Effective for financial years ending on or after 10 August 2022, the exemption from the lodgement of annual financial reports of certain large proprietary companies (known as grandfathered companies) has been withdrawn by the Government.
This exemption has existed since 1995 and approximately 1,100 private businesses (commonly large family-owned businesses) were still benefiting from this exemption at 30 June 2022.
Companies that benefitted from the exemption were required to prepare annual financial reports and have them audited, however the annual financial report was not required to be lodged with the Australian Securities and Investments Commission (ASIC). Thus, keeping the annual financial report off the public record.
For those ‘grandfathered’ large proprietary companies with a 30 June year end, the exemption from lodgement applies for the last time in relation to the 30 June 2022 annual financial report. Annual financial reports of future financial years will require lodgement with ASIC.
ASIC has recommended the removal of this exemption in various inquiries into corporate tax avoidance over recent years. These unexpected amendments were proposed and passed by the Senate on 4th August, approved by the House of Representatives on 5th August and received Royal Assent on 9th August 2022 as part of the Treasury Laws Amendment (2022 Measures No. 1) Act 2022.
What impact will this have?
For 30 June 2022 financial year ends, the exemption still exists and lodgement of the annual financial statement report with ASIC will not be required by these grandfathered entities.
However, these entities are still subject to the accounting standard changes which will require them to prepare general purpose financial statements (GPFS) from years commencing on or after 1 July 2021. Commonly, these entities had previously prepared special purpose financial statements. For more information on these changes refer to this article.
For financial years ending on or after 10 August 2022, lodgement of the annual financial report with ASIC will be required within the normal 4 month reporting deadline. The removal of the exemption impacts lodgement only, since these entities already have requirements to prepare GPFS and have an external audit completed.