Busybody: Law Council does a strange favour for Lendlease, endorses big tax hoax

by | Jul 30, 2020 | Economy & Markets

The Law Council has bounded to the rescue of Lendlease as the Tax Office closes in on the construction giant’s billion-dollar tax rort. The stakes are high. Michael West explores what appears to be a classic mates deal to rescue a large tax rorter at the expense of all other Australian taxpayers.

Since the turn of the century, the Australian Tax Office has published more than 1000 draft tax rulings, or “determinations”. In that time, the Law Council of Australia has made submissions to only three. So why has it suddenly been moved to amass a 4000-word submission to an obscure ATO ruling over tax deductions? 

The Law Council describes itself as the “voice of the Australian legal profession”, a voice to promote justice and the integrity of the legal profession. It concerns itself, mostly, with matters of significant national and international importance.

Lendlease, as revealed in these pages, has pulled off one of the largest tax accounting rorts this century, a rort that has rendered its financial accounts incorrect for seven years, and in so doing has breached the Corporations Act no fewer than 14 times, if you count its half-year accounts as well. This, on top of its failure to pay tax in Australia for a decade, despite high returns to shareholders and executives, and plenty in taxpayer-funded government contracts.

Tender Truncheons: Lendlease concedes Tax Office closes net on retirement village racket

The construction juggernaut denies it has done anything wrong. Yet last year, the Tax Office released a draft tax determination (a determination is a short ruling on a single point of tax law) on 30 October 2019. In that draft determination (TD2019/D11), the ATO restates the straightforward point that the cost base of an asset is reduced by any amount in that cost base for which a deduction is claimed.  

The ATO’s draft determination is painful for Lendlease because, in this determination, the ATO confirms that Lendlease’s double-dipping scheme (by which it claimed a billion dollars in tax deductions and booked $300 million in profit), is disallowed. 

This scheme was first publicly revealed here a little over one year ago:

Lend Lease: double dipping and Dutch tripping

When the ATO finalises its determination, the directors of Lendlease will again take advice on continuous disclosure. The Lendlease directors have so far failed to notify the market that Lendlease’s accounts are materially misstated, despite those directors being made aware of the issue nearly three years ago. 

The management of Lendlease has claimed around $1 billion of tax deductions, meaning they have fleeced everyday Australians of $300 million. The Law Council, however, is trying to help Lendlease get away with it.

Who really wrote the Law Council submission?

In an unusual manoeuvre, the Law Council prepared a nine-page submission, dated December 12, 2019, on the ATO’s draft determination. The Law Council is highly critical of the ATO’s draft determination. 

It claims the ATO view would cause economic double taxation. It claims that this double taxation “would considerably and adversely affect the economics of investing in retirement villages involving lease premium resident payments. This is a powerful contextual reason for not taking the strained construction advanced in the draft TD. It tells against the appeal to policy and context in paragraph 6 of the draft TD”.

The Law Council even provides an example of this double tax:

Simplified example 

Suppose the following facts: 

  • an operator buys a village for $900 cash and assumes a resident liability to repay a lease premium of $100; 
  • the resident leaves and the operator pays that resident $100 cash; 
  • a new resident replaces the old and pays the operator a new lease premium of $100; 
  • the operator sells the village for $900 cash and the buyer assumes the second resident liability in the amount of $100. 

In this example, the net cash and economic position of the operator at the end is nil. The tax deduction for the discharge of the liability offsets the assessable income comprising the incoming payment. But there is a capital gain of $100, on the view expressed in the draft TD. This is because the deduction later claimed for discharge of the first liability causes the amount of $100 originally included in cost base by section 112-35 to be excluded, but nothing causes the capital proceeds of the sale to be reduced by the amount previously assessable.

The operator therefore is taxed on a gain it never economically makes. This is inappropriate. 

(For simplicity, this example assumes only a single resident at one time, and no capital growth. But the same principle would apply in an example with more complex facts.) 

The draft TD for its part does not identify any examples or practical cases of concern, so it is difficult to assess the broader impact of the draft TD or whether it leads to appropriate outcomes in other cases.”                                                         

The Law Council is wrong

An eminent tax lawyer explained to Michael West Media, “The claim by the Law Council that the ATO’s view would result in double taxation is false. The example submitted by the Law Council to demonstrate the proposition is blatantly wrong. The double tax claim, and the example, have been fabricated by the authors of the submission to mislead and so produce an incorrect appearance.” 

The Law Council was given the opportunity to explain its opinion but chose instead to respond with a brief fob-off:

The Law Council’s Sections and Committees provide advice to the Law Council on a range of specific legal issues and contribute to our submissions. Committee members are legal practitioners with specialised legal knowledge and experience who freely contribute their time and expertise.

Four thousand words is a very large “free contribution of time and expertise”. Michael West Media is not aware of any other company to which the ATO ruling is directed, which begs the question of why the Law Council would expend such large resources on assisting one private corporation in its tax affairs, to the detriment of all other Australian taxpayers. 

Law Council’s example correctly explained by an expert

Take exactly the same facts the Law Council used:

  • an operator buys a village for $900 cash and assumes a resident liability to repay a lease premium of $100; 
  • the resident leaves and the operator pays that resident $100 cash; 
  • a new resident replaces the old and pays the operator a new lease premium of $100;
  • the operator sells the village for $900 cash and the buyer assumes the second resident liability in the amount of $100. 

