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Public companies to include a consolidated entity disclosure statement in their annual financial report

This information sheet:

• provides guidance on current developments, and
• outlines what public companies need to be aware of when preparing their consolidated entity disclosure statement.

The amends the Corporations Act to require Australian public companies (listed and unlisted) to disclose information about subsidiaries in their annual financial reports.

The new requirements apply to each financial year commencing on or after 1 July 2023, so will apply for the first time on 30 June 2024. Further background about the legislation and its policy intent is provided by the .

Under the new requirements, an Australian public company鈥檚 annual financial report will need to include a 鈥榗onsolidated entity disclosure statement鈥� (CEDS), which either:

• discloses details of each entity within the company鈥檚 consolidated group, if the accounting standards require the company to prepare consolidated financial statements, or
• if the accounting standards do not require the company to prepare consolidated financial statements, a statement to that effect.

(Amending Act), which was enacted in December 2024, clarifies the tax residency disclosures required in the CEDS. The Amending Act applies in relation to financial reports for financial years commencing on or after 1聽July 2024.

As stated at Paragraph 6.10 of the Explanatory Memorandum to the Amending Act, the tax residency disclosures in the CEDS and income tax return disclosures are expected to align to improve multinational tax transparency.

Reporting requirements

Where a public company is required to prepare consolidated financial statements under accounting standards, the CEDS must include the following information about each entity that is part of the consolidated entity at the end of the financial year (s295(3A)(a)):

• the entity鈥檚 name
• whether the entity was a body corporate, partnership, or trust
• whether the entity was a trustee of a trust within the consolidated entity, a partner in a partnership within the consolidated entity, or a participant in a joint venture within the consolidated entity
• where the entity was incorporated or formed (if the entity is a body corporate)
• where the entity is a body corporate with share capital, the percentage of the entity鈥檚 issued share capital held directly or indirectly, by the public company
• whether the entity was an Australian resident, and
• if the entity was a foreign resident, a list of each foreign jurisdiction in which the entity was a resident for the purposes of the law of the foreign jurisdiction聽relating to foreign income tax.

The CEDS is a separate statement and does not form part of the notes to the financial statements (s295(1)(ba)). The CEDS cannot be combined with the note on controlled entities required by accounting standards.

A public company that prepares consolidated financial statements is not required to list in the CEDS, subsidiaries that are not consolidated because of the 鈥榠nvestment entity exemption鈥� in .

Amending Act

The Amending Act clarifies that, where an entity was a tax resident of both Australia and one or more foreign jurisdictions, the CEDS must disclose that the entity was both an Australian resident under Australian tax law and a foreign resident under the foreign income tax law of each relevant foreign jurisdiction (s295(3A)(a)(vi) and (vii)).

The Amending Act inserts a new s295(3B), which sets out the conditions for when an entity is an Australian resident for the purposes of the CEDS. That is, an entity is an Australian resident at the end of a financial year:

• if the entity is an Australian resident within the meaning of the (ITAA 1997)
• for a partnership, if at least one member of the partnership is an Australian resident within the meaning of the ITAA 1997, or
• for a trust, if the trust is a resident trust estate (within the meaning of Division 6 of Pt III of the ) in relation to the year of income (within the meaning of that Act) that corresponds to the financial year.

In some circumstances, the concept of tax residency may not apply to a public company鈥檚 subsidiary (for example, where the subsidiary is not an Australian resident and there is no corporate tax system in the foreign jurisdiction in which the subsidiary is established and operates). Paragraph 6.17 of the Explanatory Memorandum to the Amending Act makes it clear that:

鈥業n these circumstances, the [public company] should state that the subsidiary is not an Australian resident under subsection 295(3B) of the Corporations Act, and also not list the relevant foreign jurisdiction for the purposes of subparagraphs 295(3A)(a)(vi) and (vii) of the Corporations Act.鈥�

Tax residence

Tax residence is a principle that is determined under the domestic tax rules of a country. It is relevant when considering how business income is taxed. The Australian Taxation Office has provided online guidance on assessing whether or not an entity is a tax resident in Australia, at: . confirms that entities that determine tax residency in good faith and in accordance with the Commissioner of Taxation鈥檚 public guidance, may declare that the tax residency status of a subsidiary is true and correct for the purposes of the CEDS.

True and correct

The directors鈥� declaration must state whether, in the directors鈥� opinion, the CEDS is true and correct (s295(4)(d)). For listed public companies, the Chief Executive Officer and Chief Financial Officer are required to include a statement in their declaration to the directors that the CEDS is true and correct (s295A(2)(ca)).

Paragraph 1.16 of the Explanatory Memorandum to the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share鈥擨ntegrity and Transparency) Bill 2023 says:

鈥楢s 鈥渢rue and correct鈥� is not defined in the legislation, the words take on their ordinary meaning in the context of the amendments. For the purposes of the consolidated entity disclosure statement, the policy intention is to ensure complete and accurate disclosures under subsection 295(3A).鈥�

鈥楾rue and correct鈥� is a higher reporting requirement than under a 鈥榯rue and fair view or fair presentation framework鈥� for directors and executives.

Materiality

The CEDS is not part of a true and fair or fair presentation framework. Further, the materiality provisions in the accounting standards do not apply to the CEDS because it is a separate legal requirement under the Corporations Act. That is, a public company must disclose all entities in the consolidated entity at year end with the information required by s295(3A) and those entities cannot be excluded because of materiality.

This means that all entities must be listed even if they are newly acquired 鈥榮helf鈥� companies, dormant or would otherwise be excluded from the company鈥檚 process to prepare consolidated financial statements because of materiality.

Audit and assurance

Paragraph 1.17 of the Explanatory Memorandum says (emphasis added):

鈥楩urther, as the consolidated entity disclosure statement forms part of an entity鈥檚 annual financial report, it is also subject to the existing audit framework under the Corporations Act. Specifically, section 307 requires an auditor to form an opinion about whether the financial report (which includes the consolidated entity disclosure statement) is in accordance with the Corporations Act generally, as well as on specific matters. This general obligation is also consistent with the requirements of the auditor鈥檚 report under section 308鈥�.

The objective of audit work in relation to a financial report under the auditing standards is to obtain reasonable assurance that the financial report is free of material misstatement.

Section 307 of the Corporations Act, which requires the auditor to form an opinion on whether the financial report (including the CEDS) complies with the Corporations Act, implies that the auditor will obtain reasonable assurance.

Having regard to paragraph 1.17 of the Explanatory Memorandum and s307 of the Corporations Act, it follows that the objective of the audit work on the CEDS is to obtain reasonable assurance that the following are not misstated:

• the CEDS, and
• the opinion of the directors in the directors鈥� declaration that the CEDS is true and correct.

Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. We encourage you to seek your own professional advice to find out how the applicable laws apply to you, as it is your responsibility to determine your obligations.

You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases, your particular circumstances must be taken into account when determining how the law applies to you.