New requirements for the consolidated entity disclosure statement by Australian public companies

This article, originally published on 10 July 2024, has been updated for current developments. In particular, the example disclosures shown below have been amended to show the requirements of s295(3A)(vi) and (vii) applying to financial years commencing 1 July 2023 to 30 June 2024, as well as those applying to financial years commencing on or after 1 July 2024 (amended by the Treasury Laws Amendment (Fairer for Families and Farmers and Other Measures) Act 2024).

All public companies (both listed and unlisted) reporting under Chapter 2M.3 of the Corporations Act 2001 must include a ‘consolidated entity disclosure statement’ as part of the contents of the annual financial report for financial years commencing on or after 1 July 2023. This will be subject to audit.

Under these requirements, an Australian public company’s annual report must include a ‘consolidated entity disclosure statement’, which either:

If the accounting standards require the company to prepare consolidated financial statements, disclose details of each entity within the company’s consolidated group, or
If the accounting standards do not require the company to prepare consolidated financial statements, a statement to that effect.

In addition, directors must state in the directors’ declaration whether, in their opinion, this consolidated entity disclosure statement is ‘true and correct’, and for listed companies, the chief executive officer (CEO) and chief financial officer (CFO) declaration also have to confirm the same.

This article aims to provide practical guidance to preparers preparing their consolidated entity disclosure statement.

Is the consolidated entity disclosure statement required for all public companies?

The consolidated entity disclosure statement is required for public companies reporting under Chapter 2M.3 of the Corporations Act 2001. This includes listed companies and unlisted public companies, as well as companies limited by guarantee that are not registered with the Australian Charities and Not-for-profits Commission (ACNC).

Is the consolidated entity disclosure statement required for all public companies?

Contents of the consolidated entity disclosure statement

Public companies required by accounting standards to prepare consolidated financial statements must include the following details about each entity that is, at the end of the financial year, part of the consolidated entity:

The entity’s name
Whether the entity is a body corporate, partnership, or trust
Whether the entity is:
- 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
If the entity is a body corporate - the place at which the entity was incorporated or formed
If the entity is a body corporate with a share capital - the percentage of the entity’s issued share capital (excluding any part that carries no right to participate beyond a specified amount in a distribution of either profits or capital) that was held, directly or indirectly, by the public company.

Additionally, the following details must also be provided for the appropriate period:

Financial years beginning 1 July 2023 to 30 June 2024

Financial years beginning on or after 1 July 2024

vi. Whether at that time, the entity was an Australian resident or a foreign resident (within the meaning of the Income Tax Assessment Act 1997 (ITAA 1997)) ^{Note 1, 2}

Note 1: From 11 December 2024, the Treasury Laws Amendment (Fairer for Families and Farmers and Other Measures) Act 2024 introduces s295(3B) to clarify that an ‘Australian resident’ includes certain partnerships and trusts (see Note 3).

vi. Whether the entity was an Australian resident at that time ^{Note 3}

Note 3: The following are all Australian residents under s295(3B):

An Australian resident within the meaning of the ITAA 1997 at that time
A partnership, at least one member of which is an Australian resident (within the meaning of the ITAA 1997) at that time
A resident trust estate (within the meaning of Division 6 of Part 3 of the ITAA 1936) in relation to the year of income that corresponds to the financial year.

vii. If the entity is a foreign resident as described in (vi) above – a list of each foreign jurisdiction in which the entity was, at that time, a resident for the purposes of the law of the foreign jurisdiction relating to foreign income tax (within the meaning of that Act). ^{Note 2}

Note 2: An entity can be an Australian resident for tax purposes, and simultaneously a foreign tax resident of a foreign country at the same time.

vii. A list of each foreign jurisdiction (if any) in which the entity was, at that time, a resident for the purposes of the law of the foreign jurisdiction relating to foreign income tax (within the meaning of the ITAA 1997).

