Lendlease faces allegations of “double counting” on retirement village contracts after $300M tax benefit: AFR

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The Fin Review is reporting that Australia’s largest village operator has been accused of double counting its tax deductions on its retirement village acquisitions by its former tax adviser.

The paper states that Lendlease moved village residents from lease contracts to loan contracts around 2014, then legitimately claiming tax deductions for swapping the contracts.

But the Australian Tax Office (ATO) reportedly says that Lendlease did not adjust the tax carrying value of the retirement village assets to calculate future capital gains tax (CGT) or recognise a deferred tax liability.

Tax specialist Anthony Watson, who has 30 years’ experience in advising Australian corporations including Lendlease, told AFR he believed Lendlease “double counted” its tax benefits and as a result, had published inaccurate financial accounts.

“The law is very clear that if you incur a business cost, then you can only put it in your tax base or claim a deduction for it – but you can’t do both,” he said.

Lendlease has not confirmed the amount at issue, but an estimated tax benefit of about $300 million is reflected in its “unused tax losses” which increased from $37.7 million at 30 June 2012 to $420.6 million by 30 June 2015.

The ATO had issued a draft tax determination in October 2019 aimed at the retirement village industry, which also applied to other businesses, which stated that an item of expenditure “should either be deductible for income tax purposes or included in the cost base of an underlying asset for CGT purposes, but not both”.

A Lendlease spokesperson said it was taking part in the ATO’s industry consultation on the draft determination.

“If finalised, the determination becomes relevant for the retirement living sector where villages acquired in an asset sale are subsequently sold,” they said.

“We’re continuing to engage with the ATO and await the finalisation of its draft tax determination, which the ATO Second Commissioner indicated in a recent Senate Estimates Committee is not expected to take place this year.”

“Separate to the tax determination, the ATO has raised questions in relation to the tax treatment by Lendlease on the sale of our retirement living business.”

“There is currently no dispute or negotiations with the ATO on this matter – no assessment has yet been issued by the ATO.”

If the determination is finalised, it will impact on capital gains tax on Lendlease’s 2017 sale of 25% of its retirement village business to Dutch pension fund APG for around $450 million and its current plan to sell a further 50% of its retirement living portfolio.