Lendlease trumps Qantas on aggressive tax capers as ATO mulls retirement village rort

by | Feb 13, 2020 | Despatch

Like Qantas, Lendlease paid no tax for years while rewarding its executives with large bonuses and spending millions buying back its own shares.​ Michael West reports the latest on the company’s “double-dipping” tax rort in retirement villages.

Over the six years from 2014 to 2019, Lendlease earned $92 billion, realised profit before tax of $5.32 billion, had an average return on equity for security-holders of 11.7%, and returned to security-holders $2.09 billion.

Yet it paid nothing in Australian tax.

Lendlease has been rorting the tax system by double dipping on its tax deductions, claiming a deduction for an amount and then including it in the cost base of its assets too.

The ATO published a draft ruling in October confirming no one, including Lendlease, can double dip. Comments were received on December 13, 2019.

Given the magnitude of the rorting, Lendlease must surely have ensured that PwC (its adviser on retirement village transactions and KPMG (its auditor and adviser), have lodged submissions defending Lendlease’s right-to-rort and criticising the ATO’s views. These submissions are not public.

The ATO has conceded it won’t get the thing finished until mid-year, which gives Lendlease further breathing space before admitting it has not been acting ethically.

The Lendlease annual meeting was held on November 20, 2019. I asked the chairman, Michael Ullmer, about the draft ruling. Mr Ullmer acknowledged the draft ruling, but offered that it may well change (once all our tricky advisers pound the ATO).

In any event, according to the Chairman, there is already a tax ruling out on the topic, one which Lendlease has complied with for twenty years. It sets it all out, and Lendlease complies with it. Only problem with that is that the ruling also says you cannot double dip (paragraph 63).

Just who is feeding the board this story, and just why the board members cannot or will not apply their own minds to the issue, may be examined later.

Meanwhile, Lendlease is about to lodge yet another set of mis-stated accounts later this month.

ASIC, which is at last growing teeth and beginning to hammer some of this wayward accounting, should be looking too. Lendlease has been overstating its profits and earnings for years. And it continues to justify the caper by saying it is immune from the double-dipping law that applies to everyone else.

For its part, Qantas has been obeying the law while rewarding shareholders and executives and avoiding tax. Still, it is strange that companies can spend all that money propping up their stock price rather than paying tax.

According to its annual reports, Qantas was able to build up its tax loss account from near zero in 2009 to $3.2 billion by 2014. That gave it a tax holiday from then on, all the way till last year.

How did Qantas get itself a tax holiday? How did it end up with negligible franking credits to release? According to the ATO’s tax transparency data, Qantas had a taxable income of $344 million between 2015 and 2017 and the ATO says Qantas paid no tax.

Qantas’ annual reports suggest an answer.

The airline discloses that it has been able to build a tax loss account from near zero to over $3.2 billion over the five years between 2009 to 2014 – and to use these tax losses for a tax holiday over the four years from 2015 to 2018.

Over the decade, Qantas did not get many franking credits, perhaps its few franking credits came from its investments in tax-paying entities outside the Qantas consolidated group.

Qantas generated $4.8 billion in statutory profits and had a tax holiday from 2015 to 2018. If $1.95 billion of these profits had been used to pay 100 per cent franked dividends, Qantas would have released an additional $820 million franking credits, payable by the government.

But Qantas had paid no tax and had next to nothing in its Franking Account. So instead, it bought back $1.95 billion worth of its own shares at prices ranging between $2.76 and $6.30.

Interestingly, the Qantas accounts show it paid $11 million in tax during this time. Why does the Tax Office say Qantas paid zero? One answer may be that the tax may have been paid outside Australia. Same deal with the Lendlease accounts, and ExxonMobil Australia, our top ranking Top 40 Tax Dodger again this year.

Qantas’ 2017 partially franked dividends came with the note that Qantas has the benefit of “foreign conduit credits”. This enabled it to pay foreign shareholders dividends which were free of dividend withholding tax, despite those dividends not being fully franked.

ABOUT THE AUTHOR

Michael West

Michael West

Michael West established michaelwest.com.au to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences.

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