Major Financial Changes Proposed for Victorian Domestic Builders

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Major Financial Changes Proposed for Victorian Domestic Builders

The Victorian Government has released draft regulations introducing significant new financial obligations for domestic builders under the proposed Minimum Financial Requirements (MFR) framework.

If implemented in their current form, these reforms will substantially change how builders operate, grow, report financially and maintain registration.

These changes are expected to progressively commence from July 2026 onwards and will apply to registered domestic builders across Victoria.

Key Proposed Changes

1. Revenue Will Be Capped Based on Net Tangible Assets (NTA)

   Under the draft framework, a builder’s annual revenue cannot exceed 20 times their Net Tangible Assets (NTA).

   Example:
   • Builder NTA = $200,000
   • Maximum allowable annual revenue = $4 million

   This means future business growth may now be directly tied to the strength of your balance sheet rather than historical turnover or pipeline alone.

2. New Financial Tests Will Apply Ongoing — Not Just at Year End

   Builders will be required to continuously maintain:

   • Solvency
   • Minimum current ratio of 1:1
   • Required levels of NTA
   • Compliance with revenue caps

   Importantly, the current ratio requirement is proposed to apply at all times, not just at reporting dates.

   If financial metrics deteriorate below thresholds, builders may be required to notify the regulator within strict timeframes.

3. Increased Financial Reporting Obligations

   The proposed regulations introduce a substantial increase in financial reporting obligations for domestic builders, particularly those expected to fall within Tier 2 and Tier 3 classifications.

   The draft framework contemplates:

   • More detailed management reporting
   • Ongoing financial monitoring
   • Accountant-prepared financial information
   • Potential quarterly reporting obligations
   • Trigger-based reporting requirements
   • Greater regulator oversight and compliance monitoring

   Importantly, there is growing industry concern that many builders who currently prepare Special Purpose Financial Statements (SPFS) may be required to transition toward General Purpose Financial Statements (GPFS) under the new framework.

   This could significantly increase:

   • Annual accounting and compliance costs
   • Financial disclosure requirements
   • Record keeping obligations
   • Year-end reporting complexity
   • Director compliance responsibilities

   For many builders, this may require:

   • More sophisticated bookkeeping systems
   • Timely monthly management reporting
   • Improved WIP tracking and job costing
   • Better cashflow forecasting
   • Closer monitoring of related party transactions and drawings

   In practical terms, the days of relying purely on year-end accountant adjustments may be coming to an end. Builders may need to operate with “bank-quality” financial reporting throughout the year to maintain compliance and protect registration status.

   The proposed reforms could therefore create a material increase in administrative and accounting costs for builders, particularly those experiencing rapid growth or operating with tighter working capital positions.

4. Builders Will Be Grouped Into Financial Tiers

   The draft regulations propose a three-tier system based on Net Tangible Assets:

   • Tier 1: $1 – $50,000 NTA
   • Tier 2: $50,000 – $1.5 million NTA
   • Tier 3: Above $1.5 million NTA

   Different reporting and compliance obligations may apply depending on your tier.

   Why This Matters

   These reforms could significantly impact:

   • Growth capacity
   • Cashflow management
   • Business structures
   • Trust and related entity arrangements
   • WIP management
   • Profit retention strategies
   • Director drawings and distributions
   • Ability to obtain or renew registration

   For many builders, strong turnover alone may no longer be enough. The focus will shift heavily toward:

   • Balance sheet strength
   • Working capital
   • Cash reserves
   • Financial discipline
   • Accurate and timely reporting

   Industry bodies including MBV and HIA have already raised concerns regarding the potential impact on small and medium builders if the regulations proceed in their current form.

5. Phased Compliance Timeline

Victoria’s new Minimum Financial Requirements (MFR) introduce stricter reporting and revenue caps. For builders registered before June 30, 2026, compliance is phased in over two years depending on your tier. New applicants will be required to comply upon registration.

Compliance deadlines for existing registered domestic builders are based on the builder’s tier and reporting year starting dates:

What Builders Should Be Doing Now

Although the regulations remain in draft consultation stage, we strongly recommend builders begin preparing now by:

• Reviewing current Net Tangible Asset position
• Understanding projected revenue caps
• Improving WIP accuracy and reporting
• Reviewing trust and entity structures
• Strengthening working capital
• Ensuring management accounts are current and accurate
• Reviewing related party loans and drawings
• Implementing regular financial forecasting

At Mead Partners and Builders CFO, we are already working with builders to model the impact these proposed changes may have on future growth and registration capacity.

If you would like us to review your current position and provide guidance on how these proposed reforms may impact your business, please contact our office to arrange a strategy session.

The earlier planning starts, the more options builders will have available.