Co-authored by Olivia Camilleri
The Full Federal Court’s recent decision in Commissioner of Taxation v S.N.A Group Pty Ltd [2026] FCAFC 10, highlights the risk of intragroup charges not being deductible and the need for contemporaneous record keeping when engaging in inter-entity service agreements.
Due to the commonality of interrelated agreements and dealings, not only between companies within business groups, but also with directors and shareholders, the impact of this case is pivotal to the taxation implications and the record-keeping obligations required for such agreements.
Summary of facts
- Coronis Group restructured to separate asset owning companies with operational companies.
- The asset owning companies were corporate trustees for two trusts which held assets including intellectual property and rent roll.
- The operational companies (the taxpayers), ATPR Pty Ltd and S.N.A Group Pty Ltd, operated real estate management and sales businesses.
- The trusts and operating companies entered into written license agreements between 2005 and 2015 allowing the assets and services the trusts held to operate their businesses. In return, the taxpayers made payments to the corporate trustees of the trusts as fees for the use of their assets.
- The companies continued using the trust assets and continued making payments to the trustees during the 2015–2019 income years after the expiry of the agreements.
- The taxpayers claimed these payments as deductible ‘service fees’ under section 8‑1of the Income Tax Assessment Act 1997.
- The total amount of deductions claimed during the 2015 to 2019 income years was $11,916,898.
The taxpayers lodged a claim, and the matter was first heard in the Federal Court.
Federal Court decision
The primary issue before the Court was whether a services agreement could be inferred in the circumstances because of the minimal documentation the taxpayers maintained to prove an ongoing service arrangement between the asset owning and operational companies.
Logan J found in favour of the taxpayers and put forward that a service agreement can be inferred on the facts of the case. This decision demonstrated that taxpayers may still be eligible for a deduction under s 8-1 ITAA 1997 despite minimal formal documentation if a service agreement can be inferred.
Full Federal Court decision
The Full Federal Court overturned the primary judge’s decision on the basis that there was insufficient evidence to infer a service agreement between the entities.
The Full Federal Court found this decision on the grounds that there was:
- No objective communication of mutual agreement by the taxpayers and trustees;
- No direct evidence of communications between common directors about payment for use of trust assets;
- Inconsistency in the fees/payments to the asset owning companies; and
- No direct evidence that the taxpayer directors were advised by their tax accountant about a fair and reasonable fee.
On this basis, the Full Federal Court found in favour of the Commissioner and the taxpayers are no longer eligible to the deductions under s 8-1 ITAA 1997.
Appeal to the High Court
At this current stage, it is unknown whether an application has been made for special leave to the High Court. However, given the time limitation of 28 days to submit the application, we expect to find out soon whether the application for special leave has been made and the outcome.
What does this mean for taxpayers?
The decision of this case was determined not on statutory interpretation but on the evidence available. Many private groups conduct their affairs on an informal basis, particularly in related party dealings, without always checking or documenting the arrangements.
This case puts in doubt the deductibility of intergroup expenses. Examples of the arrangements that may be at risk include intergroup management fees, service fees, IP licence agreements, rent rolls, and employee cost sharing arrangements.
To ensure interrelated transactions are deductible for tax purposes, you need to review your arrangements including whether you have any agreements and the terms of those agreements. What is of note is that conversely, the service fees could still be included as assessable income, creating unexpected consequences.
Should you require assistance in determining or documenting a contractual arrangement that clearly and objectively meets your intended arrangements of an interrelated entity agreement, Coleman Greig’s Tax & Superannuation team can assist.
