The law is meant to wear a blindfold, meting out equal treatment to rich, poor and everyone in between. And the taxman is supposed to make rulings without fear or favour. Does the handling of corporate high fliers show otherwise? Michael West reports on the big Lendlease tax scam.
The Australian Tax Office published its latest Tax Crime Prosecution Studies just last month. It features a South Australian man receiving a criminal conviction for providing false documents, a swimming teacher going to jail for attempting to claim $250k of false GST refunds, a doctor sentenced to seven months jail for non-lodgements, a bank manager sentenced to three years’ jail for trying to defraud the Commonwealth of $390,000, a NSW man in for two years for defrauding $171,000, and so on.
All fine. But what is wrong with that list? What is wrong is that another cohort is nowhere on the list. Lendlease management, PwC partners, MinterEllison, and KPMG for instance, those who defrauded the Commonwealth, who tried to cover it up, who hijacked the institutions of the Law Council and Tax Institute to present false submissions, and who prevailed on other professional firms to themselves submit false arguments to the ATO.
Not one white-collar sentence.
The Tax Office treads a fine line. It carries on a multitude of simultaneous prosecutions, audits, investigations. And tax law is grey, nuanced, extremely sophisticated. Yet there is no doubt that confidence is what is Australia’s strongest regulator would be enhanced by prosecutions of the strong and powerful as well as the weak and vulnerable. Why should those people attempting to defraud the Commonwealth avoid prosecution just because they worked for a big company?
The bank manager goes to jail for three years for attempting to defraud $390,000. The people at Lendlease attempted to defraud taxpayers of $300,000,000.
BUT! Lendlease released its results for the year ended June 2022 last week.
A bonanza of deductions
Between 2012 and 2015, Lendlease became the largest owner of retirement villages in Australia and perpetrated a tax fraud. What the construction giant did was buy retirement villages, claim a bonanza of deductions by changing the contracts with village residents from lease to loan arrangements, book the benefit of those tax deductions to its bottom line, and ignore the tax law that says you cannot double dip.
Thanks to the recent release of its financial statements, we can now see that Lendlease has finally paid some income tax in Australia. It is measly – and dressed up as a far bigger contribution to society than it actually is – but management has disclosed it has paid $8 million in Australian tax for the 2021 year.
For the period 2014 to 2022, Lendlease’s revenue was $120 billion, its pre-tax profit $6.5 billion, its return on equity over 10%, and its distributions to security holders over $2.6 billion. And until 2021, its Australian tax payments were zero.
Meanwhile, Lendlease’s retirement village business has been under audit by the ATO for more than a year. Lendlease will not confirm how much is at stake, but indications are that the company has double-claimed more than a billion dollars in tax deductions, making the affair one of the bigger tax rorts in Australian history.
Late on your tax? One rule for the small guy, another for Lendlease and the Big End of Town
Last week the group released its financial statements, the notes to the financial statements, and the director’s declaration that the financial statements comply with the accounting standards. Lendlease also released its directors’ report and KPMG’s auditor report. There is not one mention in any of those documents of the ATO audit or the potential impact on Lendlease’s accounts.
Doubtless ASIC and other regulators will in due course purvey Lendlease’s justification for those omissions, given the corporate laws and compulsory accounting standards on disclosures, uncertain tax positions and contingent liabilities. Not that they will do anything about it. We are talking about blue chip of blue chips here, palpably untouchable, Big End of Town.
Only in the Lendlease Tax Report does the company confess the ATO audit continues:
“The overall rating is provisional because the ATO is conducting an audit of the partial sale of our Retirement Living business in the 2018 year which remains ongoing. Lendlease believes its tax treatment of the partial sale of the Retirement Living business is in accordance with the law and consistent with the ATO’s ruling (TR2002/14) on the taxation of the retirement living industry. Lendlease lodged its 2018 tax return on that basis, continues to co-operate with the ATO and awaits the outcome of the ATO’s review.”
A parallel with what Lendlease has done can be drawn with a second property which a residential owner might buy. If you rent out the property instead of using it yourself, you can claim interest on the loan used to buy your rental property as a tax deduction – because you are receiving rent – but you can’t include the interest expense in the property’s cost base.
But if you use the house as a holiday house, and do not rent it out, you cannot claim the interest as a deduction, but you can include the interest on a loan used to buy the holiday home in the home’s cost base. So, you can claim a deduction for an expense or include an expense in the asset’s cost base. But you cannot do both.
Unless, that is, you are Lendlease, which claimed $1 billion as a deduction and put $1 billion in its cost base too. It is the quintessential double dip.
The whistleblower
Anthony Watson, a leading tax lawyer, now whistleblower, advised Lendlease on its tax affairs for more than 30 years. According to a statement of claim filed in his case against Lendlease and his former firm, 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 of claim filed in the Federal Court states Watson met and wrote to Lendlease executives and directors more than 20 times, pointing out the error. Continually rebuffed in his efforts to do the right thing professionally, Anthony Watson eventually told the ATO.
MWM asked Watson what he thought of Lendlease’s behaviour and constant denials.
What do I think? I told Lendlease 10 years ago that what they planned and then embarked upon would not 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 glacial progress – it is juggling seriously large international corporate interests – but as Watson previously observed to MWM: “If the ATO is not explicit about the breaches committed, it will allow those under audit to proclaim exoneration, and that would be disappointing in light of the conduct which has been revealed.”
Cold comfort for the swimming teacher going to jail for attempting to claim $250k of false GST refunds, the doctor sentenced to seven months jail for non-lodgements, the bank manager sentenced to three years’ jail for attempting to defraud the Commonwealth of $390,000, and the other small (or no more than medium) players.
Double standards are rife. When will the executives of a big corporate such as Lendlease be prosecuted?
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.