Lendlease to fight ATO tax bill despite discount, penalty holiday

Lendlease will save at least $17.1m from a deal with the ATO, which waived chunks of penalty interest, but the construction giant said it would still fight the decision.

Lendlease CEO Tony Lombardo. Picture: Jane Dempster

Lendlease will save at least $17.1m from a deal with the Australian Taxation Office, which waived chunks of penalty interest, with a tax whistleblower warning the deal came despite the property giant failing to follow the law.

As it ruled off its accounts on Monday, Lendlease revealed it had handed over $44m to the ATO as an upfront payment to the tax office after being slapped with a $112.1m amended assessment last year.

This came after the ATO finalised a review of Lendlease’s tax treatment of a sale in a stake in its retirement living business, which had been subject to a lengthy review.

Detailing its accounts, Lendlease revealed the ATO had not hit the property giant with penalties and had also softened the blow by slashing shortfall interest on the tax bill from $24.5m to just $7.4m.

Despite this, Lendlease told shareholders it had formally objected to the amended assessment from the ATO and requested a review of the decision. The company also warned it would pursue litigation “should its objection to the ATO be unsuccessful”.

The ATO completed its review of Lendlease’s 2018 tax dealings around its Retirement Living village business.

Lendlease chief executive Tony Lombardo said the group had been “very clear” in noting the contingent liabilities arising from the ATO dispute.

“From a Lendlease standpoint we’ve received our independent legal advice in respect to the position we’ve taken,” he said. “We believe that the tax treatment for that partial sale of the retirement living business is in accordance with the law.”

This comes after the ATO completed its review of Lendlease’s 2018 tax dealings around its Retirement Living village business, which the property giant has largely divested.

Lendlease sold 75 per cent of the business in three transactions, which raised a total $1.4bn.

This was structured in a 2017 deal that saw Lendlease sell Dutch pension giant APG 25 per of the business, raising $450m.

In 2020 and 2021 Lendlease sold another two tranches of the business to Aware Super, netting almost $950m.

Sources have said if the ATO were to come after Lendlease on these two later sales the property giant could face a tax bill in excess of $300m.

Mr Lombardo, who was Lendlease’s chief financial officer from 2011 to 2016, said the company would continue defending the matter with the ATO.

Lendlease based the tax treatment of the retirement assets on advice from PwC Australia and against the views of the firm’s then chief tax adviser Greenwoods & Freehills partner Tony Watson.

Mr Lombardo said PwC had advised Lendlease and that the company had “followed the law”.

“They’ve given us advice, and so, of course, that advice is still on foot from PwC,” he said.

“In terms of the matter, we’ve got appointed our own legal counsel who is managing the current case before the courts.”

Lendlease told shareholders if successful it could recoup the $44m handed over to the ATO as the upfront payment.

But Mr Watson, who is suing both Lendlease and his former firm Greenwoods & Freehills, warns Lendlease did not follow the law. He told The Australian Lendlease was wrong in suggesting it was “acting in accordance with the law”, noting the firm had repeated the assurance more than 20 times before being backhanded by the ATO’s amended assessment.

“It doesn’t hurt their audit at all that KPMG, which was the auditor when it happened, continues to be the auditor,” Mr Watson said.

Mr Watson’s case, first lodged in April 2022, alleges he was sacked by Greenwoods & Freehills after Lendlease took issue with his warnings about PwC’s tax advice.

Originally published as Lendlease to fight ATO tax bill despite discount, penalty holiday