Tax deductions were denied for charges made for services provided by related entities in a recent decision of the Full Federal Court. Whilst not denying that the services were provided, or that the charges were reasonable, poor paperwork resulted in the Court’s decision. Unfortunately, the fact that the deductions were denied does not mean that the income earned by the related entities was not taxable.

The recent decision in S.N.A Group Pty Ltd v Commissioner of Taxation [2025] FCA 240 should serve as a warning and reminder for business groups of all sizes that poor tax governance and paperwork can backfire, with significant tax and penalty burdens arising.

The impact of the Court ruling will extend to all public and private groups where intra-entity charges are levied. This impacts specialist doctors and multinational corporations alike. We have summarised the key points of the case, as well as the key takeaways for boards, executives and business owners.

What went wrong?

The case concerned the Coronis property group, and the deductibility of intra-group service fee arrangements.

In short, two operating companies were denied millions of dollars of deductions over multiple years for intra-group charges that were raised by related entities for the use of assets and for the services of employees.

Whilst written agreements for the service charges were put in place 2005, they expired in 2015 and were not replaced. The intra-group charges were processed by the group’s accountants after year end. Tax invoices were not prepared. Whilst money flowed between the entities, it was not readily identified as relating to the services rendered. The group continued to claim deductions on the basis that there were implied contracts in place, which (they claimed) crystallised the liabilities and made the payments deductible.

After a review of the group’s affairs, the ATO disallowed deductions for the amounts charged between the entities from the 2016 to 2019 financial years. Although the Court accepted that the services had been provided, and that the charges were at a reasonable level, the deductions were denied on the basis that there was insufficient evidence to support the claim that the amounts were incurred by the companies.

What does it mean for businesses?

The key message here is that there must be contemporaneous evidence to support deductions for intra-group charges, and make your life easier should the ATO review the transactions.

Businesses should be aware of the following key implications from the ruling:

i. Contracts should be put in place, if they are not already, to outline the agreement for services rendered or the use of assets, as well as the method of calculation of the charges;

ii. Regular tax invoices should be raised between group entities for the charges;

iii. Payments of the amounts invoiced should be made; and

iv. Intra-group charges should not be left to the bookkeeper or accountant to calculate or process into the management accounts after the end of the financial year.

Whilst not a major focus of this case, businesses should also be cognisant of the commercial justification for intra-group charges. Without this, there’s a risk that the Commissioner may seek to apply anti-avoidance provisions.

Contact Pilot

If you are unsure what this case means for your group, please contact Tom Howard or your Pilot Advisor on (07) 3023 1300.