Lendlease tax boondoggle bigger than the hole it left in Sydney Football Stadium

When it comes to governments and their taxpayers, Lendlease subscribes to the “heads you lose, tails we win” philosophy of corporate governance.

The NSW Government had budgeted $729 million for the rebuild of the Sydney Football Stadium. Lendlease wanted more money. And welshing on the deal has cost taxpayers plenty.

A penchant for corporate welfare, for swiping from taxpayers while wooing governments for special dispensations, is not unusual for large corporations. The difference with Lendlease is that it gets a lot of its revenue from governments in the first place. The company has still not responded adequately to revelations here that it pulled off a $1 billion retirement village heist.

Lend Lease: double dipping and Dutch tripping

Lendlease, and for that matter its tax advisors from PwC, have long had the press on a string so you won’t be reading about the retirement village boondoggle elsewhere.

Word is the Tax Office is still looking into it and may issue a Draft Ruling at some point, which means Lendlease can either use shareholder money to fight it and soak up taxpayer money by exploiting the court system, or it can backtrack a little, pay a settlement and claim the whole thing was just a technical tax matter.

LendLease will be thinking it has to avoid this second approach, as it would involve an admission that its financial reports have been wrong all along. But the fact of the matter is that their accounts have been wrong all along. If the company chooses to run the case, they will lose, and they will still have to restate the accounts. Moreover, a comprehensive loss will demand scrutiny of the company’s motives in contesting the ATO view.

It is is worth considering the big picture as to corporate welfare.

Despite the carnage on the sharemarket this year, following the group’s large asset write-offs, Lendlease’s headline figures have been strong in recent years

Over the six years from 2014 to 2019, LendLease earned $92 billion, realised profit before tax of $5.32 billion, had an average Return on Equity for security-holders of 11.7 per cent, and returned to security-holders $2.09 billion.

Over the same timeframe, it paid exactly $0 in Australian tax.

Abracadabra: Lendlease magic tricks come home to roost

In June last year, we published a story saying Lendlease had been double-dipping on its tax claims up to a billion dollars. It had been buying villages, claiming a bonanza of deductions by changing the contracts from lease to loan arrangements, booking the benefit of those deductions to its bottom line, and ignoring the tax law that says you can’t double dip.

On September 4 2018, the ATO’s Second Commissioner Jeremy Hirschhorn addressed the Senate Economics References Committee on the Financial and Tax Practices of the For-Profit Aged-care Providers:

“I think there is a suggestion that there is a double-dip somehow in both having some sort of depreciable cost from the assumption of liabilities and getting a reduced capital gain when things are sold. There is a ruling in consultation as we speak that will confirm that in our view there is no double dip … We have some of our smartest technical people analysing it and have reached a view on the law as it is that there is no double-dip. I’m sure there will be many interested readers of the ruling when it is ultimately issued.”

There is no evidence that Hirschhorn was referring to Lendlease, but there is no evidence otherwise either. And Lendlease’s denials have not been credible.

No doubt, behind the scenes, Lendlease and its auditor of 60 years KPMG, along with accounting firm PwC which advised on the transactions, have been working feverishly to change the ATO’s mind, and to delay the issue of the ruling.

Taxman closes in on Lendlease’s “magnificent” $1 billion tax dodge

We say Lendlease has become the biggest owner of retirement villages in Australia on the back of a tax rort. It was willingly paying more than market value for the villages it bought because it was nailing Australian taxpayers for a subsidy of the purchase price.

Lendlease would buy the village, promptly claim a tax deduction for most of the purchase price, book the value of that tax deduction to profit, and use the tax deductions to offset tax payable on its other Australian businesses.

In October 2015, CEO Steve McCann said: “I’ll now talk about the retirement business. I made the observation already, that it’s reached a level of maturity. We’ve worked very hard to get this to an operating performance that’s attractive. It has been growth through acquisition. There have been a lot of opportunities in the last three years where we believe there have been mispriced assets and we have built our portfolio very attractively over that timeframe. We’ve now got about $1.7 billion invested”.

The retirement villages were not mispriced. Lendlease was simply claiming 90 per cent of every amount it paid as a tax deduction, effectively making Australian taxpayers buy a third of the villages for Lendlease.

For some idea of scale, the Sydney Football Stadium is to be rebuilt with a total contract price of $729 million. A brand new stadium in the heart of Sydney. Yet Lendlease has claimed hundreds of millions more than the $729 million from Australia’s taxpayers in this rort.

The irony is that the construction group pulled out of rebuilding the Football Stadium because it claimed its profits from the deal wouldn’t be high enough. But its disclosed profit (albeit bumped up by accounting tricks) is $5.3 billion. Revenue $92 million, tax zero in Australia.

Lendlease has been inflating its profits and retained earnings for years. Hitting up Australia’s taxpayers to simultaneously avoid tax and artificially inflate profits. Result? , big bonuses for senior executives.

For 2019, the Lendlease board appointed PwC as its independent remuneration adviser. They assert that strict protocols have been observed to ensure that PwC was independent.

However, PwC also advised Lendlease on how to effect the biggest tax accounting trick in recent Australian history, and then was appointed by Lendlease to advise how the excessive bonuses thereby payable were to be handed out to the executives who presided over the industrial scale tax avoidance.

It is hard to see then, under the circumstances, how it can be claimed that PwC is independent; unless they are contending PwC is independent of scruples.

What all this shows is that there is one set of rules for ordinary people and entirely another for large, politically connected corporations. It is to be hoped that when the Inquiry into the Big Four audit firms begins later this year, that this case will be considered and PwC grilled about it.

Who Guards the Guards? Big Four prepare for war as beach-side senator brings corporate inquiry

No doubt they already have an answer prepared, and that is, “We don’t discuss client matters. They are private”.

The Parliamentary Committee presiding will no doubt have anticipated this and other stonewalling tactics but whether its members are prepared to use the force of Parliament to compel evidence and proper responses is another thing.

At the very least, the fact that sleepy old KPMG has been auditor for 60 years should be a robust enough case study to call for audit rotation.

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