Introductory Info

Date introduced: 13 May 2020
House: House of Representatives
Portfolio: Employment, Skills, Small and Family Business
Commencement: As set out in the body of this Bills Digest.

Purpose of the Bills

This Bills Digest relates to two Bills. The purpose of the Payment Times Reporting Bill 2020 (the Reporting Bill) is to provide the legislative framework for the Payment Times Reporting Scheme. The purpose of the Payment Times Reporting (Consequential Amendments) Bill 2020 (Consequential Amendments Bill) is to amend the Taxation Administration Act 1953 to enable the Commissioner of Taxation to disclose certain tax information to the Payment Times Reporting Regulator for the purpose of administering the Scheme.

Structure of the Bills

The Reporting Bill has five Parts:

• Part 1 sets out preliminary matters, including key definitions
• Part 2 is about reporting payment times
• Part 3 establishes the Payment Times Reporting Regulator
• Part 4 contains compliance and enforcement provisions which apply the Regulatory Powers (Standard Provisions) Act 2014
• Part 5 relates to protected information and
• Part 6 contains miscellaneous provisions including a rule-making provision.

The Consequential Amendments Bill has two Parts:

• Part 1 contains general amendments to the Tax Administration Act and
• Part 2 sets out contingent amendments to the Payment Times Reporting Act (when enacted).

Commencement of the Bills

All of the provisions of the Reporting Bill commence on 1 January 2021 provided that Royal Assent is before that date. Otherwise, the provisions commence on the first 1 January or 1 July to occur after Royal Assent.

Sections 1–3 of the Consequential Amendments Bill commence on Royal Assent. The provisions in Part 1 of the Consequential Amendments Bill commence at the same time as the Payment Times Reporting Act 2020 commences. However, the provisions in Part 1 do not commence at all if that Act does not commence.

The provisions in Part 2 of the Consequential Amendments Bill commence on the later of:

• immediately after the commencement of the Payment Times Reporting Act 2020 and
• the commencement of the Federal Circuit and Family Court of Australia Act 2020.[1]

However, the provisions of Part 2 of the Consequential Amendments Bill do not commence at all unless both of the events set out above occur.

Background

The problem of late payments

The problems arising from late payment by big business to its suppliers is not new. In November 2016, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), together with the Council of Small Business Australia, the Australian Institute of Credit Management and the Institute of Public Accountants, in partnership with the Small Business Commissioners in New South Wales, Victoria, South Australia and Western Australia, commenced a self-initiated inquiry to examine payment times and practices in Australia.[2]

In April 2017, the ASBFEO issued the final report of the Payment Times and Practices Inquiry[3] which had been carried out by that office (ASBFEO Report).[4] The report identified two issues affecting businesses of all sizes being:

• late payment times: getting paid beyond the agreed time in the contract and
• extended payment terms: payment times beyond usual industry standards.[5]

The ASBFEO Report sets out the nature of the problem as follows:

Both of these issues are related to trade credit terms agreed between businesses when conducting business. Trade credit is the practice of supplying goods and services to businesses or individuals with payment at an agreed later date.

Late payments have been a perennial problem for businesses in Australia ... Late payments affect cash flow of the business owed the outstanding debt, forcing them to find ways to finance the short fall in their working capital instead of being paid on time and using the cash flow to grow their business. A lack of cash flow is the leading cause of business insolvency and this underscores the importance of the issue of late payments which can easily put many businesses out of operation.

Against the backdrop of late payments, there has been a growing trend in payment practices, particularly amongst large Australian and multinational businesses, to extend payment times. The growth in extended payment times is partly linked to the practices of multinational businesses who apply global policies to improve their working capital efficiency. Extending payment times for suppliers effectively uses the businesses in the supply chain as a cheap form of finance.

The growing trend for extended payment times impacts the economy in two ways. Firstly, it slows down the flow of cash through supply chains which limits the growth of businesses as they have more capital tied up in financing their operations and secondly it raises costs for businesses which are financing longer trade credit to their customers.[6]

Amongst other things, the ASBFEO Report recommended establishing a National Payment Transparency Register to publish businesses payment times and practices rated against a benchmark for good and bad performers.[7] Whilst that Register was established in December 2017, the Regulatory Impact Statement suggests:

[that it] demonstrates voluntary reporting is likely not a viable [option] to drive widespread improvement in practice.

