Why “disallowed assets” exist at all

When QBCC tests your Net Tangible Assets, it is asking one question: if this business hit trouble tomorrow, what real, recoverable value stands behind its obligations to subbies, suppliers and homeowners? Plenty of things that legitimately sit on a balance sheet fail that test. Goodwill cannot pay a subcontractor. A loan the director “owes back” to his own company is unlikely to be repaid in a crisis – the crisis is usually why the money left. So before your NTA is compared against your category minimum, QBCC strips these items out.

The practical consequence: a business can look comfortably solvent in its accounts and still fail the NTA test. Every builder should know their allowable NTA – not just their equity – and check it more than once a year. Here is the list, item by item, with the reason and the remedy for each.

The checklist

The three items that cause the most damage

1. The director loan account

This is the big one, and it grows by accident. Through the year the owner draws money for living costs – not wages, not dividends, just transfers. At year end the accountant books the total as a loan receivable: the company’s accounts say the director owes it $150,000, so equity looks fine. QBCC disallows it, because in any real-world stress scenario that money is gone. The same balance also creates a Division 7A problem with the ATO – unfranked deemed dividends if it is not dealt with. One habit, two regulators. The repair – usually declaring dividends or back-paying wages – has real tax costs and takes weeks to do properly, which is why it should be managed quarterly rather than discovered in December.

2. Loans to related entities

The building company lends $200,000 to the director’s property development entity. On paper it is an asset; to QBCC it is two questions: is there a signed loan agreement with terms and security, and could the borrower actually repay on demand? Without strong answers to both, it is disallowed. If the arrangement is genuine, document it like a bank would – agreement, interest, security, repayment evidence. If it is not really expected to come back, recognise that and plan accordingly.

3. Goodwill from buying a business

You paid $300,000 for a competitor and $180,000 of it was goodwill. That was a real commercial decision – but for QBCC purposes the goodwill is worth zero the day you book it. Builders who grow by acquisition need to plan the NTA impact of the purchase before settlement, because the equity that “left” into goodwill may need replacing with real capital to keep the licence tests passing.

A worked illustration

Balance sheet equity: $520,000. Less goodwill $110,000, less director loan $185,000, less an undocumented $60,000 advance to a related entity: allowable NTA $165,000. For a category 1 licensee running near the $3m revenue ceiling (needing $156,000), that is a pass with $9,000 of headroom – one ute deposit away from a breach. Same business, same year, two very different stories depending on which number you watch. This is why we run the disallowed-assets review for construction clients every quarter, not just at reporting time.