The Australian Taxation Office updated its Country-by-Country reporting guidance effective 1 January 2025, extending indefinite administrative relief to non-lodging entities meeting strict documentation and group-presence conditions while automatically exempting Division 50 tax-exempt entities and imposing enhanced compliance verification and failure-to-lodge penalties for documentation deficiencies.
The Australian Taxation Office (ATO) has implemented significant updates to its Country-by-Country (CbC) reporting exemptions and administrative relief guidelines for requests received from 1 January 2025. It details the specific criteria and evidence-based application process required for multinational entities to secure reporting exemptions or access administrative relief.
The key updates are as follows:
Division 50 tax-exempt entities
For tax-exempt entities under Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997), the ATO generally does not seek CbC reporting statements. This relief is applied automatically without the need to lodge a formal exemption request. However, the 2025 guidance refines how this relief trickles down to subsidiaries and handles specific parent structures:
- Wholly-owned subsidiaries: Automatic relief extends to the wholly-owned subsidiaries of a Division 50 entity. For a taxable subsidiary to claim this, it must explicitly identify the Division 50 entity in its tax return as its Ultimate Holding Company (UHC).
- Non-wholly owned subsidiaries: Non-wholly owned subsidiaries do not receive automatic relief. These entities must satisfy an exemption condition to be relieved of their CbC lodgment obligations.
- The foreign presence exception: If a Division 50 entity is the CbC reporting parent and has a foreign constituent entity or a foreign permanent establishment (PE), it is still required to lodge the CbC report. However, it remains relieved from the obligations to lodge a master file or a local file.
Non-lodgment documentation for non-return lodgers
For CbC reporting entities that do not lodge an Australian income tax return, the updated guidance shifts the operational burden. Instead of requiring proactive, formal non-lodgment advice submissions, the ATO applies the local file administrative relief automatically. However, this is strictly conditional on maintaining a robust local “audit trail” that must be provided immediately upon request.
To qualify for this automatic local file administrative relief, the non-lodging entity must satisfy the following:
- Not a lone Australian presence: The entity cannot be the only CbC reporting entity in its global group with an Australian presence. If it is the sole Australian touchpoint, it must lodge a local file to meet domestic transparency objectives and fulfil its notification obligations.
- Compulsory documentation portfolio: Non-lodging entities must maintain a complete documentation portfolio demonstrating their eligibility for relief. Required records include proof of non-lodger status (via ATO notification, lodgment records, or reference numbers), confirmation of income tax return non-lodgment eligibility for the relevant year, identification of the designated CbC reporting entity within the group, and evidence that a Tax File Number is not legally required if the entity does not hold one.
- Severe penalties for deficiencies: If the entity is subject to an ATO review and cannot produce this supporting documentation, it can be hit with failure to lodge (ftl) penalties for both the income tax return and the local file.
- Verification of eligibility: Entities must verify their non-lodgment status annually against the Commissioner’s legislative instruments, such as LI 2025/6 or LI 2026/16.
Elimination of the 1 January 2027 Sunset Clause
Under the updated guidelines, the local file administrative relief for non-lodging entities applies to income years starting from 1 January 2024. The relief applies indefinitely to entities meeting prescribed documentation and group-presence standards.
The Tax Office recommends two pathways for groups seeking to reduce compliance obligations. Genuinely dormant entities lacking substantive business functions should deregister before the next reporting cycle. Standalone taxpayers may join existing tax consolidated groups or Multiple Entry Consolidated groups where eligibility criteria are satisfied.