... only 29 large firms had signed-up to the ASBFEO register by mid-2019. Firms that have registered were already good performers, with all but four of the signatories paying within 30 days. This highlights a second issue with voluntary measures, which is that they are more likely to be taken up by good actors. This means the firms with the poorest practices do not improve.[8]

Government commitment

Following the publication of the ASBFEO Report, the Prime Minister, Scott Morrison, announced on 21 November 2018, the Government’s objective to improve payment times from large to small business.[9] In the lead-up to the 2019 Federal Election, the Coalition committed to ‘ensuring small businesses are not used as a bank by requiring large businesses with a turnover of over $100 million and government agencies to publish their payment information’.[10]

Consultation

The Department of Education, Skills and Employment circulated a discussion paper in February 2019 seeking input from stakeholders about the design of the Payment Times Reporting Framework.[11] The Department of Industry, Science, Energy and Resources circulated a consultation paper and exposure draft of the proposed Payment Times Reporting Bill on 21 February 2020.[12]

Supply chain financing

Payment of invoices

Generally speaking, when a company orders goods from a supplier, the supplier delivers them and issues an invoice with a due day, such as 30 days’ time. The company pays the supplier within the specified 30 days.[13] If the debt is not paid then, depending on the terms of the invoice agreed to between the supplier and debtor, late fees or interest can accrue and ultimately legal action can be taken to forcibly recover the unpaid amount. 

Alternative method—factoring

Factoring is defined as buying goods for resale without further processing. Debt factoring is buying debts due from another business’ customers and collecting them.[14]

Suppliers who have delivered their goods but want to get paid earlier than the agreed time for payment have the option of factoring—that is, approach a bank and selling 80 per cent of the invoice (typically the maximum the bank is prepared to buy) before the due date. The bank later collects the invoice payment.[15] In this case the supplier (willingly) forgoes their entitlement to the face value of the invoice for a smaller amount of assured revenue. That is, the discount in forgone revenue is the price paid by the supplier for timely cash flow.

Alternative method—supply chain financing

Another option arises where big debtor companies (with the help of banks and financiers) take the initiative and suggest payment options to their suppliers. One such option is supply chain financing (also known as reverse factoring). It occurs when a finance company, such as a bank, interposes itself between a company and its suppliers and commits to pay the company’s invoices to the suppliers at an accelerated rate in exchange for a discount (usually smaller than that in traditional factoring).[16] The earlier a supplier wants to be paid for an invoice provided to one of its debtors, the bigger the discount it must offer and the bigger the fees it must pay.

Advantages for the debtor and supplier companies

Reverse factoring has the following benefits for the debtor company that is paying its suppliers:

• the debtor company can foster very close links with its core group of suppliers, since this can be a major benefit to them in terms of accelerated cash flow
• the debtor company no longer has to deal with requests from suppliers for ‘early’ payment, since they are already being paid as soon as possible,[17] at a period they selected themselves (noting suppliers are charged discounts and/or other fees for ‘early’ payment) and
• the debtor company can seek to extend payment times for its suppliers that don’t enter into reverse factoring arrangements and therefore exert greater control over its cash flow.[18]

Reverse factoring has the following benefits for suppliers:

• a cash-strapped supplier can be paid much sooner than normal, in exchange for the finance company’s fee and the discount (forgone revenue) provided
• the interest rate charged by the finance company should be low, since it is based on the credit standing of the paying (debtor) company, not the credit rating of the suppliers.[19]

Problems for suppliers

It has been reported:

Supply chain financing, sometimes referred to as ‘‘reverse factoring’’ or factoring of payables, has exploded in popularity. But it has also attracted controversy because accounting rules don’t require companies to disclose its use, and questions have been raised about whether suppliers are being forced to accept unfavourable terms in the form of discounted payments.[20]

Concern over the increasing use of supply chain financing is rising globally. There are reports that suppliers that seek to rely on the traditional payment of invoices by debtors are, as a matter of practicality, being forced to accept longer payment terms and therefore are receiving payment later than under previous arrangements.

Review by the ASBFEO

From that perspective it may be that suppliers are faced with entering into reverse factoring agreements in order to get paid within 30 days—the usual terms of trade. Under such an arrangement suppliers are forced to offer discounts for supposed ‘early’ payment—even though the ‘early’ payment offered is no more than what was previously normal terms of trade. That being the case, in October 2019 Kate Carnell, Australian Small Business and Family Enterprise Ombudsman, announced a review into the impact of supply chain financing on the small business and family enterprise sector.[21]

The final report of the Supply Chain Finance Review was released in March 2020.[22] In the forward to the report, Ms Carnell states:

I have been extremely disappointed to receive numerous reports of large businesses extending payment times, or even suspending payments to small businesses in a time of significant pressure for the business community. These businesses, many of which have turnover in the hundreds of millions of dollars per year, are pushing the pain felt by the current economic climate on to small suppliers who can least afford it. There is no doubt that this behaviour by large players will not pass the pub test. Those that do this should be on notice that behaviours that damage their small business suppliers will, in the end, damage them too.[23]

Committee consideration

Senate Standing Committee for Selection of Bills

At its meeting of 13 May 2020, the Senate Standing Committee for the Selection of Bills deferred consideration of the Bills.[24]

Senate Standing Committee for the Scrutiny of Bills

At the time of writing this Bills Digest the Senate Standing Committee for the Scrutiny of Bills had not commented on the Bills.

