue an STR in time for you to meet the tender deadline, you will be able to provide an STR request receipt (evidence from the ATO that you have requested an STR) with your tender followed by the STR itself within four business days.

Commonwealth entities may require contractors (and first tier subcontractors) to maintain an STR for the duration of the contract, so you should be aware of any ongoing requirements to maintain an STR.

A (currently) low bar – what do you need to get an STR?

A “valid and satisfactory” STR will be issued by the ATO if you have met the following three conditions:

  1. You are up-to-date with tax registration requirements (e.g. having an ABN and being registered GST for businesses, or a having Tax File Number for individuals).
  2. You have lodged at least 90 per cent of all income tax returns, Fringe Benefit Tax returns and Business Activity Statements due in the last four years.
  3. On the date the STR is issued, you do not have $10,000 or greater in overdue debt due to the ATO (excluding debt subject to a taxation objection, review or appeal).

Once issued, STRs are generally valid for a period of 12 months. You can still get an STR even if:

  • You have an overdue debt but have entered into a payment plan with the ATO.
  • You have had reasonable delays in lodging income tax returns, Fringe Benefit Tax returns and Business Activity Statements due to extensions agreed to by the ATO.

Separate requirements will apply to applicants who do not have an Australian tax record of more than four years and foreign applicants. An STR issued to new or foreign applicants will be valid for six months only.

I can’t get no (satisfactory STR) – what to do if you receive an unsatisfactory STR

You will receive an additional report with your STR detailing the elements of the criteria you met or did not meet to achieve a satisfactory STR.

If you did not meet the criteria, you may be able to take corrective action to bring your tax obligations up to date and you can reapply for an STR the following day, after the corrective action has been recorded in the ATO’s systems. So, give yourself plenty of time to do this before the tender closes.

Below are some corrective actions that may assist you with obtaining a satisfactory STR.

  • Registration – ensure you are up to date with registration requirements which may include registering for a TFN, or having an ABN and registering for GST.
  • Outstanding lodgements – ensure you have lodged at least 90% of all income tax returns, FBT returns and BAS that were due in the last four years. If you are not required to lodge a tax return or have nothing to report then you must notify the ATO, or you may receive an unsatisfactory STR.
  • Outstanding debt over $10,000 – you could pay the outstanding amount, or you may be able to set up a payment plan with the ATO.

The more the merrier – obligation to flow through to first tier subcontractors

Your subcontractors will be caught too if they are undertaking work that is valued at over $4 million, and you will need to produce an STR for them as well. Second tier subcontractors (i.e. those engaged by subcontractors) aren’t currently caught by the policy.

Watch this space – review and amendment at the one-year mark

Treasury has flagged that the policy has been deliberately limited for the first year of its operation, to ensure a smooth transition.

However, Treasury has indicated that the policy will be reviewed and may be amended after one year, including to impose further requirements for a satisfactory STR. So watch this space.