The law is supposed to wear a blindfold, giving equal treatment to the rich, the poor, and everyone in between. And the taxman is supposed to make decisions without fear or favor. Does the management of high-flying companies show otherwise? Michael West reports on the great Lendlease tax scam.
Australia’s Revenue Service released its latest studies of tax crime prosecutions last month. It features a South Australian man convicted of criminal charges for providing false documents, a swimming instructor jailed for attempting to claim $250,000 in bogus GST refunds, a doctor sentenced to seven months in prison for non-filings, a bank manager sentenced to three years in prison for attempting to defraud Commonwealth of $390,000, NSW man sentenced to two years for defrauding $171,000, and more.
Everything is fine. But what’s wrong with this list? What’s wrong is that another cohort is nowhere on the list. The management of Lendlease, the partners of PwC, MinterEllison and KPMG, for example, those who defrauded the Commonwealth, who tried to cover it up, who hijacked the institutions of the Law Council and the Tax Institute to present false statements, and who have convinced other professional firms to themselves submit false arguments to the ATO.
Not a white collar phrase.
Tax administration walks a fine line. He conducts a multitude of simultaneous prosecutions, audits and investigations. And tax law is gray, nuanced, extremely sophisticated. Yet there is no doubt that confidence in what is Australia’s most powerful regulator would be bolstered by prosecutions against the strong and powerful as well as the weak and vulnerable. Why should these people trying to defraud the Commonwealth avoid prosecution just because they worked for a big company?
The bank manager is going to jail for three years for trying to defraud $390,000. The folks at Lendlease attempted to defraud taxpayers of $300,000,000.
BUT! Lendlease released its results for the year ended June 2022 last week.
A windfall of deductions
Between 2012 and 2015, Lendlease became the largest owner of retirement villages in Australia and perpetrated tax fraud. What the construction giant has done is buy retirement villages, claim a windfall of deductions by changing contracts with villagers from lease to loan, earmark the benefit of these tax deductions to his bottom line and ignore the tax law that says you can’t double dip.
Thanks to the recent publication of its financial statements, we can now see that Lendlease has finally paid income tax in Australia. It’s meager – and disguised as a far greater contribution to society than it actually is – but management revealed it paid $8 million in Australian tax for the year 2021.
For the period 2014 to 2022, Lendlease’s revenue was $120 billion, its pre-tax profit was $6.5 billion, its return on equity was over 10% and its distributions to security holders were over 2 .6 billion. And until 2021, his Australian tax payments were zero.
Meanwhile, Lendlease’s retirement village business has been under audit by the ATO for over a year. Lendlease won’t confirm the amount at stake, but it appears the company claimed more than $1 billion in duplicate tax deductions, making the case one of the biggest tax wrongs in Australian history.
Behind on your taxes? One rule for the little guy, another for Lendlease and the Big End of Town
Last week, the group published its financial statements, the notes to the financial statements and the director’s declaration that the financial statements comply with accounting standards. Lendlease has also released its directors’ report and KPMG’s auditor’s report. There is no mention in any of these documents of the ATO audit or the potential impact on Lendlease’s accounts.
There is no doubt that ASIC and other regulators will provide Lendlease’s justification for these omissions in due course, given corporate laws and mandatory accounting standards for disclosure, uncertain tax positions and liabilities. possible. Not that they will do anything about it. We’re talking blue chip blue chips here, obviously untouchable, Big End of Town.
It is only in the Lendlease tax report that the company admits that the ATO audit continues:
“The overall rating is provisional as the ATO is auditing the partial sale of our Retirement Living business during 2018 which remains in progress. Lendlease believes that its tax treatment of the partial sale of the Retirement Living business is in accordance with the law and in line with the ATO ruling (TR2002/14) on taxation of the retirement living sector. Lendlease has filed its 2018 tax return on this basis, continues to cooperate with the ATO and is awaiting the outcome of the ATO review.
A parallel to what Lendlease has done can be drawn with a second property that a residential owner might purchase. If you rent the property instead of using it yourself, you can claim the interest on the loan used to buy your rental property as a tax deduction – because you are collecting rent – but you cannot include the costs interest in the base price of the property. .
But if you’re using the house as a vacation home and not renting it out, you can’t deduct the interest, but you can include the interest on a loan used to buy the vacation home in the base price of the house. . So you can claim a deduction for an expense or include an expense in the cost base of the asset. But you can’t do both.
Unless you’re Lendlease, which claimed $1 billion in deductions and also added $1 billion to its cost base. This is the ultimate double dip.
Leading tax lawyer, now whistleblower, Anthony Watson has advised Lendlease on his tax matters for over 30 years. According to a statement filed in his case against Lendlease and his former company, Greenwoods & Herbert Smith Freehills, Watson raised the double dipping and its impropriety with Lendlease management and then the Lendlease board many years ago.
In fact, the statement filed in Federal Court says Watson met with and wrote to Lendlease officers and directors more than 20 times, pointing out the error. Continually pushed back in his efforts to do the right thing professionally, Anthony Watson finally told the ATO.
MWM asked Watson what he thought of Lendlease’s behavior and constant denials.
What am I thinking? I told Lendlease 10 years ago that what they planned and then did was not going to work. I told the board five years ago it was a fraud. I told them two years ago that their actions will become studies for students of white collar crime in the near future. So here’s what I think: some people won’t help themselves.
The ATO hasn’t helped matters by its ice-cold progress – it’s seriously juggling the interests of big international business – but as Watson has previously observed at MWM“If the ATO is not explicit about the breaches committed, it will allow the auditees to proclaim the exemption, which would be disappointing in view of the behaviors that have been revealed.”
Cold comfort for swim instructor who goes to jail for trying to claim $250,000 in bogus GST refunds, doctor sentenced to seven months in jail for non-filing, bank manager sentenced to three years in jail for attempted to defraud the Commonwealth of $390,000, and other small (or no more than average) players.
Double standards are commonplace. When will the executives of a big company like Lendlease be prosecuted?
Abracadabra: Lendlease magic tricks come home
Michael West created michaelwest.com.au to focus on high public interest journalism, in particular the growing power of business over democracy. Formerly a journalist and editor for the Fairfax newspapers and a columnist at News Corp, West has been appointed Adjunct Associate Professor in the School of Social and Political Sciences at the University of Sydney.