This article was written by Tim Bednall and Miriam Kleiner and Pei Xuan Liu
The Payment Times Reporting regime will commence on 1 January 2021, with the two Acts implementing the regime (the Payment Times Reporting Act 2020 (the Act) and the Payment Times Reporting (Consequential Amendments) Act 2020) receiving royal assent in September and October 2020.
The regime imposes new obligations on large businesses to report on their payment terms and practices in relation to small business suppliers and is aimed at addressing the impact of delayed payments on small business cash flows. Notably, the regime does not mandate that small businesses must be paid within a certain period but provides a framework for greater transparency over the payment practices employed by large businesses.
What must be reported?
Under the regime, reporting entities will need to report twice-yearly on:
- the standard payment periods at the start of the reporting period, including the shortest and longest standard payment periods (and any changes over the 6-month reporting period);
- 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;
- the proportion (by total value) of procurement that was procurement from small business suppliers; and
- other information prescribed by the Payment Times Reporting Rules (the Rules), which have currently only been released in draft form. The Rules are expected to prescribe reporting requirements in relation to supply chain financing arrangements.
For more information, see section 3.2.
What entities are captured?
Reporting entities are ‘constitutionally covered’ entities that carry on an enterprise in Australia and have an annual total income of more than $100 million (and each of their subsidiaries that have annual total incomes of more than $10 million). Registered charities and not-for-profits are not captured under the Act.
A ‘constitutionally covered’ entity is broadly defined and the concept will likely capture the large majority of government-owned corporations and private sector businesses (both domestic and foreign entities) that are within the constitutional power of the Commonwealth to regulate.
Total income is determined by reference to the equivalent concept in tax legislation and for a holding company, is calculated on a group basis. This means that whilst the requirement to report is assessed on the basis of group income, reporting is at an entity level (rather than on a group basis).
For more information, see section 2.
When must reporting occur?
Reporting entities must provide reports to the Regulator within 3 months of the end of each 6-month reporting period and maintain records of their compliance for 7 years. The first 6-month reporting period will begin on 1 January 2021 for entities with a 31 December tax year, with reports due to the Regulator by 30 September 2021.
For more information, see section 3.1.
What information will be made public?
The reports will be disclosed on a publicly available register maintained by the Regulator, who has the discretion to not publish information where it considers that publication would be contrary to the public interest (by reference to whether the information is personal information, commercial-in-confidence or any other type of information prescribed in the Rules).
For more information, see section 4.
How will the measures be enforced?
To enforce the regime, the Regulator will have wide-ranging powers to monitor and investigate compliance with the Act, to compel the reporting entity to undertake a compliance audit, to impose infringement notices for civil penalty provisions and to publish the identity of non-compliant reporting entities and details of their non-compliance.
Civil penalties ranging from 60 penalty units ($12,600) to 0.6% of the entity’s annual income can apply for non-compliance with requirements to provide a report, appoint or reasonably assist an auditor, keep records for 7 years or provide false or misleading information. Reporting entities will be given a 12-month penalty-free transition from 1 January 2021 to enable them to familiarise themselves with the scheme and transition effectively.
For more information, see section 5.
How will this affect large businesses?
The regime will have significant impacts on the compliance burden and costs of large businesses operating in Australia. Please see sections 6 and 7 for further detail on when the changes will take effect and our observations on the impact of the regime on large businesses.
2. What entities are captured?
The reporting obligations under the Act apply to an entity that:
is a constitutionally covered entity. This term is broadly defined to include foreign corporations, trading and financial corporations (under the Australian Constitution), foreign entities (under the Income Tax Assessment Act 1997) and corporate Commonwealth entities and Commonwealth companies (under the Public Governance, Performance and Accountability Act 2013). A large majority of private sector businesses and government-owned corporations are likely to be captured under this definition;
- carries on an enterprise in Australia;
- generated a total income of more than $100 million for the most recent income year;
- is an Australian-incorporated holding company of a group that generated a combined total income of more than $100 million for the most recent income year; or
- is a subsidiary of such a holding company and generated a total income of at least $10 million for the most recent income year (except in limited circumstances where it is also a subsidiary of another body corporate); and
- is not registered under the Australian Charities and Not-for-profits Commission Act 2012 (Reporting Entity).