Policy position of non-government parties/independents

Shadow Minister for Small and Family Business, Brendan O’Connor, has reportedly called for the Minister for Employment, Skills, Small and Family Business, Senator Michaelia Cash, to hold a roundtable on the Bills, given small business concerns on the approach taken, particularly ‘the extensive use of delegated legislation’ to set out the details of the scheme’s operation.[25] Mr O’Connor expressed concern that the rules that the Minister is empowered to make had not been released and that ‘the government appears to be seeking the parliament’s passage of the enabling legislation without any assurance that the Minister’s Rules are adequate’.[26] Another area of concern for Mr O’Connor was the perceived failure of the Bill to deal adequately with supply chain financing:

Of significant concern to many small businesses is that the legislation does not adequately deal with the use of [supply chain financing] SCF. I note that a passing, non-defined reference to SCF had been added to the legislation but this only serves to emphasise that SCF ‘may’ be addressed in the Minister’s Rules.[27]

Other non-government parties and independents have not publicly stated their positions on the Bills as at the date of this Digest.

Position of major interest groups

In a submission to the then Department of Jobs and Small Business on its February 2019 discussion paper, the Australian Chamber of Commerce and Industry (ACCI) stated that it supported the ‘aim of getting big business to pay small business as quickly as possible’ but was concerned with how a payment times reporting framework could be ‘effectively and efficiently achieved’.[28] In particular, the ACCI was worried that the framework would be overly complex and result in ‘burdensome red tape’ for business. The ACCI was concerned that the inclusion of businesses with total income of more than $100 million will ‘capture a substantial number of medium-sized businesses, extending the economic drag of red tape burden’.[29] To address this concern, the ACCI suggested that only the largest businesses (those with annual turnover of more than $250 million) should be captured by the reporting framework, or that it be phased in by company size over a number of years.[30]

In a submission to the Department of Industry, Science, Energy and Resources on the consultation paper and exposure draft of the Bill released in February 2020, Chartered Accountants Australia and New Zealand (CAANZ) and CPA Australia expressed concern about how ‘small business’ will be defined.[31] The term is not defined in the Reporting Bill, but will instead be set out in the rules to be made by the Minister. CAANZ and CPA Australia stated that they ‘remain firmly of the view that key legislative concepts, such as the definition of small business, should be contained in legislation not rules’.[32]

Trent Innes, Managing Director of Xero Australia, which facilitated a report on the economic impact of big businesses paying Australian small businesses late,[33] has welcomed the Bills:

Xero’s 2019 report on late payments estimates that half of all invoices issued by small business to big business are paid late. Big businesses pay $115 billion late to small businesses each year with payments arriving 23 days past their due date on average. Changing this behaviour will have enormous benefits for small businesses and the broader economy.

As Australia’s economy begins to recover from the fallout of the COVID-19, it will be more important than ever that businesses are being paid on time to boost their confidence to invest and employ.

Additionally, following the commitment of government to move towards e-invoicing and five day payment terms for invoices under $1 million from January 2020, there should be no reason why big business can’t follow suit.

In providing greater visibility, the Payment Times Reporting Framework will ultimately inform whether industry-led solutions are working or if further legislation will be required.[34]

The Bills have also been welcomed by the Institute of Public Accountants, which considers that they ‘will go a long way to help small businesses that are struggling with cash flow issues’.[35]

The Australian Trucking Association (ATA) welcomed the Bills, noting that over 98 per cent of trucking operators are owner-operators or small businesses, but considered that the Bills do not go far enough, and urged the Government to ‘include all business to business transactions in mandatory payment terms legislation, with the statutory time period set at 20 days’.[36]

Financial implications

According to the Explanatory Memorandum for the Bills, the financial impact for the Government will be ‘$10.0 million over four years from 2019-20 (including $3.4 million in capital funding), $2.6 million in 2023-24 and $2.4 million per year ongoing from 2024-25’.[37]

The measures in the Bills ‘will increase compliance costs for reporting entities by an average of $22.5 million per year, on an annualised basis’.[38]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[39]

Parliamentary Joint Committee on Human Rights

At the time of writing this Bills Digest the Parliamentary Joint Committee on Human Rights had not commented on the Bills.