Correct calculation of gain on sale

Proceeds  $1000

Cost            $900   (being original cost reduced by the $100 deduction claimed: s110-45(2))

Gain          $100

Reduction   $100 (being reduction for assessable lease premiums received: s118-20(1),(1A)).

Net Gain        0


The operator makes no commercial profit, claims $100 in tax deductions for the lease premiums repaid, and returns $100 as assessable for the lease premiums received. The amount which has been claimed as a tax deduction is removed from the cost base for capital gains tax purposes under s110-45(2), and the taxable amount received on the grant of the lease premiums reduces the gain under s118-20.   

“The submission prepared and lodged by the Law Council makes no mention of s118-20,” says a tax source. “The failure to mention s118-20 is again particularly odd, since that section is commonly known by all tax advisers, and is detailed and explained several times in the very tax ruling that the Law Council quotes from in its submission. In fact, the Law Council describes that ruling as the comprehensive statement of the income tax regime for retirement village operators.

“So the Law Council writes in its submission that TR 2002/14 is the comprehensive statement of the income tax regime for retirement village operators.  And yet the Law Council omits any reference to s118-20 in its submission, and in particular chooses to ignore the paragraphs in TR 2002/14 which make it clear there is no double tax.” 

Why, then, did the Law Council concoct its mysterious “double tax” argument and dubiously claim there would be other negative outcomes if the ATO finalised the determination?  

The only compelling explanation for this strange bout of busybody behaviour by the Law Council is that it has jumped into the fray to do a favour for Lendlease.  

Taxman closes in on Lendlease’s “magnificent” $1 billion tax dodge

The management at Lendlease and KPMG – its auditor since 1958 – have committed the biggest tax accounting heist this century and are desperate to avoid having to disclose that their accounts are, and have been, materially misstated for seven years. So Lendlease management appears to have arranged, furtively, for ‘friends’ to hijack the Law Council submission, and so attack the thing that threatens Lendlease.  

Lendlease has fleeced the Australian public of around $300 million, and the Law Council is trying to get Lendlease off the hook. 

Dodgy omens

Most galling of all is the call by the Law Council that if the ATO were still minded to go ahead with its determination, the ATO should make the determination apply only prospectively. In other words, the Law Council is telling the ATO to excuse Lendlease for stripping Australian taxpayers of $300 million, but if anyone else does it in the future, it should nail them.  

“The Law Council is a representative body, and should act independently and fairly,” says the tax source. “Not be a mouthpiece for a corporate grifter trying to cover up its misdeeds. To restate the Law Council’s own words: In particular, no one should be regarded as above the law and all people should be held to account for a breach of law, regardless of rank or station.”

In his final report of the Royal Commission into the misconduct of the banks, Commissioner Kenneth Hayne highlighted the relationships between culture, governance, remuneration and misconduct. Commissioner Hayne described the culture of an entity as ‘the shared values and norms that shape behaviours and mindsets’ within the entity. But he also allowed for the definition of ‘culture’ as ‘what people do when no one is watching’.

Lendlease has carried out a huge tax-stripping operation, wilfully and wrongly transferring $300 million from the Australian public to the profits of the company and then to the pockets of the executives who effected it. When I asked the Chairman, Michael Ullmer, about the matter at last year’s annual meeting, he declared that Lendlease had complied with the main ruling on retirement villages: TR 2002/14. 

Lendlease has used that line at least three times; claiming that what it has done is sanctioned by the ruling though is acting in direct contradiction of that ruling, apparently trying to force a truth by repetition. 

The ease with which Lendlease seemingly hijacked the submission of the Law Council is disappointing, but is another example of Lendlease’s behaviour.  When the lawyers for 100-year-old war veteran Mr Egon Pederson wrote to Lendlease to ask them to comply with the law and repay his money, the in-house lawyer for Lendlease simply concocted a reason for refusing; that the law can only help residents like Mr Pederson in cases of ‘severe hardship’. 

Lendlease puts 100-year-old WWII survivor through the retirement village wringer

There is no such test.  

One of the most outrageous claims by Lendlease is that there is another taxpayer, somewhere, paying tax twice on $1 billion. We would like to meet this person – as Lendlease seems to be claiming it is actually scamming him, not the Australian taxpayers.  

Chairman Michael Ullmer was pilloried by Senator Rex Patrick over Lendlease’s tax behaviour. In response, Lendlease claimed it wanted to provide the senator with “accurate information” and clarity around their tax arrangements; instead, Mr Ullmer and Mr McCann deflected.   

Crony Capitalism: Government fights off move to shut loophole for old-money billionaires


The following questions were sent to the Law Council:

  1. Who proposed that the Law Council prepare a submission on tax determination 2019/D11? 
  2. Why was the proposer interested in it?
  3. Who had primary carriage of the submission for the Law Council?  Did a person on the Tax Committee prepare the first draft?  Which person?
  4. Who had input into the submission? 
  5. Who reviewed it?  
  6. Did anyone from outside the Tax Committee have input into the submission?
  7. Were Lendlease’s interests known to anyone on the Tax Committee when the submission was prepared?  Who knew of Lendlease’s interests?  Who advised that person of Lendlease’s interests?
  8. Why did the Law Council propose to make the determination only prospective?  
  9. Were any payments or other benefits made or promised to anyone who wrote the submission?  The promise of future work for anyone on the Tax Committee, or their firms, who prepared a submission criticising the determination?
  10. What parameters and checks do you have in place to stop the hijacking of your submissions?  


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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