QLD MFR categories SC1 to Cat 7: revenue and NTA

What it is

Every QBCC contractor licensee in Queensland must meet the Minimum Financial Requirements (MFR). The MFR rules are in the QBCC (Minimum Financial Requirements) Regulation 2018. The Regulation sets nine financial categories. Each category sets a maximum revenue the licensee can earn in a financial year and a minimum net tangible asset (NTA) position the licensee must maintain to support that revenue.

For a residential builder the MFR is not a one off application form. It is an ongoing licence condition. The QBCC checks NTA and revenue annually for SC1 and SC2 licensees through an MFR declaration, and for Cat 1 to Cat 7 licensees through an MFR report prepared by an accountant. Falling below the NTA, or exceeding the maximum revenue, is a breach the QBCC can act on.

The nine financial categories

Self certifying categories (SC1 and SC2)

The two self certifying categories cover smaller licensees. They allow a streamlined MFR declaration instead of a full accountant report.

• SC1: maximum revenue up to $200,000, minimum NTA $12,000
• SC2: maximum revenue up to $800,000, minimum NTA $46,000

SC1 and SC2 licensees cannot rely on a deed of covenant and assurance to make up the NTA. Cash, debtors, plant and equipment held in the licensee entity have to do the work.

Category 1 to Category 7

Cat 1 to Cat 7 covers licensees with maximum revenue above $800,000. The categories step up in revenue bands. Each band requires a higher NTA. The headline structure is:

• Cat 1: revenue $800,001 to $3,000,000
• Cat 2: revenue up to $12,000,000
• Cat 3: revenue up to $30,000,000
• Cat 4: revenue up to $60,000,000
• Cat 5: revenue up to $120,000,000
• Cat 6: revenue up to $240,000,000
• Cat 7: revenue above $240,000,000

The NTA required in Cat 1 to Cat 7 is calculated as a percentage of the maximum revenue. A higher revenue cap requires more NTA in the licensee entity. The QBCC publishes the calculator on its website so a licensee can model up and down between revenue and NTA.

Use of deeds in Cat 1 to Cat 7

Unlike SC1 and SC2, a Cat 1 to Cat 7 licensee can rely on a deed of covenant and assurance to bring an external asset into the NTA calculation. A common structure is a director or related company giving a deed in favour of the licensee to lift its NTA.

How a licensee changes category

A licensee can apply to step up a category if revenue is growing. A licensee that downgrades has to apply formally as well. Trading above the maximum revenue without first applying to step up is a common cause of QBCC enforcement.

MFR report (Cat 1 to Cat 7)

A registered accountant prepares an MFR report. The report must be on the QBCC approved template and signed by a qualified accountant. The QBCC can request a new report at any time, especially after an audit or following a complaint.

MFR declaration (SC1 and SC2)

SC1 and SC2 licensees prepare a self declaration each year. The QBCC can ask for supporting documents and can require a full MFR report if it has concerns about the declaration.

Where TradeLens fits

TradeLens flags residential project files where the cumulative revenue across the year is tracking above the licensee category cap. The flag is preventative. A builder that crosses the cap mid year without first applying for an upgrade is exposed to QBCC action that can include licence suspension. Catching the trend in month nine is cheap. Catching it after the financial year close is expensive.

Common mistakes

• Treating maximum revenue as a soft target. It is a hard cap. Tipping over it is a breach
• Calculating NTA on the parent group when the licence is held in a subsidiary. Only the licensee entity NTA counts unless a deed is in place
• Letting plant and equipment depreciation drag NTA below the floor without realising. NTA is a live number, not a once a year number
• Submitting the MFR declaration late. Late lodgement is a separate breach with its own demerit points
• Assuming a deed of covenant and assurance from a related party is automatically accepted. The QBCC reviews the assured party balance sheet too

The MFR rules are the financial backbone of QBCC licensing in Queensland. A builder that runs the numbers monthly is much better placed than one that lets the accountant deal with it at year end.