Key issues and provisions

Establishing the Payment Times Reporting Regulator

Clause 24 of the Reporting Bill establishes the position of the Payment Times Reporting Regulator (the Regulator). The Secretary of the Department is required to designate a position within the Department as the Regulator, in writing.[40] The Regulator is the SES employee who occupies, or the acting SES employee who is acting in, that position.[41]

The Regulator is empowered to carry out the following functions:

• to administer the Payment Times Reporting Act (when enacted)
• to undertake functions conferred by the Payment Times Reporting Act
• to monitor and enforce compliance with Payment Times Reporting Act
• to undertake any other function prescribed by the rules
• to undertake any other function conferred by any other law of the Commonwealth
• to advise the Minister about matters relating to any of the functions set out above and
• to do anything incidental or conducive to the performance of any of the preceding functions.[42]

The Regulator may delegate some but not all of his, or her powers under the Payment Times Reporting Act. The functions of appointing authorised officers and infringement officers, under clauses 35 and 36, may not be delegated.[43] The following functions may only be delegated to an SES employee, or acting SES employee:

• determining that an entity has ceased to be a reporting entity (subclause 7(3))
• allowing an entity additional time in which to give a payment times report (subclause 13(4))
• publishing information about failure to comply with the Act (subclause 22(1)) and
• requiring a reporting entity to arrange an audit (subclause 30(2)).[44]

The Regulator’s other functions or powers may be delegated to either an SES employee or a person holding an Executive Level 2 position in the Department, or a person acting in one of those positions.[45] In performing a delegated function or exercising a delegated power, the delegate must comply with any written directions of the Regulator.[46]

Establishing the Payment Times Reports Register

Clause 17 of the Reporting Bill requires the Regulator to maintain the Payment Times Reports Register (the Register) which must be available for public inspection, without cost, on the internet.

Who must report

Income test to be applied

Subclause 7(2) of the Reporting Bill is directed toward an entity that carries on an enterprise[47] in Australia, is not registered under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act) and to which any one of the following applies:

• the total income for the entity for the most recent income year for the entity was more than $100 million
• if the entity is a controlling corporation—the combined total income for all members of the controlling corporation’s group for the most recent income year for the controlling corporation was more than $100 million or
• if the entity is a member of the group of a controlling corporation where the group’s income for the most recent income year was more than $100 million—the total income for the entity for the most recent income year for the entity was at least $10 million.

Becoming a reporting entity

Under subclause 7(1) of the Reporting Bill a constitutionally covered entity becomes a reporting entity at the start of an income year (the relevant income year) for the entity, if it is an entity with a total income as identified above.

In the alternative, a volunteering entity may, before the start of the relevant income year, give the Regulator notice in writing that it elects to become a reporting entity at the start of that income year.[49]

What is to be reported

Clause 12 of the Reporting Bill states that a reporting entity must give the Regulator a payment times report for each reporting period for the entity. Clause 8 of the Reporting Bill defines a reporting period as the first six months of each income year in which the entity is a reporting entity and the remainder of each such income year.

Subclause 14(1) of the Reporting Bill lists those matters which must be reported to the Regulator. Amongst other things, the report must:

• state the reporting period to which it relates
• state the shortest and longest standard payment periods (as prescribed by the rules[50]) for the entity at the start of the reporting period and the details of any changes to those standard payment periods during that period
• state the proportion, determined by total number and total value, of small business invoices[51] paid by the entity during the reporting period in accordance with each of the following:
  • less than 21 days after the invoice was issued
  • between 21 and 30 days after the invoice was issued
  • between 31 and 60 days after the invoice was issued and
  • more than 60 days after the invoice was issued.[52]

The details of the principal governing body of the entity must also be contained in the payment times report. This refers to the body, or group of members of the entity, with primary responsibility for its governance or such other body which is prescribed by the rules. By way of example if the entity is a company, the principal governing body is the company’s board of directors.[53]

Where the entity is a member of a controlling corporation’s group—the controlling corporation is to be identified in the payment times report. A controlling corporation is an entity that is incorporated in Australia and is not a subsidiary of another body corporate that is incorporated in Australia.[54]

The Reporting Bill requires that a responsible member of an entity makes a declaration in the payment times report that the report will be provided to its principal governing body.[55] This is a reference to:

• an individual member of the entity’s principal governing body who is authorised to sign payment times reports
• the trustee of a trust administered by a sole trustee
• the person constituting a corporation sole
• the administrator of a corporation under administration within the meaning of the Corporations Act 2001
• the member of any type entity that is prescribed by the rules.[56]

The payment times report must also detail any notifiable event that has occurred since the last payment times report.[57]

Finally, the payment times report must include any other information or documents prescribed by the rules.[58] Subclause 14(3) provides that the relevant information or documents may relate to the entity’s payment terms or practices, including supply chain financing. If the rules require the provision of this information, it will have the effect of identifying publicly those entities that engage in supply chain financing.

Key issue—what is a small business

The Reporting Bill does not define the term small business. That will be left to the rules.[59] According to the Explanatory Memorandum to the Bills, ‘the Scheme will draw on a taxation legislation definition of small business as entities with annual turnover of less than $10 million’.[60] As set out above, concerns have been raised by Labor and industry stakeholders as to the appropriateness of dealing with key aspects of the payment times reporting scheme in delegated, rather than primary, legislation.[61]

When the report must be given to the Regulator

Subclause 13(1) of the Reporting Bill requires the payment times report to be given to the Regulator within three months after the end of the reporting period.

