For many years, family trusts have been a common tool for business owners seeking income flexibility and asset protection. However, when it comes to the building and construction industry, these structures can create unexpected issues under Queensland Building and Construction Commission (QBCC) regulations, often catching out both builders and their accountants.
Mick Renton, CEO of Xact Accounting and a specialist in QBCC compliance, says the introduction of mandatory annual financial reporting has led to a surge in enquiries. “We’ve seen a growing number of builders come to us after their previous accountant unknowingly put their licence at risk”, he explains.
Mick added,
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.
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.
Mick said,
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.
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.
