Increasing corporate transparency

In August 2022, the Treasury Laws Amendment 2022 (the “Act”) was passed by both Houses of Parliament which had, among other things, an unanticipated impact on Australian corporate reporting. These are some of the key amendments made to ASIC Corporations (Exempt Proprietary Companies) Instrument 2015/840, the Corporations Act 2001, and the Taxation Administration Act 1953.

The changes will remove a longstanding privacy wrapper embedded into the Australian corporate reporting framework, and will increase transparency in relation to tax payments and the financial positions of a greater number of large private entities.

The removal of grandfathering exemptions

When the Corporations Act was updated in 1995 requiring large entities to lodge financial reports with ASIC, a curious loophole was created. Initially planned as a temporary measure, an allowance was made for previously exempt companies to continue not to lodge financial reports with the corporate regulator for so long as they continued to meet certain criteria such as being audited annually. These companies are commonly referred to as grandfathered proprietary companies.

It is estimated that around 1,100 such entities continue to be exempt from ASIC reporting under the grandfathering provisions. These entities will now have to comply with ASIC’s reporting requirements. Importantly this means that their financial statements will become publicly available, albeit for a small fee.

Entities that are currently relying on grandfathering provisions may wish to consider whether there are other ASIC filing exemptions that they would be able to take advantage of. The most notable ones being the exemption for small entities, and the exemption for wholly owned entities that have entered into a deed of cross-guarantee within a closed group.

Large proprietary companies are required to lodge financial statements with ASIC within four months of the end of the reporting period. These changes take effect for years ending on or after 10 August 2022 and so most grandfathered companies will be first impacted for years ending 31 December 2022 or 30 June 2023,

In addition to this, it should be noted that the ASIC extension for large proprietary companies announced in July 2022 does not apply to grandfathered entities. This means that while large proprietary entities with 30 June 2022 year end dates will have five months to have their financial statements prepared, audited, and lodged; grandfathered companies will have only until 31 October 2022 to issue audited financial reports to members.

Lowering of the tax information reporting threshold

In addition to the changes to grandfathering exemptions, the Act also reduced the Commissioner’s tax information reporting threshold for Australian private corporate tax entities to $100 million. Entities that fall within this scope will have their total income, taxable income, and tax payable disclosed publicly by the ATO and this amendment will take effect for the 2022-23 income year. This change alone is unlikely to impact on too heavily on privacy as most entities meeting the threshold would already be reporting to ASIC.

For assistance with navigating these changes, please reach out to your local PKF Audit representative.