Extension of time

A reporting entity may apply in writing to the Regulator for further time to give the report.[62] In that case, the application must specify the reasons for the request and include evidence in support of the request, including any additional information which is set out in the rules.

The Regulator may grant the request if, having considered the application and any matters specified in the rules, the Regulator is satisfied that the circumstances that have resulted in the need for further time were exceptional or were outside the entity’s control. In that case, the Regulator must give the reporting entity a written notice specifying the further time within which the report is to be provided.[63]

A decision not to allow further time to give a payment times is reviewable under clause 51 of the Reporting Bill (see further information below).

Registration of payment times reports

The Regulator must maintain a register of payment times reports (the Register).[64] Each payment times report provided to the Regulator must be included in the Register.[65] However, the Regulator may decide that certain information contained in a payment times report will not be made public, if the Regulator considers that making the information public would be contrary to the public interest.[66] In making that decision the Regulator must have regard to whether the information is personal information within the meaning of the Privacy Act 1988 or is commercial-in-confidence. The Regulator must also have regard to any other matters set out in the rules.[67] Information is commercial-in-confidence if the Regulator is satisfied that:

• release of the information would cause competitive detriment to a reporting entity
• the information is not in the public domain and is not required to be disclosed under another Australian law and
• the information is not readily discoverable.[68]

The Explanatory Memorandum clarifies:

Given the objective of the Scheme, whilst its publication may cause competitive detriment, poor payment time performance or information about payment terms, are not considered commercial-in-confidence.[69]

Publication of information about failure to comply with requirements

If the Regulator is reasonably satisfied that a reporting entity has failed to comply with the legislative requirements, the Regulator may publish the identity of the entity and details of the non-compliance on the Register or in any other way that the Regulator considers appropriate.[70] The Regulator must not publish such information because of a failure by the entity before the enforcement day, which occurs 18 months after the Act commences.[71]

Before publishing such information, the Regulator must:

• give the entity notice in writing of the proposed decision and the reasons for the proposed decision
• invite the entity to make written submissions to the Regulator about the proposed decision within 28 days and
• have regard to any written submissions made by the entity within that period.[72]

A decision by the Regulator to publish information about failure to comply with the legislation is reviewable under clause 51 of the Reporting Bill (see further information below).

Ceasing to be a reporting entity

The general rule is that a reporting entity continues to be a reporting entity—and so is required to make a payment times report for a reporting period—until the Regulator determines that this is no longer the case.[73] A reporting entity may make a written application for such a determination. The application must include any information or documents which are required by the rules.[74]

The circumstances in which the Regulator must make the relevant determination are as follows:

• the Regulator is satisfied that the total income for the entity for each of the two most recent income years for the entity was not more than $100 million,[75] and if the entity is a controlling corporation or a member of a controlling corporation’s group then the Regulator is satisfied that the combined total income for all members of the controlling corporation’s group for each of the two most recent income years was not more than $100 million[76]
• the Regulator is satisfied that the entity is registered under the Australian Charities and Not-for-profits Commission Act[77] or
• the Regulator is satisfied that the entity is a volunteering entity.[78]

The determination takes effect from the start of the income year for the entity in which the determination is made.[79] A decision not to determine that an entity has ceased to be a reporting entity is reviewable under clause 51 of the Reporting Bill (see further information below).

Exception

There is an exception to the general rule. A reporting entity that is a member of a controlling corporation’s group ceases to be a reporting entity immediately after the end of an income year (the relevant income year) for the entity provided that:

• the entity is not a volunteering entity and
• the total income for the entity for the relevant income year and the income year immediately preceding the relevant income year was less than $10 million.[80]

According to the Explanatory Memorandum to the Bills:

Entities that are part of a corporate group but have total income individually of less than $10 million for two income years will not be required to seek a determination from the Regulator to cease reporting. This is designed to reduce the regulatory burden of large numbers of small entities seeking decisions from the Regulator on their reporting status.[81] [emphasis added]

Compliance and enforcement

The Regulatory Powers Act provides for a framework of standard regulatory powers exercised by agencies across the Commonwealth. It reflects the Guide to Framing Commonwealth Offences, Infringements Notices and Enforcement Powers[82] and applies to regulatory schemes which trigger its provisions through primary legislation—as the Reporting Bill does.

