Net Tangible Assets Requirements for Responsible Entities

The current requirement

The requirement is in ASIC Corporations (Financial Requirements for Responsible Entities, IDPS Operators and Corporate Directors of Retail CCIVs) Instrument 2023/647, explained in Regulatory Guide 166. A responsible entity must hold at all times net tangible assets of the greater of:

• $10 million; or
• 10 per cent of the average revenue of the responsible entity.

A responsible entity can instead meet a lower, concessional requirement if it uses an eligible custodian to hold scheme property, or holds only certain classes of asset. Under the concession the requirement is the greater of:

• $150,000;
• 0.5 per cent of the average value of scheme property, capped at $5 million; or
• 10 per cent of average revenue.

Net tangible assets means total assets less intangible assets and less liabilities, with some adjustments. At least half of the required amount must be held in cash or cash equivalents, and the rest in liquid assets.

What changes on 1 July 2027

The regulator chose to raise the thresholds for inflation since June 2013, when they were last set, and to index them every year. The figures consulted on in Consultation Paper 388 were:

Threshold

Now

From 1 July 2027 (approximate)

Concessional minimum

$150,000

$200,000

Minimum for certain asset classes

$500,000

$700,000

Cap on the 0.5 per cent of scheme property limb

$5 million

$6.9 million

Standard minimum

$10 million

$13.8 million

The regulator has said the final figures will include the first annual indexation adjustment, so they may be slightly higher than the figures above. It will amend the instrument and Regulatory Guide 166 before the start date. The same increase applies to operators of investor directed portfolio services and to corporate directors of retail corporate collective investment vehicles.

Other financial requirements

A responsible entity must also:

• prepare a cash flow projection for at least the next 12 months, approved by the directors, and update it when circumstances change;
• hold enough cash to meet projected cash needs over the next 12 months;
• lodge audited financial statements with the regulator within three months of the end of its financial year, together with an auditor's report on compliance with the financial requirements.

A breach of the financial requirements is a breach of a licence condition and is a reportable situation.

What to do now

• Calculate your net tangible assets today, using the regulator's definition, not the balance sheet figure.
• Compare it with the 2027 threshold that applies to you, with a margin for the indexation adjustment.
• Decide how you will raise any shortfall: retained earnings, a capital injection from shareholders, or a change of structure such as appointing a custodian to qualify for the concession.
• Update the 12 month cash flow projection to show the capital in place before 1 July 2027.

I prepare net tangible assets calculations for licensees, review them regularly and advise on the structure that gives you the lowest compliant requirement.

Call me on 0418 998 677 to review your position before the 2027 increase.

This page contains general information only. It is not legal or accounting advice for your circumstances.