The Full Federal Court in Commissioner of Taxation v S.N.A Group Pty Ltd FCAFC 10 (handed down on 17 February 2026) held that service fees paid to related entities for access to intellectual property, rent rolls and staff were not deductible principally because of the lack of documentation supporting the fees.
S.N.A Group was part of the Coronis real estate group and claimed deductions under s 8‑1 ITAA 1997 for “service fees” paid to related entities for access to intellectual property, rent rolls and staff. The case involves large intra‑group service fees charged by two “asset‑holding” trusts to two “operating” companies in the Coronis real estate group, totalling almost $19 million over the 2015–2019 income years.
The relevant entities were:
- S.N.A Group Pty Ltd (SNA) – an operating company in the Coronis group.
- APTR Pty Ltd (APTR) – another operating company.
- CLAARS Pty Ltd as trustee for the Henry Trust – an asset‑holding/service entity.
- PAC Realty Pty Ltd as trustee for the Emily Trust – another asset‑holding/service entity.
Broadly, the operating companies conducted real estate and related business activities, while the trusts held key assets (rent rolls, goodwill, intellectual property, systems and staff), and charged “service fees” or “licence fees” to the operating entities.
Historically, the group had formal “licence agreements” (2005 and 2006 agreements) under which the operating entities would pay:
- A nominal annual fixed fee; and
- A percentage of gross revenue (for example, 2% of gross revenue, with sliding‑scale percentage adjustments at specified turnover milestones).
For example, one agreement provided for “Annually a fee of A$1,000 payable and two percent (2%) of the gross revenue obtained by the Licensee … with fees to be paid retrospectively with interest once the licensee turned a profit.”
Item 9 of the schedules to the agreements set out licence fee percentages that declined as annual gross sales increased, with payment timing specified as monthly or quarterly up to certain turnover thresholds and “as agreed” beyond that.
By the relevant years, however, the group was no longer calculating the fees by direct reference to those written agreements; instead, the controller (Andrew Coronis) effectively determined annual service‑fee charges as a percentage of revenue (generally in the 7–10% range) intended to give the asset‑holding trusts an overall return of no more than about 8% on the assets and expertise they provided to the operating entities.
The services and assets said to be covered included:
- Use of the Coronis brand, systems and intellectual property.
- Access to rent rolls and other revenue‑generating assets.
- Provision of staff and management functions.
- On‑charged finance‑related costs, which were at first embedded in a “service fee” code and later split out to a separate “finance on‑charge” code in the accounting records.
The Commissioner disallowed the deductions and imposed penalties, characterising the arrangements as “profit stripping” and contending that no real liabilities were “incurred” because of the informality and lack of conventional documentation. Across the 2015–2019 years:
- Total service‑fee deductions claimed by SNA and APTR together were $18,829,293 (SNA $11,916,898 + APTR $6,912,395).
- The operating entities (SNA and APTR) reported only modest profits or losses, while the trusts receiving the fees recorded the bulk of the group’s profit.
This profit reallocation, coupled with the magnitude of the fees and limited contemporaneous documentation of how they were fixed year‑by‑year, underpinned the Commissioner’s amendments disallowing the deductions and the subsequent dispute about whether liabilities in those precise amounts were in fact “incurred” in each relevant year.
At first instance Logan J allowed the taxpayer’s appeal, set aside the objection decisions and held that the service fees were deductible notwithstanding the absence of formal written contracts. The Commissioner was successful in the Full Federal Court overturning the first instance decision of Logan J.
The Full Court allowed the Commissioner’s appeal because the taxpayers failed to discharge the onus of proving that the specific service‑fee deductions claimed were in fact “incurred” in the relevant years in the amounts claimed, and therefore failed to show the amended assessments were excessive.
Onus of Proof
The Court placed greater emphasis on the taxpayers’ onus of proof, holding that oral assertions and informal practices, absent adequate contemporaneous documentation or reliable quantification, were insufficient to demonstrate that the amended assessments were excessive and what the correct assessments should have been. The evidence did not establish, on the balance of probabilities, that liabilities for service fees existed in each year in the precise amounts claimed, nor did it provide a sufficiently reliable basis to quantify any lesser deductible amount. Oral evidence and reconstructions, in the absence of adequate contemporaneous documentation or consistent calculation methodology, were not enough to displace the Commissioner’s assessments.
Incurred
The Court accepted the orthodox test that an outgoing is “incurred” for s 8‑1 purposes only when the taxpayer is definitively committed to a presently existing liability, not merely when amounts are notionally attributed or retrospectively decided within a group.
While informal arrangements are not inherently fatal, the Court found that the evidence here showed a pattern of annual, discretionary allocations of large fees between related entities, set after the event with significant flexibility as to timing and quantum. On that evidence, the Court concluded that the taxpayers had not shown that binding obligations to pay those specific amounts arose during each relevant income year, as distinct from internal management decisions about profit‑shifting or profit allocation.
Importance of Documentation
The Court placed particular emphasis on the lack of contemporaneous evidence tying the claimed amounts to any contractual formula or consistent calculation methodology. The historical licence agreements (with fixed plus percentage‑of‑revenue formulas) were not used in practice in the relevant years; instead, the controller effectively chose annual fee percentages and amounts ex post, without clear documentation or board‑level approval contemporaneous with incurrence. Accounting entries and internal “service fee” codes were treated as consequences of management decisions, not as proof that an enforceable obligation in those exact amounts had arisen when claimed. In the absence of reliable evidence to reconstruct the correct deductible amount, the Court declined to undertake an estimation. The failure of proof left the Commissioner’s assessments undisturbed.
Leaving decisions to year end or after year end to determine service fees will not be effective. Valid agreements with set formulas must be put in place at the beginning of arrangements and must be regularly updated to remain valid.
