Key takeaways
Informal arrangements carry real tax risk and payments between related parties will not be deductible without clear evidence of a binding or inferred agreement - long-standing practice alone is insufficient.
Documentation and conduct must align, with the Court in this decision placing significant weight on the absence of contemporaneous evidence, consistent records and a clear pricing methodology.
Private groups should ensure agreements are current, properly documented and consistently followed to support deductibility and reduce exposure to challenge.
Related party arrangements are a common feature of private groups and family businesses. The Full Federal Court’s recent decision in Commissioner of Taxation v S.N.A Group Pty Ltd [2026] FCAFC 10 (SNA case) has significant implications for private groups with informal (i.e. without written contracts, or if there are contracts, those contracts have expired or are not being followed) intra group arrangements.
For payments between related parties to be deductible without a valid, written contract, there must be objective evidence that the parties had an implied or inferred agreement under which the payments were made.
Overview of the SNA decision
The SNA case concerned arrangements within the well-known Coronis Group, a Queensland real estate business that operated through a network of private companies and trusts.
The group’s operating entities used key assets owned by related-party trusts, including intellectual property, systems, rent rolls and staff. Although written licence agreements had originally been in place requiring the operating companies to pay service or licence fees to the trustees for the use of those assets, those agreements had expired in 2015.
Notwithstanding the expiration of the licence agreements, the operating entities continued to use the assets and make payments to the trustees during the 2016 to 2019 income years. These payments were claimed as deductible ‘service fees’ under section 8-1 of the Income Assessment Act 1997.
The Commissioner of Taxation (Commissioner) disallowed the deductions, arguing that the operating entities had no contractual obligation to pay the licence fees after 2015. The Commissioner argued that in the absence of a binding contract, the payments had not been ‘incurred’ for tax purposes – and therefore could not be deducted.
The taxpayer appealed the Commissioner’s decision to the Federal Court and, at first instance, it was accepted that contractual arrangements could be inferred from the parties’ conduct.
However, the Full Federal Court overturned that decision on appeal, finding that there was no enforceable agreement requiring payment of the service fees from 2015 onwards. Absent any enforceable, contractual obligation to pay the licence fees, the deductions were denied.
Why the Full Court rejected the arrangements
A central feature of the Full Federal Court’s decision was its detailed examination of the evidence said to support the existence of an agreement. The Court identified multiple deficiencies which, taken together, made it impossible to conclude that any enforceable arrangement existed between the relevant entities.
The Court’s reasoning for the decision can be distilled into four key points:
1. No evidence of any communicated obligation to pay
The taxpayers asserted that there was an agreement to pay a ‘fair and reasonable’ fee for the use of trust assets. However, the Court found no direct evidence that the individuals controlling the relevant entities had communicated or agreed to such an obligation.
In particular, there was an absence of contemporaneous discussions or correspondence between the parties, or any record of the parties expressly agreeing that such fees were payable.
2. Uncertainty around the alleged pricing methodology
The taxpayers argued that the licence fees were determined by reference to a particular benchmark, but the Court found that there was no clear agreement between the parties adopting this methodology, nor any evidence as to how the benchmark was actually determined in practice.
3. The internal records did not support the existence of a liability
The Court placed significant weight on the absence of supporting evidence in the group’s own records.
Notably, there was no evidence that directors had instructed the external tax accountant or the internal bookkeeper that the entities were subject to a liability to pay service fees. The accounting records did not consistently reflect an accrued obligation, and financial statements were not prepared on the basis that a present liability existed.
4. The parties’ conduct was inconsistent with a pre-existing agreement
Finally, the Court examined how amounts were actually calculated and paid. It found that:
- payments did not consistently align with any identifiable methodology;
- amounts appeared to be determined in a retrospective or ad hoc manner; and
- the conduct was not consistent with the operation of a pre-agreed, enforceable framework.
As a result, the payments were characterised not as contractual outgoings, but as discretionary allocations within the group.
Taken together, these factors led the Full Federal Court to conclude that no contract could be inferred. The consequence was that the taxpayers were not ‘definitively committed’ to the payments, and the deductions therefore failed.
High Court appeal
The taxpayers have sought leave to appeal to the High Court – however, given the decision of the Full Federal Court was unanimous and relied heavily on its facts, it is unlikely that leave will be granted.
Practical implications for tax and private structures
Informality is a common feature of private structures. Family groups may rely on long-standing understandings, particularly where control is centralised or relationships are based on trust rather than strict legal formality.
However, the SNA case highlights that operating on an informal basis can create material tax risk, and proper documentation around the liability for intra group fees is essential. Examples of the arrangements that may be at risk include management or ‘head office’ fees, IP licencing fees, service fees and cost sharing arrangements.
For private clients and their advisors, key considerations include:
Reviewing existing arrangements: many structures rely on legacy agreements that may no longer reflect current operations, or have expired altogether.
Aligning documentation with practice: where conduct diverges or has evolved from existing documented arrangements, the enforceability of these arrangements may be undermined.
Clearly defining obligations and pricing: intra group agreements should articulate: the nature of the services or assets provided; how any fees are calculated; and when payment obligations arise.
The SNA decision underscores that, in a tax context, substance must be supported by evidence and long‑standing practice or commercial logic alone will not suffice. For private groups, this is a clear reminder that related party arrangements must be properly documented, regularly reviewed and consistently implemented in practice. Absent this discipline, deductions may be exposed to challenge, with potentially significant financial consequences. Taking proactive steps now to formalise and align intra‑group arrangements can help mitigate this risk and provide greater certainty going forward.
This article draws on insights by Associate Director Tom Howard of Pilot Partners and his article on Double tax danger: Court issues red alert to business groups and his presentation "Intra-group service charges in the spotlight".