Former Lendlease lawyer Tony Watson saved the country $300m as whistleblower to the biggest tax fraud in Australian history. Now he’s lost his house. Michael West reports.
If you have a few bob spare, please tip in for Tony Watson’s legal fund. He is a victim of Australia’s flawed whistleblower laws and is seeking justice.
Apart from the crushing paradox that Watson, the man who has saved the government $300m by exposing the Lendlease tax rort has lost his home for doing Australia a service, for doing the right thing, the Australian Tax Office appears to have done a cosy backroom deal with the property group.
It’s a deal which no ordinary taxpayer could hope to get, and it enshrines the double standard in policing and regulation.
Lendlease, after arguing that it had no case to answer on ‘double dipping’ on tax deductions to the tune of $800m, finally conceded it was being audited last year and the Tax Office has already clawed back a payment of $112m. That’s the first of three tranches.
But here’s the thing. At the time the ATO issued this amended assessment they included primary tax and interest. But no penalties. As Lendlease is a ‘significant global entity’ penalties could have been applied at 150% of the tax avoided. It looks like special treatment, a cosy deal.
We have come to expect regulators shy away from pursuing company directors at the Big End of Town but no penalties? What were they told in 2018 when the deal was struck?
Whistleblower persecutions. The cost of ignoring those who dare speak out.
Lendlease has told the market it has paid $110m and they have $75m to come. That would appear based on the optimistic view that not only won’t they be accosted with penalties but that no interest is due either, even though the first sketchy tax return was seven years ago in 2018.
Even so, as the company is on track to make net profit after tax this year of $100m, these are considerable sums.
The magnitude of a penalty depends on whether the tax rort was “reckless” – in other words they really didn’t think about it much – or “intentional”. And it is hard to prove intent; but given they were warned about their tax chicanery as early as 2013, ignored multiple warnings from their own tax adviser, then argued the toss with the ATO while protesting innocence for six years, it seems more deliberate than reckless.
In any case, it’s not a deal available to ordinary taxpayers. Yet the scale of the scam is immense; the Plutus Payroll fraud was previously said to be the biggest tax con in Australian history, and Lendlease dwarfs that.
Hardy elementary dear Watson
Tony Watson became aware of several tax scams Lendlease was staging in 2013. He raised it with the relevant senior Lendlease executives, who were best placed to fix it. They rebuffed him.
He was removed from the Lendlease account in 2014. His health declined and he was dismissed while on sick leave in 2016. He went to the Board in 2017 where they too rebuffed him. Then he told the ATO.
We ran the first story in May 2018.
Watson bought his claim for compensation, under the whistleblower laws, in 2022. A trial is scheduled for June. He is just one man against the big law firms hired by Lendlease and PwC. And he has already run out of money to carry his claim.
Australia ought to collect $200m to $400m from his actions (depending on interest and penalties. And for his actions, he has lost his job, his home and his savings.
What Lendlease did
Lendlease did two things wrong: it double-claimed over half a billion dollars’ worth of deductions in its retirement living business – the “double-dipping”. Primary tax avoided was $163m, of which ATO has issued an amended assessment for primary tax (excluding interest and penalties) for $88m.
But that was for the first 25% sale. Lendlease claims the subsequent sales of the two 25% tranches will cost it another $50m in primary tax, and a sale of the remaining 25% would be another $25m.
The second thing they did was to falsely claim normal revenue was a capital gain and so enjoyed unavailable benefits, defrauding taxpayers of over $20m.
How did Lendlease double-claim over $540m of deductions? They wrongly treated a revenue profit as a capital gain, so they could utilise otherwise worthless capital losses against it. Primary tax avoided $20m.
For Watson, the tricky legal issues are that, as a whistleblower, you must prove that you made a protected disclosure and secondly must prove that it cost you. Were you a victim? But of these are not easy for him to establish as the company and its lawyers have warned him he won’t get access to records.
How they did it
Year 1: In simplified terms, Lendlease buys a Retirement Village (RV) for $1000. The RV is comprised of Land & Buildings $200 and Resident Liabilities (lease premiums repayable) $800. It then swapped out of the resident contracts, paying out the lease premiums repayable and receiving loans repayable. No money actually changes hands.
Year 4: Lendlease sells the RV for $1000, selling the Land & Buildings for $200 and the Resident Liabilities (loans repayable) for $800. No commercial profit, and no other events occur.
Tax Deductions
Lendlease claimed $800 tax deductions when it swapped contracts.
Lendlease Calculation of gain on sale
Benefits Lendlease harvested
Under both scenarios, Lendlease makes no commercial profit or loss, and claims $800 in tax deductions.
Under the Lendlease calculation method, the company has claimed tax deductions for the $800 lease premiums repayable, and included the same $800 in the cost base of the RV. Under the Correct calculation method, the $800 is not included in the cost for capital gains tax purposes.
Lendlease harvested over $500m in tax deductions this way. And kept the same $500m in its tax cost base. This enabled Lendlease to avoid tax on $500m, worth $163m to its bottom line.
Editor’s Note: Counsel interested in taking Tony Watson’s case for a success fee, please touch base.
Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.