The total income thresholds and income year are each defined by reference to the equivalent concepts under tax legislation. Amendments to the Taxation Administration Act 1953 have been passed to allow the Taxation Commissioner to disclose to the Regulator certain taxation data relating to whether an entity is a Reporting Entity under the Act.
Other entities that do not meet the above requirements may become a reporting entity if they elect to report voluntarily.
An entity’s status as a Reporting Entity continues until the Payment Times Reporting Regulator (Regulator) issues a determination that the entity has ceased to be a Reporting Entity. In the case of Reporting Entities that are subsidiaries, the entity immediately ceases to be a Reporting Entity at the end of an income year if its total income was less than $10 million for that income year and the year preceding it.
3. What are the reporting requirements?
3.1 When must reporting occur?
The Act requires Reporting Entities to report twice yearly on its practices over the previous 6-month reporting period. A reporting period is each 6-month period of an income year (as defined under the Income Tax Assessment Act 1997). Reports must be given within 3 months after the end of each reporting period, unless the Regulator grants an extension of time.
For example, a Reporting Entity with a 31 December tax year end would determine whether it satisfied the total income threshold for the year ended 31 December 2020 and if so, it would then have twice-yearly reporting obligations from 1 January 2021. The first report would cover the period from 1 January 2021 until 30 June 2021 and would need to be submitted by 30 September 2021.
Reporting Entities must keep all information used in the preparation of their reports for at least 7 years.
3.2 What must be reported?
Reporting Entities must report aggregated data on its payment terms and practices in relation to small business suppliers, including:
- the standard payment periods at the start of the reporting period, including the shortest and longest standard payment periods (and any changes over the 6-month reporting period);
- 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;
- the proportion (by total value) of procurement that was procurement from small business suppliers;
- other information such as the entity’s main business activity, the ‘principal governing body’ with primary responsibility for the governance of the entity, the identity of the entity’s holding company (if applicable), a declaration by a ‘responsible member’ that the report will be provided to the ‘principal governing body’ of the entity and details of the ‘responsible member’ and details of any ‘notifiable event’ that occurred during the reporting period (such as a change to the entity’s accounting period or business name); and
- any other information or documents prescribed by the Rules. In particular, the Act specifically allows for the Rules to prescribe reporting requirements in relation to supply chain financing. “Supply chain financing” is not expressly defined in the Act and instead will be defined in the Rules to provide flexibility to accommodate new and emerging supply chain financing products. The definition is expected to capture synonymous terms such as “reverse factoring”. In discussion materials preceding the Act, “supply chain financing” has been defined as financing practices where a large business offers a small supplier temporary financing to cover the period between supplying a good or service under a contract and being paid for the work.
Small businesses will be identified via the Payment Times Small Business Identification Tool (Tool) which is currently being developed by the Department of Industry, Science, Energy and Resources. The Tool will draw on the taxation legislation definition of small business as an entity with an annual turnover of less than $10 million. In practice, the Tool is expected to operate so that a large business will be able to enter identifying information about their suppliers, with the Tool returning negative results for suppliers that are large or medium businesses. Further information regarding the Tool will be prescribed in the Rules, which have been released for consultation in draft form. The current draft Rules contemplate that small businesses concerned with being identified as a small business by this process will have the ability to ‘opt out’ of being identified by the Tool.
There are two key points that large businesses should be aware of:
- broad amendments to the Taxation Administration Act 1953 have been passed to allow the Taxation Commissioner to disclose certain taxation data to the Regulator for the purpose of administering the Scheme. It is unclear whether the Tool will use data from ATO records for the purposes of identifying small businesses. However, the amendments to the Taxation Administration Act 1953 and authorisations that are effective for the purposes of the Privacy Act 1988 may mean that the sharing of such data is authorised under law.
- if the Tool is reliant on data collected in ATO records, the effectiveness of the Tool as a database of small businesses will be dependent on small businesses filing their tax returns on time. The extent to which the Tool will rely on ATO records remains to be seen.
3.3 Who must sign the report?
The report must be signed and approved by a ‘responsible member’ (for a company, this would be an individual member of the Board who is authorised to sign) and provided to the entity’s principal governing body (for companies, this would include the Board). 
4. What information will be made public?
Reports provided by Reporting Entities will be publicly available and free of charge on the Payment Times Reports Register (Register) maintained by the Regulator. The Register seeks to fulfil the transparency objective of the Act by ensuring that small businesses and others have access to information on payment performance by large businesses, so they can make informed financial decisions on who they provide goods or services to.
