NTAs are significant because an entity's NTAs are used to
calculate an entity's Maximum Revenue ie the maximum amount of
revenue that an entity is entitled to earn in a financial year
(whether from construction related activities or not).
Put simply, the more revenue an entity wishes to earn, the more
NTAs it will need to possess.
Seems simple, so what are the traps?
Firstly, working out an entity's NTAs can be a tricky
exercise. In our experience, people sometimes overvalue their
assets or cannot substantiate the values which they have ascribed
to different assets. Sometimes, people (who have not obtained
proper financial/legal advice) will mistakenly include
'disallowed assets' (such as jet skis and collectables) in
their NTAs . In some cases, it may not immediately be clear how a
potential asset or liability is to be treated, for example, trust
assets are Disallowed Assets. Thus, if a business is run through a
trust with a corporate trustee, who actually owns the tools that
are used in the business the tradesperson, the corporate trustee or
Entities should obtain appropriate financial and legal advice
when it comes to calculating an entity's NTAs.
Secondly, it is a requirement of the Policy that an entity's
NTAs do not decrease by more than 30% from the last financial year
unless the entity advises the Queensland Building and Construction
Commission (Commission) of this fact within 30
days of the decrease occurring. The failure to notify the
Commission represents a breach of a condition of entity's
licence, which can lead to suspension or cancellation of the
licence (and/or other forms of disciplinary action).
Only constant financial monitoring will ensure that an entity is
able to identify and report any decrease in its NTAs position in a
timely way. This is especially so where an entity's NTAs are
being bolstered by a Deed of Covenant and Assurance, because a
convenantor may only assure an amount which is based on their own
Net Real Unencumbered Assets (effectively this requires an
assessment of the convenantor's personal NTAs).
Thirdly, a reduction in an entity's NTAs will lead to a
reduction in its Maximum Revenue (and thus the amount of work which
an entity can perform).
Often we find that 'southern' construction companies who
wish to enter the Queensland market struggle to marshall sufficient
NTAs in order to cover their 'Australia-wide' revenue. As
such, it is common for such companies to incorporate a
'Queensland only' entity which limits their revenue (in
turn requiring less NTAs than might be case if they were trading
through an 'Australia-wide' entity).
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Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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