Besieged property giant Lendlease is facing an $160 million-plus legal battle with the Australian Taxation Office over flogging most of its retirement village interests to superannuation funds.
After three-years of speculation about a tax office investigation, the Sydney-based developer confirmed it had been slapped with $112 million bill linked to its 2017 sale of a 25 per cent in Lendlease Retirement Living for $450 million.
The sale to Dutch group APG was followed by deals in 2021 and 2022 where industry fund Aware Super agreed pay $910m for a total 49.9 per cent stake in the villages.
Lendlease told the stock exchange on Monday that it could face another $50m of tax bills, excluding interest, if it the tax office issued similar assessments related to the Aware Super sales.
Confirmation of the assessments comes more than six years after ousted Herbert Smith Freehills lawyer and account Tony Watson allegedly warned Lendlease about its planned tax treatment of its retirement village dealings.
Mr Watson is continuing to fight Freehills and Lendlease in the Federal Court over his claims he was ousted after he rejected suggestions he “look the other way” about the property group’s tax plans.
Lendlease is now set for another Federal Court fight, vowing to dispute the $112m assessment disclosed to the stock exchange on Monday.
Lendlease told the stock exchange on Tuesday that the bill featured a “one-off” $62.4m capital gains tax hit related to pulling the retirement village assets being pulled out of the consolidated company.
The property group said it copped a $25.2m of “additional tax” over its initial sale of its initial 25 per cent in 2017.
The tax office also claimed $24.5m of interest on the allegedly unpaid tax.
Underlying the battles is the cost base used by Lendlease in assessing the gain on its sale to APG.
That cost base is believed to have included liabilities assumed by Lendlease in a $1.7 billion restructure of its arrangements with retirement village residents three years earlier.
Lendlease reportedly claimed income tax deductions on those dealings.
The company told the stock exchange its tax cost base calculations were consistent with the law and the tax office ruling on retirement living industry.
It said the tax office now argued that “certain liabilities assumed by Lendlease should be excluded from the tax cost base when calculating the gain”.
“Lendlease proactively contacted the ATO to review the tax treatment applied to the 2018 sale eight months prior to submitting its tax return and also obtained independent advice before lodgement,” it said.
“Lendlease is confident of its position and will dispute the amendment assessment,” it said.
The company gave the $50m estimate of the potential bill on the sales to Aware Super based on assumption the tax office would apply its “same treatment” to the 2021 and 2022 deals. If they are upheld by the courts, adverse assessment by the tax office against Lendlease could reportedly also lower the capital gains tax cost base of APG and Aware.
A lower cost base would likely increase the tax payable by the retirement savings funds should they eventually get out of the former Lendlease retirement villages at a profit. Those villages are now branded Keyton.
Aware Super is also an 8.6 per cent shareholder in Lendlease and has other ventures with the listed group. Aware Super has been contacted for comment.