What are Net Tangible Assets?
BSA's Financial Requirements for Licensing policy s2.4 provides information about Net Tangible Assets. Net Tangible Assets are calculated using the formula [Entity's Assets] - [Entity's Liabilities] - [Entity's Intangible Assets].
A licensee has the assets to meet a higher category but only wants to do a low turnover – which category will the licensee be placed in?
The Net Tangible Assets figure stated in the Independent Review Report or Audit Report will determine what Category the licensee falls into for the minimum financial monitoring requirement. An Accountant completing the Report may restrict the Licensee's turnover to the category required by stating the NTA as only the amount required for the level of turnover being sought.
Example - Licensee has $250,000 net assets in his own right. This would provide an Allowable Annual Turnover of more than $5.6million. The Licensee only wants an AATO of $600,000 pa. This requires an NTA of at least $36,000. The Accountant can restrict the AATO to $600,000 by stating only $36,000 NTA in the Report to cap the AATO to this level.
Due to losses or goodwill, a licensee has a deficit (negative) NTA. Can they rely on a Deed to also cover the deficit?
New applicants and existing licensees must not have an NTA position (in their own right) of less than $0. A Deed is available for use, but only for positive amounts. No applicant or licensee will be able to hold a licence if they have a deficit or negative NTA in their own right. It must be not less than $0.
Deeds will continue to be able to be used to allow Licensees to meet the positive NTA requirement. They will NOT cover any deficit amounts.
BSA's Financial Requirements for Licensing policy s2.4.1 provides specific information on negative Net Tangible Assets.
What are the Net Tangible Assets of a trustee company?
BSA does not include trust assets and liabilities in the calculation of NTA. Where the licensee is a trustee company, the NTA should be the NTA of the trustee, exclusive of the trust. In most cases, the NTA of a trustee company will only be a nominal amount ($2.00) representing the issued share capital of the company.
There are three reasons why BSA does not include trust assets and liabilities. These are:
If the Balance Sheet of the trustee company (as opposed to the Balance Sheet of the Trust) was to show trust liabilities, then the amount of the trustee’s indemnity shown as an asset will only ever equal the amount of the liabilities and therefore these two figures will cancel each other out.
A trustee is entitled to rely upon an indemnity from the trust assets. The trustee will only be able to rely upon the indemnity where the trustee acts in accordance with the terms of the Trust Deed. Where the trustee acts outside the terms of the Trust Deed the trustee loses his right to the indemnity.
An entity's "Assets" is defined as those assets owned both legally and beneficially by the entity. Assets held on trust for another person or corporation does not fall within this definition.
Can I include the assets of the partnership in determining a licensee's Net Tangible Assets?
No - The NTA is based on the license in their own right, in combination with any Deeds being provided. However a licensee may include their personal EQUITY (OR LOSS) of the partnership in determining the NTA for themselves.
Example - If the partnership equity is $10,000 and the licensee has a 40% share within the partnership - then equity of $4,000 may be included as a personal asset in the Licensee's NTA.
Can office furniture, as opposed to personal/residential furniture be taken into account in calculating a licensee’s NTA?
Yes.
Can an individual licensee include assets owned jointly in his and his spouses name in the calculation of his NTA?
The licensee’s proportionate equity share of any jointly owned assets can be counted towards his NTA.
Should loans to a company licensee from a shareholder be included as liabilities of the company?
Yes - Even though the money is owed to a shareholder of the licensee, it is still a liability of the company that must be taken into account. All liabilities must be taken into account, regardless of whether they are owed to a related party or not.
The licensee company owns shares in a subsidiary company which is not a publicly listed company. Are those shares a Related Entity Loan or Investment that can be counted towards NTA, or are they excluded because they're not shares of a listed company?
The shares cannot be counted towards NTA. Only shares in public listed companies can be counted towards NTA.
Can a Licensee include in its NTA calculation the value of Related Entity Loans?
Related Entity Loans that are an asset to the licensee can only be included in a licensee’s NTA if the accountant is satisfied that they are recoverable. If they are not able to be verified as recoverable, they are excluded from all calculations. Accountants completing reports will need to indicate if Related Entity Loan assets have been included, and that they have verified their recoverability. Related Entity Loans that are a liability to the Licensee however must always be taken into account.
A licensee owns a number of display/spec homes. Is the total value of the land and dwelling to be included in the NTA calculation?
Yes - The total value of the land and dwelling is taken to be included in the NTA calculation provided the land is owned by the licensee.
If a licensee has Related Entity Loans that are a liability to the licensee, can the related entities agree not to enforce those liabilities so as to allow the licensee to meet the required level of NTA?
No - Only if the related entity legally forgives those liabilities can the licensee not consider them in the NTA calculations.
