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  • Property and Construction Forum key messages 17 April 2019


    John Ford, Deputy Commissioner, Private Wealth ATO opened the forum by welcoming the members, thanking them for their time and hoping that the forum is of value to them.

    Challenges facing Meriton and the industry

    James Sialepis, Director Meriton and Glenn Williams

    James and Glenn talked primarily about the Sydney residential market. They were positive about the outlook for the industry but expressed concern about negative media coverage, reduced consumer interest and market confidence.

    The following factors are influencing the market:

    • Purchase incentives including discounts
    • Barriers to foreign investment
    • Negative consumer sentiment
    • Tightening of credit practices following the Banking Royal Commission
    • Meriton have adapted to the market conditions by retaining apartments, rezoning land for alternative usage and investing in higher yield arrangements.
    • James and Glenn recommended a 'whole of government' approach to tax on property development.
    • James later added that 'We have seen an improvement in market conditions since the fed elections coupled with APRA relaxing their stance on the banks'.

    ATO Head Contractor Project update

    Scott Walker, Director Private Wealth, and Suzi Robertson, Technical Officer Private Wealth

    The project to date has been concentrating on Tier-one Head Contractors (>1000 subcontractors) and we have completed a number of visits. The project will be extended to Tier-two Head Contractors in the future.

    Security of payments Queensland

    Cameron Crichton, Partner Financial Advisory, Restructuring Grant Thornton

    Cameron outlined the practical application and consequences of the Building Industry Fairness (Security of Payment) Act 2017External Link.

    The Act introduces an obligation on Contractors involved in commercial contracts to quarantine funds in project bank accounts as well as enforcing a number of other important reforms.

    Until now, Head Contractors have been able to use subcontractor retention monies as a working facility to fund wages, overheads and even subcontractor payments. As those funds now need to be paid into a trust fund, contractors will need to find new fund sources to pay subcontractor liabilities. Retention amounts can be substantial.

    Cameron advised that Head contractors need to prepare by:

    • ERP optimisation (project based monthly financial reporting)
    • Good contract administration
    • Alignment of upstream and downstream contract billing
    • Budgeting
    • Employing more administrative staff
    • Managing working capital

    GST at Settlement implementation

    Loretta Bishop-Spalding, Director GST Risk and Strategy

    GST at Settlement applies from 1 July 2018 to land contracts on new residential premises or potential residential land. Purchasers now have an obligation to forward the GST component of the sale price directly to the ATO rather than to the supplier.

    Loretta reported that up to March 2019:

    • 27,200 transactions processed by the ATO
    • Approximately 24,600 payments received
    • Payments of approximately $860m withheld and remitted

    Current ATO concerns include:

    • Vendors attempting to lodge forms on behalf of purchasers or acting as purchaser's representative
    • Vendors instructing purchasers to send less than the appropriate amount of GST to the ATO
    • Representatives of purchasers refusing to meet lodgement obligations
    • Metricon shared their implementation issues and Loretta undertook to work with them to resolve those issues. Visit undertaken with Metricon in May 2019.

    Trends in Building and Construction liquidation

    Joe Zubcic, Senior Manager Small Business Compliance and Deterrence ASIC

    Joe provided a picture using statistics publicly available on the ASIC websiteExternal Link.

    Those statistics were derived from information provided by insolvency practitioners assigned to companies meeting ASIC reporting requirements.

    During the 2017–18 financial year, there were:

    • 7,613 companies placed in external administration
    • Of those, 1,642 were in the construction industry – 21.5% of all companies in external administration

    While the number of companies that enter external administration may vary year on year, the number of construction companies entering external administration over the past 4 years has remained relatively steady at around 21% of all corporate insolvencies.

    When Joe analysed the 5 years before this period – the financial years between 2009–10 to 2013–14 – the number of construction companies entering external administration has declined from 24% in the 2009–10 financial year to 22% in the 2014–15 financial year - and is now at 21%. So, the trend is heading down – not up as often thought.

