Lendlease faces tax slug as major investors revolt

Embattled developer Lendlease’s long running tax battle is tipped to go against it, potentially inflaming the push against its board.

Lendlease chief executive Tony Lombardo. Picture: John Feder

Construction giant Lendlease has been hit with a mammoth tax bill by the Australian Taxation Office over its attempts to double dip on the treatment of the sale of a stake in its retirement living unit to Dutch fund APG.

The company is understood to be facing an initial $112m assessment from the tax office and could be on the hook for more than $300m in tax penalties, sources said.

The hit comes after years of denial by Lendlease that it would face tax issues over its handling of the disposal and it could face further actions in future.

It is understood the company has been the subject of a long-running probe by the ATO over the tax treatment of its retirement assets and this may also extend to the sale of assets at Sydney’s harbourside Barangaroo precinct.

Lendlease had previously disclosed it was facing the outcome of an audit by the ATO over the company’s tax treatment of several assets, and the company added a contingent liability for the outcome of the assessment in February connected to a $260m tax scheme that PwC Australia gave advice on.

Lendlease had previously said the outcome of the ATO’s probe is “not possible to determine at this time”.

The company declined to comment on Friday but previously said that it was “confident our tax treatment is consistent with the law and with the ATO’s 2002 tax ruling on the retirement living industry”.

It had said it lodged its 2018 tax return on that basis and intended to vigorously defend its position, should the ATO not accept it, but is expected to update the market on Monday.

Lendlease had relied on advice from PwC Australia which has been characterised as aggressive and with issues could apply more broadly as the firm has provided tax advice to a series of major social media and tech companies operating in Australia that have paid very little tax.

The company was rocked last month when John Wylie’s Tanarra Capital separately wrote to Lendlease’s board demanding it consider carving off the company’s underperforming international operations with investment house Allan Gray also pushing for radical change.

Investment house HMC Capital has become a substantial shareholder in the embattled developer and is advocating a pushing a more focused approach to lifting returns. But the shock tax bill could prompt a broader backlash from investors ahead of chief executive Tony Lombardo updating the market on a new strategy later this month.

Lendlease shares closed 5c higher on Friday at $6.28 but the stock has tumbled 16 per cent since the start of January.

In April, The Australian reported that a former senior Greenwoods & Herbert Smith Freehills tax lawyer alleged he was instructed to write an apology to Lendlease’s head of tax after repeatedly attempting to raise concerns over the construction company’s tax treatments, before being dumped from the account and seeing his pay slashed.

Anthony Watson, a tax specialist at GHSF and a member of the firm’s management committee from 2007, that month filed a new set of claims against his former employer after losing an attempt to secure whistleblower protections in the High Court.

The former tax partner maintained that several of his other claims against GHSF, including that the firm’s aggressive approach to maintaining its relationship with Lendlease, resulted in it signing off on “materially incorrect” accounts.

Mr Watson, once among the top earners at GHSF – a specialist tax adviser which was related to Herbert Smith Freehills before it was sold to PwC Australia, now the firm’s tax services business – claims he was forced out of the firm after repeatedly warning Lendlease it was claiming an almost $300m financial benefit by double-counting tax benefits from a number of projects.

This included Lendlease’s $192m takeover of the Primelife retirement group, the Jem project in Singapore and the development of the Sydney International Convention precinct.

Mr Watson has previously claimed senior figures at Lendlease had said he should “not rock the boat” and stop raising concerns about its tax treatment, before moving to force him off their accounts resulting in GHSF removing from the firm.