Civil penalties

The Reporting Bill creates a number of civil penalties that are enforceable under Part 4 of the Regulatory Powers Act.[83] These civil penalties do not apply in relation to conduct engaged in before the enforcement day, which occurs 18 months after the Act commences.[84] The Explanatory Memorandum states that this is ‘intended to allow time for reporting entities to become familiar with the Scheme without the threat of compliance and enforcement action while they are transitioning to the new arrangements’.[85]

Failure to report

A reporting entity, other than a volunteering entity, is liable to a civil penalty if the entity fails to comply with the requirements set out in clauses 12–14. The maximum civil penalty is 60 penalty units for an individual or 300 penalty units for a body corporate.[86] A reporting entity that fails to provide a report in accordance with the legislative requirements commits a separate contravention in respect of each day that the contravention occurs. That is, a separate civil penalty may be imposed for each day that the required report remains outstanding.[87] 

False or misleading information

A reporting entity, other than a volunteering entity, is also liable to a civil penalty if it provides a payment times report to the Regulator that is false or misleading in a material particular.[88] The maximum penalty is 350 penalty units for an individual,[89] or 0.6 per cent of the total income for the income year in which the contravention occurred for a body corporate. While a volunteering entity is also prohibited from giving the Regulator a payment times report that is false or misleading in a material particular, it is not subject to a civil penalty for doing so.

Failure to keep records

A reporting entity is required to keep records of any information used in the preparation of a payment times report for at least seven years after the end of the relevant reporting period.[90] The maximum penalty is 200 penalty units for an individual,[91] or 0.2 per cent of the total income for the income year in which the contravention occurred for a body corporate.[92]

Failure to comply with audit requirements

If the Regulator reasonably suspects that a reporting entity has contravened a provision of the Payment Times Reporting Act (when enacted), the Regulator may, by written notice, require the entity to appoint an auditor approved by the Regulator and arrange for the auditor to carry out an audit of the entity’s compliance with the Act, or with specified aspects of the Act. The entity must provide the Regulator with a written report setting out the results of the audit within the period specified in the notice, or a longer period as the Regulator allows.[93] The reasonable fees and expenses of the auditor for preparing the report are payable by the entity.[94] A reporting entity, other than a volunteering entity, is liable to a civil penalty for failure to comply with a notice from the Regulator requiring an audit. The maximum penalty is 60 penalty units for an individual or 300 penalty units for a body corporate.[95]

A reporting entity required by the Regulator to have an audit conducted must provide the auditor and any persons assisting the auditor with all reasonable facilities and assistance necessary for the effective exercise of the auditor’s duties.[96] Failure to do so is a breach of a civil penalty provision with a maximum penalty of 200 penalty units for an individual,[97] or 0.2 per cent of the total income for the income year in which the contravention occurred for a body corporate.[98]

The Regulator may not give a reporting entity a notice requiring the entity to arrange an audit before the enforcement day (18 months after the Act commences).[99]

Infringement notices

Clause 34 of the Reporting Bill provides that each of its civil penalty provisions is subject to an infringement notice under Part 5 of the Regulatory Powers Act.

Part 5 of the Regulatory Powers Act operates so that an infringement notice may be given if an infringement officer believes on reasonable grounds that a person has contravened a provision subject to an infringement notice. An infringement notice must be given within 12 months after the day on which the contravention is alleged to have taken place.[100]

The Regulator is an infringement officer and may also appoint an APS employee as an infringement officer if they hold or perform the duties of an Executive Level 2 position or higher and the Regulator is satisfied that they have the knowledge or experience necessary to properly exercise the powers of an infringement officer.[101] In exercising their powers, an infringement officer must comply with any directions of the Regulator.[102]

The information required to be included in an infringement notice is set out in detail in section 104 of the Regulatory Powers Act, including amongst other things:

• the day the notice is given and the name of the person to whom it is given
• the name and contact details of the person who gave the notice and brief details of the alleged contravention
• the amount that is payable under the notice and how payment may be made
• the requirement to pay the amount specified within 28 days after the day the notice and the consequences of a failure to do so—including the possibility of prosecution for a contravention of a civil penalty provision and
• an explanation that the person may choose not to pay the infringement notice amount and may instead have the matter dealt with by a court.

Under the Regulatory Powers Act, the maximum penalty that may be imposed for each contravention covered by an infringement notice is the lesser of one-fifth of the maximum penalty amount that a court could impose on the person for that contravention, and 12 penalty units for an individual or 60 penalty units for a corporation.[103]

Monitoring powers

Part 2 of the Regulatory Powers Act creates a framework for monitoring whether legislative requirements have been complied with and whether information given in compliance, or purported compliance, with legislative requirements is correct.[104] Clause 31 of the Reporting Bill applies the monitoring powers in Part 2 of the Regulatory Powers Act and provides that the following are subject to monitoring powers:

• a provision of the Payment Times Reporting Act
• an offence against the Crimes Act 1914 or the Criminal Code that relates to the Payment Times Reporting Act
• information given in compliance or purported compliance with a provision of the Payment Times Reporting Act.