    The latest ABS figures report 2,313,291 actively trading businesses in Australia – of which 383,326 businesses operate in the construction industry – around 16.5%.

    Consequently, the number of construction companies entering external administration is disproportionately higher than the number of companies operating in construction industry.

    Reported main reasons for failure:

    • Inadequate cash flow or high cash use
    • Poor strategic management of business, and
    • Poor financial control, including a lack of books and records.

    This is consistent year on year.

    Other important facts from the statistics:

    • Most administrations involved small business with less than 5 employees – with majority likely to be sole traders
    • Bigger States have the largest proportion of company failures, however as a percentage of corporate failures on a State basis, the small States have a higher percentage of corporate failures
    • Most of the corporate failures owe money to unsecured creditors – rather than secured creditors
    • While employees were affected, outstanding statutory debts was the biggest liability owed by the failed company, and
    • Aside from insolvent trading, breaches of the director duties was the main offence reported by insolvency practitioners.

    Education support

    Eileen Eaton, Director Small Business Education, Prevention and Support

    The ATO support small business practical educational resources.

    We currently deliver a range of products to Small Business, advisors and industry associations.

    A pilot with the Master Plumbers Association (QLD) has co-designed a tailored education program to suit their members.

    Our intent is to enable Small Business owners to work with their advisor and ask informed questions to make informed decisions about their business. Refer to Supporting your small business.

    Case law and valuations

    Carlos Barros, Senior Associate Commercial Macpherson Kelley

    Resource Capital Fund IV LP v Commissioner of Taxation

    [2018] FCA 41 - Fedcourt - Federal Court of AustraliaExternal Link

    The shares in Talison Lithium were not TARP. The expert evidence of RCF IV and V which utilised a netback method for valuation was preferred. The value of the TARP did not exceed the non-TARP assets of Talison Lithium. However, some aspects of the valuation required recalculation and the proceedings were relisted.

    The valuation method preferred by the court was based on a hypothetical legal construct of the businesses of a single entity. Effectively, the legal framework was used to value a single operation (extraction of industry grade lithium) as two hypothetical operations (mining) and (processing) and resulted in the valuation subject matter adopted by the ATO considered not applicable (rather than inaccurate).

    FC of T v Miley 2017 ATC 20-640External Link

    Amongst other things, Wigney J considered that a single special purchaser was relevant to determining the market value of an asset.

    This is inconsistent with the current ATO market valuation guidelines or IVS industry guidelines which, broadly, require several purchasers offering a premium value before their offers are considered relevant to market valuation analysis.

    Also, the decision referred the matter of the value of a trade restraint clause in a sale of shares contract to the AAT. This is relevant in future cases for determining what is the actual value of the asset sold versus other rights disposed of in a contract.

    Action item update

    Action item

    1. Anita Challen Director Debt to contact Cameron Crichton (Grant Thornton).
    2. Loretta Bishop-Spalding to contact Yvonne Fell, Meriton to discuss GST at Settlement implementation issues.
    3. Eileen Eaton to contact Keith Ryan, HIA to discuss education programs.

    Due date

    Next forum October 2019.


    Parties mentioned above.


    Attendees are listed below.




    Katie Welsh (Chair)


    Keiron Galloway (Secretariat)


    Anita Challen


    Claudio Borrillo


    Eileen Eaton


    John Ford


    Loretta Bishop-Spalding


    Maurice Manno


    Scott Walker


    Suzi Robertson


    Jill Jepson


    Ben Holland


    Joe Zubcic

    Grant Thornton

    Cameron Crichton


    Keith Ryan

    Macpherson Kelley

    Carlos Barros


    Shane Garrett


    James Sialepis


    Glenn Williams


    Yvonne Fell


    Eli Braggins


    Apologies are listed below.




    Tim Dyce

    Chartered Accountants Australia and New Zealand

    Michael Croker


    Kelly Wong


    Michelle LeRoux

      Last modified: 05 Sep 2019QC 60068