The Treasury Laws Amendment (Fairer for Families and Farmers and Other Measures) Act 2024 amends s295(3A)(vi) and (vii) to correct an anomaly for financial years beginning on or after 1 July 2024. The definitions of ‘Australian resident’ and ‘foreign resident’ in the ITAA 1997 are mutually exclusive, therefore, an Australian entity which is an Australian resident under the ITAA 1997 cannot also be disclosed as a foreign resident in the pre-1 July 2024 disclosures. However it is recommended for pre 1 July 2024 disclosures to include a note that the entity is also a tax resident of the other country as per for Sub 1 Pty Ltd in the example below.

Example

An example of a consolidated entity disclosure statement in consolidated financial statements is shown below:

					Pre 1 July 2024 disclosures		Disclosures for 1 July 2024 onwards
Name of entity*	Type of entity	Trustee, partner or participant in joint venture**	% of share capital held	Country of incorporation	Australian resident or foreign resident***	Foreign tax jurisdiction(s) of foreign residents***	Australian resident	Foreign jurisdiction(s) in which the entity is a resident for tax purposes (according to the law of the foreign jurisdiction)
Public Company Limited	Body Corporate	-	N/A	Australia	Australian	N/A	Yes	N/A
Sub 1 Pty Ltd	Body Corporate	-	100	Australia	Australian	N/A ¹	Yes	New Zealand
Sub 2 Unit Trust	Trust	-	N/A	Australia	Australian	N/A	Yes	N/A
Sub 3 Pty Ltd	Body Corporate	Trustee	60	Switzerland	Foreign	United States of America	No	United States of America
Sub 4 Pty Ltd	Body Corporate	-	100	Bermuda	Foreign	N/A	No	N/A
Public Company Share Trust	Trust	-	N/A	Australia	Australian	N/A	Yes	N/A

¹Sub 1 Pty Ltd is classified as an Australian tax resident under the ITAA 1997, but is a tax resident of Country X under the laws of Country X

* Entities listed here are those that are part of the consolidated entity at the end of the financial year. Entities disposed of during the year, or where the entity has lost control by the reporting date, are not included here. This means that entities listed could be different to the ‘Interests in subsidiaries’ note contained in the notes to the financial statements.

** This means whether, at that time, 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.

*** The definitions of ‘Australian resident’ and ‘foreign resident’ in the ITAA 1997 are mutually exclusive. This means if an entity is an ‘Australian resident’ it cannot be a ‘foreign resident’ for the purposes of the public company disclosures in the consolidated entity disclosure statement (only applicable to financial years beginning 1 July 2023 – 30 June 2024, for financial years beginning on or after 1 July 2024 the disclosure requirements have changed).

Are all subsidiaries required to be included?

Yes. A public company that consolidates subsidiaries has to identify all of its subsidiaries and include them in the consolidated entity disclosure statement, regardless of whether they are dormant or immaterial. However, entities disposed of during the year, or where the entity has lost control by the reporting date, are not included.

A public company that prepares consolidated financial statements is not required to identify those subsidiaries that are not consolidated because of the ‘investment entity exemption’ in AASB 10 Consolidated Financial Statements.

What about investments in associates and joint ventures?

The consolidated entity disclosure statement does not require information for investments in associates and joint ventures as they are not consolidated, and therefore, not part of the consolidated group.

Is comparative information required in the consolidated entity disclosure statement?

Comparative information in the consolidated entity disclosure statement is not required.

What has to be disclosed if consolidated financial statements are not required?

Although it is called a ‘consolidated entity disclosure statement’, the statement must be prepared by all public companies reporting under Part 2M.3 of the Corporations Act 2001, irrespective of whether the company is required to prepare consolidated financial statements. So, when a public company is not required to prepare consolidated financial statements under Australian Accounting Standards, the entity is required to include a statement to that effect in the consolidated entity disclosure statement. Some examples of how this can be presented are shown below:

Public company has no subsidiaries

Public Company Limited has no controlled entities and, therefore, is not required by the Australian Accounting Standards to prepare consolidated financial statements. As a result, section 295(3A)(a) of the Corporations Act 2001 does not apply to the entity.

Public company is an investment entity

Public Company Limited is an investment entity applying the exemption from consolidation described in AASB 10 Consolidated Financial Statements and has no subsidiaries that are not investment entities. As a result, it is not required by Australian Accounting Standards to prepare consolidated financial statements, and, therefore, section 295(3A)(a) of the Corporations Act 2001 does not apply to the entity.

