Written by: Brett Lyndon – Pro Leaders Academy Pty Ltd
What is the Black Economy?
The Australian Tax Office (ATO) describes Black Economy as: “dishonest and criminal activities that take place outside of, or involves misuse or abuse of, the tax and regulatory systems”.
It encompasses a wide range of practices, including understatement of takings, the payment and acceptance of cash wages off-the-books, welfare fraud, sharing economy contractors not declaring their income, money-laundering, moonlighting and phoenixing (where businesses deliberately liquidate to avoid paying employees and creditors). Other terms that are used to describe this type of activity include: “the shadow economy”, “cash economy” and “underground economy.”
What has been done?
As part of the 2018-19 Budget and, in response to the Black Economy Taskforce’s Final Report, the Government announced a range of measures to tackle the black economy including a commitment that, from 1 July 2019, Australian Government procurement processes will exclude businesses that do not have a satisfactory tax record, as determined by the Australian Tax Office (ATO).
Who does this policy apply to?
- All Non-Corporate Commonwealth entities must comply with this policy;
- Corporate Commonwealth entities and Commonwealth companies are encouraged to adopt this policy; and
- This policy commences on 1 July 2019 and applies to new Approaches to Market on or after 1 July 2019 with a procurement value of over $4 million (including GST) for all goods and/or services, including construction services.
What must be done?
For Commonwealth Government procurement activities that are undertaken through open tenders, are subject to the Commonwealth Procurement Rules (CPRs) and have an estimated value of over $4 million, inclusive of GST.
Commonwealth entities must require that Tenderers:
- provide a satisfactory STR that is valid at the time of the tender closing;
- in circumstances where a satisfactory STR has not been issued in time to meet the tender deadline, provide an STR receipt, demonstrating an STR has been requested from the ATO. In this case, the tenderer must provide the satisfactory STR no later than four business days from the close of tender and before the awarding of the contract.
- hold copies of satisfactory and valid STRs for any first-tier subcontractors that the tenderer will engage to deliver goods or services with an estimated contract value of over $4 million, including GST, as part of the tender, if known at the time of submission.
- ensure, if first-tier subcontractors are subsequently engaged in respect of the contract, that the successful tenderer or prime contractor holds satisfactory and valid STRs of their first-tier subcontractors where the subcontractors estimated contract value will be over $4 million, including GST.
This policy is not intended to replace existing due diligence and checks that procurement officers already undertake, including those required under paragraph 6.7 of the Commonwealth Procurement Rules (CPRs) that relates to supplier practices that are dishonest, unethical or unsafe, and not entering into contracts with Tenderers who have had a judicial decision against them (not including decisions under appeal) relating to employee entitlements, and those who have not satisfied any resulting order.
What is a Statement of Tax Record (STR)?
A Statement of Tax Record, or STR, is a statement from the ATO that shows a business entity has satisfactorily engagement with the tax system. The information in the STR is a combination of information from the ATO and from the business’ self-assessment, and is deemed satisfactory if their registration requirements is current, they have lodge at least 90% of their taxable obligations such as tax returns, business activity statements, and fringe benefits tax returns in the last four years of operation from the date of the STR request, and there are no outstanding undisputed debt of more than $10,000. The STR is based on limited criteria designed to be used for this PCP and includes a statement indicating whether or not the business’ tax record is satisfactory, based on the conditions outlined in documents supporting this policy.
An applicant with an unsatisfactory STR will be provided with supporting reasons on its ‘Statement of Tax Record – Taxpayer Report’. The ATO can be contacted to assist in taking corrective action where possible.
In relations to its use in a tender submissions:
- An STR (or STR receipt) must be included with a tender submission when the tender request document indicates it is required. The STR is available on request from the ATO and will be provided within four business days from application.
- A satisfactory STR is not evidence of financial viability.
- STRs are valid for twelve (12) months from the time of issue. Applicants that do not hold an Australian tax record with the ATO of at least four years will receive STRs that are valid for only six months.
- The STR will include disclaimers including that the Commonwealth and its contractors should undertake a range of ordinary due diligence measures even if the STR is satisfactory. This will ensure that the STR itself is not seen as a document that certifies that no other checks are required.
For more information about the application of this policy to new and foreign tenderers, subcontractors, panel arrangements and other business arrangements can be found on the Treasury website.
Roles and Responsibilities
- Tenderers and Suppliers:
- Provide satisfactory and valid STRs to the relevant Commonwealth entity when submitting tender documents, where tender request documentation requires it or providing a STR receipt if a STR has been requested but not issued in time to meet the tender deadline.
- Maintain a satisfactory STR and provide an updated STR, if required in the contract terms, during the life of the contract. This includes collecting and maintaining satisfactory STRs of relevant subcontractors engaged by the tenderer according to the contract terms and during the course of the contract with the Commonwealth entity. Such records must be made available to the Commonwealth entity on request.
- Commonwealth Entities and Officials:
- Ensure Approach to Market documents for procurement with a value of over $4 million (inclusive of GST) include the requirement that Tenderers must submit an STR or an STR receipt as part of their tender.
- Only accept tenders that are accompanied by a valid and satisfactory STR or an STR receipt followed by a valid and satisfactory STR within four businesses days of close of tender.
- Retain submitted satisfactory STRs.
- Report de-identified information to the Department of the Treasury in relation to performance indicators as indicated in the accountability and transparency table as required.
The information provided in this article is a summary of the “Procurement connected policy guidelines” (dated November 2018) by the Department of the Treasury.