The Regulator has discretion to not publish information contained in a report where the Regulator considers that publication would be contrary to the public interest. In making this decision, the Regulator must consider whether the information is personal information, commercial-in-confidence or any other type of information prescribed in the Rules. For information to be considered commercial-in-confidence, the Regulator must be satisfied that the information, if published, would cause competitive detriment, is not already in the public domain, is not required to be disclosed under Australian law, and is not readily discoverable.
The discretion is intended to limit the disclosure of information that is not central to the content requirements of the Act but is provided in the report. Given the objective of the Act, poor payment time performance or information about payment terms are unlikely to be considered commercial-in-confidence even if its publication may cause competitive detriment.
4.2 Information regarding non-compliance
The Regulator can publish the identity of non-compliant Reporting Entities and the details of their non-compliance. These details may be published on the Register, or in another way that the Regulator considers appropriate (or both). Before doing so, the Regulator must give the entity notice of its intention to publish and the opportunity to provide a written response within 28 days. This power is intended to enable the Regulator to ‘name and shame’ entities that disregard their obligations, in order to deter wilful non-compliance of the Act.
5. How will the measures be enforced?
The Act grants the Regulator expansive powers to monitor and enforce compliance, including:
- monitoring powers, to enable the Regulator to check compliance with the Act. These include the power to enter premises, with either the occupier’s consent or under a monitoring warrant, to inspect documents, make copies, operate electronic equipment, and secure evidence once on the premises, and to ask questions and seek the production of documents once on the premises;
- investigation powers, to gather material in relation to contravention of a civil penalty or offence provision. These include the power to enter premises by consent or under reasonable suspicion that there may be evidential material on the premises related to the contravention of a civil penalty or offence provision and the power to search and seize evidential material; 
- the ability to require Reporting Entities to undertake an audit of their compliance with the Act or aspects of the Act, if it reasonably suspects a contravention of the Act; and
- the ability to impose infringement notices in relation to the civil penalty provisions of the Act.
Following a 12-month penalty-free grace period, significant civil penalties will apply for non-compliance with the Act, including:
- up to 60 penalty units ($12,600) for failing to provide a report;
- up to 60 penalty units ($12,600) for failing to comply with a Regulator’s notice to appoint an auditor;
- up to 0.2% of a Reporting Entity’s total income for failing to keep records for at least 7 years;
- up to 0.2% of a Reporting Entity’s total income for failing to provide an auditor with all reasonable facilities and assistance necessary; and
- up to 0.6% of a Reporting Entity’s total income for providing false or misleading information.
6. When will the changes take effect?
The two Acts implementing the regime (the Payment Times Reporting Act 2020 and the Payment Times Reporting (Consequential Amendments) Act 2020) have both received royal assent and are set to commence on 1 January 2021. Public consultation on the Rules to accompany the Acts closed in June 2020.
There will be a transition period of 12 months where compliance and enforcement actions under the Act will not apply. During this time, the Regulator must not publish information regarding non-compliance, require a Reporting Entity to arrange an audit or exercise its monitoring and investigation powers. The Government has indicated that following this 12-month period, a graduated approach will be taken to compliance and enforcement, beginning with education and awareness raising, followed by working with companies, and then application of penalties as a last resort.
7. How will this affect large businesses?
The regime is likely to impose significant compliance costs on large businesses operating in Australia, particularly those that are members of large corporate groups. We expect that many large businesses may need to review and if necessary, redesign or adapt, internal reporting and accounting systems and processes to ensure that they are well-placed to meet the reporting requirements under the Act. Compliance costs have been estimated to be on average $22.5 million per year.
Numerous factors may make the preparation of accurate, consistent and reliable payment times data challenging, which may heighten the compliance risk for Reporting Entities. We recommend that businesses begin assessing whether they are captured by the Act and preparing for the regime as soon as possible, particularly those with tax years that begin on 1 January 2021 when the Act commences.
