Hi i know the situation very very well, you MUST read the below to avoid the same problems I have had and I think it will be of great benefit to people in your situation which there are many many
so here are the answers
Absolutely DO NOT make any nationality change declaration with the HKID (Hong Kong Immigration Dept) it will be a total disaster for you for your future visits to Hong Kong and China
When you enter China from either HK or from Australia by direct flight, there is no need to show your Australian passport to anyone, just show your home return permit (card)
you can enter easily and everything is fine and you can stay in China as long as you want, there are not restrictions on how long you stay and you can even get a job and open bank accounts using the home return permit, it is a very very GREAT item to have. You can do everything with it in China and absolutely DO NOT show your Austrlain passport to anyone.
When you leave to HK, just show your home return permit. No need to show anything else.
If you take a direct flight from China to Australia, they will ask you to show your Australian passport when you depart China airport if this is a direct flight to Australia, it is fine, you can show the China immigration clerk.
You are lucky to have the home return permit and you should do everything you can to preserve it.
Remember it is always best for you to have your eggs in a few basket.
When you are in HK, there is no need to show your Austrlian passport either, just enter on your HKIC and do everything on your HKIC. You should also apply for a HKSAR passport and can use it for travel sometimes.
The reason for this ....because China does not recognize dual nationality and also becuase Hong Kong is a "left over problem" from the past, so China regieme tolerates this special situation with Hong Kong people cause they want Hong Kong to continue to "make money for China".
I have made a big mistake on declaring my "western" foreign nationality in July 1997 and now they are taking away my 3 stars, my home return permit and also do not give me HKSAR passport. All because of making this declaration back in the "handover" days. Someone wants to settle scores, I suppose.