As published in the July-September 2021 issue of Master Builder Magazine.
For years, business owners have used family trusts as part of their overall tax and accounting arrangements. Typically, this is for income flexibility and asset protection reasons, but regulations under the Queensland Building and Construction Commission legislation (QBCC), continue to catch out unwary builders and accountants.
Specialist QBCC regulation expert and CEO of Xact Accounting, Mick Renton, said that since the introduction of mandatory annual financial reporting, he had received an influx of enquiries from builders after their previous accountant unknowingly placed their license at risk.
There is a range of issues when it comes to family trusts in the building industry, most of which are the result of an accountant not understanding how they are treated under the QBCC Minimum Financial Requirements (MFR). This business-as-usual approach causes headaches for all parties but can also lead to the suspension or even cancellation of their licence, Mick said.
QBCC regulations are very specific when it comes to trusts and do not take into account any assets within a family trust when calculating the net tangible assets (NTA) required for the licence.
We often see intangible assets like goodwill and borrowing costs held in the trust, but in our industry, these often small, intangible assets create the potential for a negative NTA position.
A more effective trust structure could see the QBCC licence and other assets held in a Pty Ltd trading company, with the shares of that company held by the family trust. The trading company could then pay dividends to the family trust, with income distributed to beneficiaries at potentially lower tax rates, Mick said.
Non-compliant licence holders looking for a remedy could consider increasing the capital of the trust by legitimately Gifting amounts to increase the Net Assets to ensure simple items such as intangibles do not catch licensees out.
Got questions about your QBCC license or MFR report? Call our QBCC MFR Report and Accounting hotline on 07 3124 8666 or send us a message.