The immediate action points for large businesses to consider and implement are:
- integrated accounting systems. Large corporate groups with multiple purchase to pay processes and practices will need to consider streamlining and integrating those systems so that the requisite information can be reported at an entity level. Many businesses may not currently have this capability;
- appropriate reporting parameters. Companies will need to ensure that their payment reporting systems will be able to analyse every payment to determine whether it relates to a payment made to a small business enterprise. These systems will need to be re-visited when the Rules are finalised and the Tool is made available;
- practical considerations, including which entities within a corporate group will have reporting obligations, who is the appropriate person to appoint as a ‘responsible member’ to approve the requisite report(s) and how will the preparation of the report(s) required under the Act sit alongside the processes in place to meet other reporting cycles for accounting reports or tax statements that the entity must provide; and
- potential issues that may arise. Large business should consider any complications that could arise in the process of collecting the requisite information. For example, what will occur if the billing entity differs from the payee?
 Section 7, Payment Times Reporting Act 2020 (Cth) (the Act).
 Section 6, the Act.
 “Carrying on an enterprise” includes doing anything in the course of the commencement or termination of the enterprise. “Enterprise” has the same meaning as in the A New Tax System 21 (Goods and Services Tax) Act 1999. See Section 5, the Act.
 The Act applies to a “controlling corporation”. A “controlling corporation” means an entity that is a body corporate incorporated in Australia and is not a subsidiary of another body corporate that is incorporated in Australia. See Section 5, the Act.
 See definition of “member” at Section 5, the Act.
 See definition of “total income” and “income year” at Section 5, the Act.
 Section 1, Schedule 1, Payment Times Reporting (Consequential Amendments) Act 2020.
 Section 7(3), the Act.
 Section 7(4), the Act.
 Section 8, the Act.
 Section 8, the Act and the definition of “income year” at Section 5, the Act.
 Section 13, the Act.
 Section 29, the Act.
 Section 14, the Act.
 The meaning of “standard payment period” will be prescribed in the Rules, see definition of “standard payment period” at Section 5, the Act.
 See Section 14(1)(c) and Section 5, the Act. The description must be in accordance with the Business Industry Codes published by the Australian Taxation Office (ATO).
 See Section 5, the Act. A “principal governing body” of an entity means: (a) the body, or group of members of the entity, with primary responsibility for the governance of the entity; or (b) if the entity is of a kind prescribed by the rules — a prescribed body within the entity, or a prescribed member or members of the entity. Examples of principal governing bodies include the company’s board of directors (for a company) or the board of trustees for a superannuation fund.
 Section 14(3), the Act.
 Paragraph 64, Explanatory Memorandum to the Payment Times Reporting Bill 2020 and the Payment Times Reporting (Consequential Amendments) Bill 2020, House of Representatives (Explanatory Memorandum).
 Page 10, “Standard terms”, Discussion Paper, Payment Times Reporting Framework released by the Department of Jobs and Small Business in February 2019.
 “Annual turnover” has the meaning given in the Income Tax Assessment Act 1997. See definition of “small business” at Section 5, the Act.
 Page 3, Explanatory Memorandum.
 See definition of “Payment Times Small Business Identification Tool” at Section 5, the Act.
 Page 6, Payment Times Reporting Scheme – Rules, Consultation Paper dated May 2020.
 See Section 1, Schedule 1, Payment Times Reporting (Consequential Amendments) Act 2020 and page 3, Explanatory Memorandum.
 Note 1, Section 38, the Act.
 Section 14(5), the Act and the definition of “responsible member”, Section 5, the Act.
 Section 17, the Act.
 Page 6, Explanatory Memorandum.
 Within the meaning of the Privacy Act 1988, see section 20(2), the Act.
 Section 20, the Act.
 Section 20(3), the Act.
 Paragraph 93, Explanatory Memorandum.
 Paragraph 94, Explanatory Memorandum.
 Section 22, the Act.
 Paragraph 100, Explanatory Memorandum.
 Section 31(2), the Act, which imports the powers from Part 2 of the Regulatory Powers (Standard Provisions) Act 2014.
 Section 32(1), the Act, which imports the powers from Part 3 of the Regulatory Powers (Standard Provisions) Act 2014.
 Section 30, the Act.
 Section 34, the Act.
 Section 15, the Act.
 Section 30(7), the Act.
 Section 29, the Act.
 Section 30(8) and 30(9), the Act.
 Section 16, the Act.
 See https://consult.industry.gov.au/small-business/payment-times-reporting-rules/.
 Section 37, the Act.
 Page 37, Explanatory Memorandum.
 Page 4, Explanatory Memorandum.