Case Review: The Importance of Formal Agreements Between Related Parties for Tax Liability

Case Review: S.N.A Group Pty Ltd v Commissioner of Taxation

A recent decision of the Federal Court of Australia provides an important reminder to businesses about the need for clear and documented agreements when claiming tax deductions for payments made between related entities.

Commissioner of Taxation v S.N.A Group Pty Ltd [2026] FCAFC 10

In conducting business in the real estate sector, SNA Group Pty Ltd used assets owned by two related-party trustee companies including intellectual property such as trademarks.

The companies paid the trustees a fee for the use of the assets as calculated in accordance with the provisions of formal written agreements executed in 2005. The agreements ended in 2015.

The companies continued to use the assets and paid ‘service fees’ to the trustees of the trusts in the financial years of 30 June 2016 to 30 June 2019. They claimed the payment of these fees as tax deductions under section 8-1 of the Income Tax Assessment Act 1997 (Cth).

The Commissioner of Taxation disallowed the deductions and issued amended income tax assessments along with administrative penalties.

The Taxpayers’ Argument

The companies argued that although the written agreements had expired, a new agreement should be inferred from the parties’ conduct and the existence of the earlier contracts.

They submitted that the ongoing use of the assets and the continued payment of service fees demonstrated that the parties had effectively entered into a new arrangement. According to SNA Group , the fees paid represented a value that was “fair and reasonable” for the use of the assets.

The Court’s Findings

The Full Federal Court rejected this argument and held that no agreement could be inferred between the parties. The circumstantial evidence, including the accounting entries and previous formal agreements, was not enough to support the existence of a current underlying agreement.

In particular, the Court found there was:

1. No evidence of communications between the two related party trustee companies indicating any accepted obligation to pay a fee calculated on a “fair and reasonable” basis; and
2. No evidence that the director of the relevant companies had considered or determined what a “fair and reasonable” fee would be.

On that basis, the Court concluded that no enforceable agreement existed after the original contracts expired. As a result, the payments made to the trustees could not be supported by a contractual obligation.

The companies were ordered to pay the additional income tax, administrative penalties, and the Commissioner’s legal costs of the appeal to the Full Federal Court.

How We Can Help

Contact our Commercial Team if you have a business operating through trusts, asset-holding entities or related companies and either do not have the above mentioned agreements in place or have agreements that need to be reviewed prior to the end of financial year, to ensure that you do not become liable for unnecessary income tax penalties.