However, the provisions are not subject to monitoring before the enforcement day (18 months after the Act commences).[105]

Basic monitoring powers

The relevant monitoring powers include the power in section 19 of the Regulatory Powers Act to:

• search the premises and any thing on the premises
• examine or observe any activity conducted on the premises
• inspect, examine, take measurements of or conduct tests on any thing on the premises
• make any still or moving image or any recording of the premises or any thing on the premises
• inspect any document on the premises
• take extracts from, or make copies of, any such document and
• take onto the premises such equipment and materials as the authorised person in order to exercise powers in relation to the premises.

An authorised person may exercise these powers if the occupier of the relevant premises consents to the entry or the entry is made under a monitoring warrant.[106] The Regulator and each authorised officer under the Payment Times Reporting Act is an authorised person for the purposes of Part 2 of the Regulatory Powers Act.[107] Authorised officers are appointed by the Regulator in writing under clause 35 of the Reporting Bill. A person is eligible to be appointed as an authorised officer if they are an APS employee who holds or performs the duties of an Executive Level 1 position or higher and whom the Regulator is satisfied has the knowledge or experience necessary to properly exercise the powers of an authorised officer.[108] In exercising their powers, an authorised officer must comply with any directions of the Regulator.[109]

There are additional powers in the Regulatory Powers Act which permit an authorised person to:

• operate electronic equipment on the premises, to put relevant data in documentary form and remove those documents from the premises[110]
• secure electronic equipment where an authorised person enters premises under a monitoring warrant[111]
• secure a thing for a period of 24 hours in circumstances where the thing is found during the exercise of monitoring powers on the premises and an authorised person believes on reasonable grounds that it relates to the contravention of a related provision[112] and
• to ask questions and seek production of documents once on the premises.[113]

These powers may also be exercised either with the consent of the occupier of the relevant premises or subject to a monitoring warrant.[114]

Issuing a monitoring warrant

A monitoring warrant is issued if the issuing officer[115] is satisfied that it is reasonably necessary for one or more authorised persons to have access to premises for the purpose of determining whether a provision that is subject to monitoring has been, or is being, complied with or that information subject to monitoring is correct.[116] An application for a warrant may be made by the Regulator or an authorised officer.[117]

The specific requirements of a monitoring warrant are section out in section 32 of the Regulatory Powers Act.

Investigation powers

Nature of investigation powers

Part 3 of the Regulatory Powers Act creates a framework for gathering material that relates to the contravention of offence provisions and civil penalty provisions.[118] It includes powers of entry, search and seizure.[119]

Clause 32 of the Payment Times Reporting Bill sets out the provisions that are subject to the use of investigation powers under the Regulatory Powers Act. They are:

• a civil penalty provision under the Payment Times Reporting Act or
• an offence against the Crimes Act 1914 or the Criminal Code that relates to the Payment Times Reporting Act.

However, the provisions are not subject to monitoring before the enforcement day (18 months after the Act commences).[120]

Part 3 of the Regulatory Powers Act allows the gathering of evidential material in respect of the above. Evidential material means:

• a thing with respect to which an offence provision or a civil penalty provision subject to investigation under Part 3 has been contravened or is suspected, on reasonable grounds, to have been contravened
• a thing that there are reasonable grounds for suspecting will afford evidence as to the contravention of such an offence provision or a civil penalty provision
• a thing that there are reasonable grounds for suspecting is intended to be used for the purpose of contravening such an offence provision or a civil penalty provision.[121]

The investigation powers which are imported from section 49 of the Regulatory Powers Act include the power to:

• where the occupier consents to entry—search the premises and any thing on the premises for the evidential material the authorised officer suspects on reasonable grounds may be on the premises
• where the entry is under warrant—search the premises and any thing on the premises for the kind of evidential material specified in the warrant and to seize evidential material of that kind if the authorised officer finds it on the premises
• inspect, examine, take measurements of, or conduct tests on, the evidential material
• make any still or moving image or any recording of the premises or evidential material and
• take such equipment and materials as the authorised officer requires for the purpose of exercising powers in relation to the premises.

These powers may be exercised by an authorised person. The Regulator and each authorised officer under the Payment Times Reporting Act is an authorised person for the purposes of Part 3 of the Regulatory Powers Act.[122] Authorised officers are appointed by the Regulator in writing under clause 35 of the Reporting Bill. A person is eligible to be appointed as an authorised officer if they are an APS employee who holds or performs the duties of an Executive Level 1 position or higher and whom the Regulator is satisfied has the knowledge or experience necessary to properly exercise the powers of an authorised officer.[123] In exercising their powers, an authorised officer must comply with any directions of the Regulator.[124]

There are additional powers in the Regulatory Powers Act which permit an authorised person to:

• operate electronic equipment on the premises, to put relevant data in documentary form and remove those documents from the premises[125]
• secure electronic equipment where an authorised person enters premises under an investigation warrant[126] and
• seize a thing that is not evidential material in circumstances where the evidential material is found in the execution of an investigation warrant which an authorised person believes on reasonable grounds is evidence of the contravention of a related provision.[127]

Issuing an investigation warrant

Where an authorised person suspects on reasonable grounds that there may be evidential material on any premises, he or she may enter the premises and use investigation powers so long as the occupier consents or the authorised person has an investigation warrant.[128] The provisions in Part 3 of the Regulatory Powers Act set out the requirements for applying for an investigation warrant and its contents.[129] An application for a warrant may be made by the Regulator or an authorised officer.[130]

Protected information

Part 5 of the Reporting Bill sets out how information obtained under the Payment Times Reporting Act (when enacted) may be used or disclosed and establishes an offence for unauthorised disclosure.

Information that is obtained under or in accordance with the Bill is protected information. The Bill restricts how an entrusted person may deal with information. The Secretary, the Regulator, an APS employee in the Department and any other person employed in or engaged by the Department is an entrusted person.[131] An entrusted person may only use or disclose protected information in the following circumstances:

• when performing functions or duties or exercising powers under the Payment Times Reporting Act (when enacted)[132]
• for the purposes of policy development[133]
• to a court, tribunal or coronial inquiry in accordance with an order of that body[134]
• to an enforcement body, if the entrusted person reasonably believes that the use or disclosure is reasonably necessary for, or directly related to, one or more enforcement related activities being conducted by, or on behalf of, the enforcement body[135]
• as required under an Australian law.[136]

An entrusted person may also disclose protected information to the person to whom the information relates or to the person who provided the information,[137] and may use or disclose protected information if the person to whom the information relates has expressly consented to the use or disclosure.[138]

An entrusted person commits an offence if they obtain protected information in their capacity as an entrusted person and they use or disclose the information in a way that is not authorised under the Bill.[139] The maximum penalty is two years imprisonment and/or 120 penalty units (currently $25,200). The offence does not apply to the extent that the person uses or discloses protected information in good faith and in purported compliance with a provision of the Reporting Bill. The person bears an evidential burden in relation to this matter, which means that they would need to adduce or point to evidence that suggest a reasonable possibility that the matter exists).[140]

Section 355-65 of the Taxation Administration Act 1953 allows protected taxation information to be provided by a taxation officer to another entity for specified government purposes. Clause 1 of the Consequential Amendments Bill amends the table at subsection 365-65(8) of the Taxation Administration Act to allow disclosure of information relating to whether an entity is a reporting entity within the meaning of the Reporting Bill to the Regulator, for the purpose of enabling the Regulator to administer the Payment Times Reporting Act. Information may be disclosed to the Regulator after commencement of the Payment Times Reporting Act, whether the information was obtained before, at or after that time.[141]

Review of decisions

Clause 51 of the Reporting Bill provides that the following decisions by the Regulator (or a delegate) are reviewable:

• a decision not to determine that an entity has ceased to be a reporting entity, under subclause 7(3)
• a decision not to allow further time to give a payment times report, under subclause 13(4)
• a decision to publish the identity of an entity or details of non-compliance, under subclause 22(1).

A person whose interests are affected by a reviewable decision may apply in writing to the Regulator for a reconsideration of the decision, within 14 days of being notified of the decision.[142] On receiving an application, the Regulator must either personally reconsider the decision or cause the decision to be reconsidered by a delegate who was not involved in making the original decision and who occupies a position that is at least the same level as the person who made the original decision.[143] The person who reconsiders the decision is the internal decision reviewer.

After reconsidering the decision the internal decision reviewer must either affirm the decision, vary the decision, or set the decision aside and substitute a new decision.[144] The internal decision reviewer must give written notice of the reconsideration decision to the applicant, and give a copy of the notice to the Secretary.[145]

Applications may be made to the Administrative Appeals Tribunal (AAT) for review of a reconsideration decision of an internal reviewer.[146] (That is, the internal review process must be utilised before a person can seek review from the AAT.)

Protection against civil liability

Clause 57 of the Reporting Bill provides that no action for defamation, breach of confidence or infringement of copyright lies against the Commonwealth, the Regulator, a delegate, or an APS employee in the Department who has been made available to assist the Regulator, for or in relation to an act done or omitted to be done in good faith in the performance of functions or the exercise of powers, under the Reporting Bill. The Explanatory Memorandum explains:

This is necessary because there are specific risks under this Act that actions done in compliance with the Act could be perceived as, for example, defamatory. For example, publication of non-compliance information under section 19, or publication of payment times reporting information that could be perceived as reflecting poorly on a reporting entity. This provision makes it clear that those who act in good faith in administering this Act are protected from these kinds of legal proceedings.[147]