01 July 2019

Increasing the integrity of government procurement | Demonstrating tax records requirements – implications for Commonwealth Agencies

This article was written by Rachael Lewis.

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 Commonwealth 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.

Do I need to update my approach to market documents?

Yes.

  • From 1 July 2019, for procurements over $4 million, the tender documentation will need to ask for a Statement of Tax Record (STR) for the tenderer and any first tier subcontractors (see further about first tier subcontractors below).
  • If the STR is not issued in time to meet the tender deadline, the tender documents will need to require the tenderer to include an STR request receipt, followed by the STR itself within four business days.
  • Your documentation will need to allow you to exclude from evaluation those tenders that do not contain a valid and satisfactory STR (or STR receipt).

Commonwealth entities can also (but don’t have to) update their template contracts to require contractors (and first tier subcontractors) to maintain an STR for the duration of the contract.

A (currently) low bar – what is required for a valid and satisfactory STR?

A “valid and satisfactory” STR will be issued by the ATO if an applicant has met the following three conditions:

  1. The applicant is up-to-date with tax registration requirements (e.g. being having an ABN and being registered for GST for businesses, or a having a Tax File Number for individuals).
  2. The applicant has 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, the applicant does 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.  An applicant can still get an STR even if:

  • They have an overdue debt but have entered into a payment plan with the ATO.
  • They 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. 

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

Subcontractors are caught too if they are undertaking work that is valued at over $4 million and tenderers will need to produce a STR for them as well.  Second tier subcontractors (i.e. those engaged by subcontractors) aren’t 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. 

If you need assistance updating your procurement documents to reflect the new requirements please contact the listed Partners or your usual KWM contact.

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