It’s common practice for accountants dealing with groups of companies and trusts (that are not tax consolidated) to pull up a spreadsheet when reviewing the year-end financial position, and then recommend that the group management charge a “management fee” from a group member with a loss to another member with income, in order to make the tax position for the whole group as efficient as possible.
This has been justified on the basis of an actual written or verbal agreement between the group entities with similar controlling minds. This practice features prominently each year under the cover of ‘year-end tax planning’, but a recent court ruling from the Full Federal Court in Commissioner of Taxation v S.N.A Group Pty Ltd [2026] FCAFC 10 (17 February 2026) has pulled off the casual clothes that such tax planning sometimes wears and demands something much more formal.
Following a restructure in the mid-2000s, the Coronis Real Estate group consisted of two main operating companies, one for sales, and the other for property management, while a number of trusts held assets, trademarks and key staff. Written agreements provided that the companies had to pay the trustees ‘service fees’ according to the level of use of the trusts’ assets.
The only problem was that these service agreements had expired in 2015. The judge in the court below found that the service fees arose out of an ‘inferred contractual liability’ arising partly from writing and partly from conduct (including the intention and actions of the managing director) and allowed deductions for the payments.
However, on appeal, the Full Federal court held that a contract only exists on the basis of the actual words and conduct of the parties, and the subjective intention of parties is not relevant in determining whether a contract exists, and even though a contract to pay management fees could (rarely) be inferred from the acts and conduct of the parties, the conduct must still be capable of proving all the essential elements of an express agreement.
The uncommunicated private thoughts and intentions of the common directors or director of companies that are party to service or management fees are irrelevant, and whether there was an obligation to pay a reasonable sum to use the trust’s assets under an implied contract or the law of restitution and against unjust enrichment was also dismissed.
A common feature of end of year management fees is also that they usually vary with results, something that the court said counted against such fees approaching a ‘fair and reasonable’ price for services provided or value of goods supplied.
The court noted that “the absence of a tax invoice is evidence that is inconsistent with an objective outward manifestation or communication between the taxpayers and the trustees of the existence and acceptance of a contractual liability to pay a fee for a service.”
In conclusion, without a contractual liability, there was no presently existing legal liability to pay any amount at the time the service fees were actually paid, and therefore no basis for a tax deduction for any amount at all.
The decision has significant implications for taxpayer groups, it mandates well-articulated agreements (or written exchanges) to back up management and service fees essential, whether paid as part of year-end tax planning or at other times. Although it is not for the ATO to say how much a taxpayer should expend in operating a business (Ronpibon Tin line of cases) it has implications for intra-group fees that follow no consistent formula over time, and it is one more persuasion for groups eligible to consolidate for tax purposes, to do so. In addition to agreements, contemporaneous documentary evidence of the fee charged (eg tax invoice) is necessary to evidence the transaction took place (ie a journal entry is not sufficient evidence of a transaction).
Exant Advisory can help business groups put robust, defensible management and service fee arrangements in place. We can review existing intra‑group practices, identify where documentation is missing or outdated, and help implement clear agreements that support deductibility and withstand ATO scrutiny.
If you would like support in this area, please contact your usual Exant advisor or alternatively contact our Tax specialists, Jamie Towers and Dean Rallison, via the form below or on 07 3218 3900.
Author: Dean Rallison