Public company is an intermediate parent entity

Public Company Limited is an intermediate parent applying the exemption from consolidation described in paragraph 4 of AASB 10 Consolidated Financial Statements. As a result, it is not required by Australian Accounting Standards to prepare consolidated financial statements, and, therefore, section 295(3A)(a) of the Corporations Act 2001 does not apply to the entity.

Where does it go?

The consolidated entity disclosure statement is part of the annual financial report, alongside the financial statements, notes and the directors’ declaration. However, it is a separate statement and does not form part of the notes to the financial statements (s295(1)(ba)), so it cannot be combined with the note on controlled entities required by accounting standards or presented as a separate note.

Basis of preparation (for financial years beginning 1 July 2023 to 30 June 2024 )

The following is an example of the wording that might be considered in the basis of preparation for the consolidated entity disclosure statement for financial years beginning from 1 July 2023 to 30 June 2024.

Note: This wording will need to be tailored for financial years beginning from 1 July 2024 to incorporate the amendments to s295A(3A)(vi) and (vii).

Basis of Preparation

This Consolidated Entity Disclosure Statement (CEDS) has been prepared in accordance with the Corporations Act 2001. It includes certain information for each entity that was part of the consolidated entity at the end of the financial year.

Determination of Tax Residency

Section 295 (3A) of the Corporation Acts 2001 defines tax residency as having the meaning in the Income Tax Assessment Act 1997. The determination of tax residency involves judgement as there are currently several different interpretations that could be adopted, and which could give rise to a different conclusion on residency. It should be noted that the definitions of ‘Australian resident’ and ‘foreign resident’ in the Income Tax Assessment Act 1997 are mutually exclusive. This means that if an entity is an ‘Australian resident’ it cannot be a ‘foreign resident’ for the purposes of disclosure in the CEDS.

In determining tax residency, the consolidated entity has applied the following interpretations:

Australian tax residency

The consolidated entity has applied current legislation and judicial precedent, including having regard to the Tax Commissioner's public guidance in Tax Ruling TR 2018/5.

Foreign tax residency

As the definition of ’foreign resident’ under the Income Tax Assessment Act 1997 is an entity that is not an ‘Australian resident’ as defined under that Act, the entities that are disclosed as foreign tax residents are entities that are not Australian tax residents. Where necessary, the consolidated entity has used independent tax advisers in foreign jurisdictions to assist in determining tax residency and ensure compliance with applicable foreign tax legislation.

Partnerships and Trusts

Section 295(3B) of the Corporation Acts 2001 has been introduced to clarify that an Australian resident for the purposes of these disclosures includes a partnership with at least one member of which is an Australian resident within the meaning of the Income Tax Assessment Act 1997 and a resident trust estate under the meaning in Division 6 of the Income Tax Assessment Act 1936.

Director’s Declaration

The directors’ declaration will also have to be amended to refer to the consolidated entity disclosure statement. Regardless of whether the accounting standards require the preparation of consolidated financial statements, a consolidated entity disclosure statement is still required – it is just the amount of disclosure that differs. Therefore, the same ‘true and correct’ declaration is required in all cases. An example of this is as follows:

‘The information disclosed in the attached consolidated entity disclosure statement is true and correct.’

Directors (and the CEO and CFO of listed companies) should note that a ‘true and correct’ certification for the consolidated entity disclosure statement is a higher hurdle than the ‘true and fair’ declaration used in declarations regarding the financial statements. While ‘true and fair’ means that information is not materially misstated, ‘true and correct’ implies that disclosures are more precise, i.e. they are complete and accurate.

Is a consolidated entity disclosure statement required in half-year financial statements?

No. The requirements for a consolidated entity disclosure statement are contained in section 295(3A) of the Corporations Act 2001, which falls within Division 1 of Part 2M.3 – the section that covers the requirements for annual financial reports. Section 303 of Division 2, which covers the requirements for half-year financial reports, has not been amended. Therefore, a consolidated entity disclosure statement is not required in half-year financial reports.

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