FCACF allows commissioner's appeal in S.N.A Group

On 17 February 2026, the Full Bench of the Federal Court of Australia (FCAFC) allowed the Commissioner of Taxation’s (Commissioner) appeal in Commissioner of Taxation v S.N.A Group Pty Ltd [2026] FCAFC 10 , accepting the Commissioner’s contention that S.N.A Group Pty Ltd had not ‘incurred’, and therefore was not entitled to deduct, more than $19 million of service fees it paid to related trusts.

The Commissioner’s win reaffirms foundational requirements of section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), reflects the courts’ prevailing emphasis on the legal form of arrangements, and underscores the imperative for taxpayers to record and maintain adequate supporting documentation to explain and support their tax affairs. 

Facts 

The two taxpayer companies, S.N.A Group Pty Ltd and ATPR Pty Ltd (the Taxpayers), operated real estate businesses within the Coronis Group. They used various assets owned by two related party trustee companies:

• CLAARS Pty Ltd as trustee of the Henry Trust (intellectual property, staff)
• PAC Realty Pty Ltd as trustee of the Emily Trust (rent roll)

Mr Andrew Coronis was a director of the trustee companies and of the Taxpayers. Formal, written agreements required the Taxpayers to pay service or licence fees to use the trust assets. However, those agreements expired in 2015. 

Notwithstanding, the Taxpayers continued using the trust assets and made various payments to the trustees across 2016–2019, which they claimed as deductible service fees.

The Commissioner disallowed the deductions, arguing that the payments were not ‘incurred’  in gaining or producing assessable income as required by section 8-1. The Commissioner’s position was predicated on the absence of any relevant liability or obligation of a contractual nature on the Taxpayers’ part.  

The Taxpayers argued that the service fees were incurred pursuant to section 8-1and reflected genuine commercial arrangements. 

FCA Decision

The primary judge, Logan J, ultimately ruled in favour of the Taxpayers in the original decision. His Honour rejected the Commissioner’s submissions and held that the service fees were deductible under section 8 1, finding that the taxpayers were subject to a liability, contractual in nature, to pay the trustees’ service fees in each relevant income year. 

His Honour adopted a similar approach to that of Kennett J in Chiodo v Silk Contract Logistics [2023] FCA 1047 (see paragraphs 8-9 of that decision) which provided that, where a contract is not written or where there are circumstances of great informality, “its terms are to be inferred in whole or in part from the parties’ conduct”. 

With regard to the requirement to keep and maintain documentation that can support an adopted position, his Honour observed in paragraph 115 of the decision that; 

“Perfection in documentation does not dictate eligibility to a deduction under s 8-1 of the ITAA1997. […] Of course, the informality of inter-entity relationships within the Coronis group made for challenges in discharging an onus of proof. But great injustices can be visited upon those in small business or who have retained those habits, if the Commissioner does not bring to bear at the audit stage an understanding grounded in the realities of commerce”. 

FCAFC Decision 

Application of the Principles of Contract

The appeal focused on whether the primary judge was correct to conclude that there was an inferred contractual liability to pay the service fees, with their Honours (McElwaine, Feutrill and Wheatley JJ) emphasising key principles of contract law. Their Honours particularly focused on the objective theory of contract namely; 

“the formation of a contract and identification of its terms turns upon what the words and conduct of the putative contracting parties would be reasonably understood to have conveyed to reasonable people in the position of those parties, not upon the actual subjective intention of those parties”.

Their Honours noted that evidence about subjective intentions or understandings is not relevant to determining whether a contract exists. Their Honours also noted that, in the context of inferring a contract from conduct, it is important to keep in mind that the ultimate question remains what would be objectively communicated to people in the position of the parties to the putative contract. 

At paragraph 20, the Court stated that; 

“the objective theory of contract demands an outward manifestation or communication by words and (or) conduct of a mutual assent to contract on particular terms. The private thoughts or intentions of the parties are not relevant and cannot outwardly manifest or communicate to reasonable people in the position of the parties a mutual intention to contract on particular terms”.    

Was there an objective manifestation of mutual assent?

In applying the principles of contract, the court found that there was no objective communication of mutual assent by the taxpayers and trustees. Whilst Andrew Coronis, as a director of the trustees and of the taxpayers,  may have inwardly considered that the taxpayers were obliged to pay for the use of those assets, reasonable people in the position of the Taxpayers and trustees would not understand from the communications and (or) conduct that there was mutual assent to contract on identifiable terms. 

In coming to this conclusion, the Courts additionally noted that there was no evidence it that it had ever been communicated to external parties (such as the accountants of the taxpayers) that the taxpayers were subject to a liability to pay a reasonable fee for use of the trust assets or for other services. 

With regard to the quantum of the services fees, evidence showed that there was an apparent desire that the taxpayers should pay a services fee such that the unit holders of the trusts should receive an 8% return based on the value of the net assets held on trust. However, there was no evidence that this 8% benchmark was communicated between companies as a contractual term and that the benchmark itself was inconsistently described and not tied to the amounts actually paid, with the Court finding that there was no coherence or consistency with respect to the payments in each relevant year. The Court also noted that a desire to achieve a certain return for unit holders does not itself create a contract. 

Additionally, the Court observed that, while there were written agreements in the period between 2005 and 2015 by which the taxpayers and the trustees mutually agreed that the taxpayers had the right to use the relevant trust assets upon payment of agreed fees, those agreements were not operative from 2015. 

Takeaways

There are several key observations and takeaways that can be distilled from the Court’s decision but, to the Authors, some of the more critical insights are; 

• Implicit in the decision is that the payments were not for use of the trust assets. Because there was no active contract and the amounts fluctuated absent commercial basis, the payments were considered ‘incoherent’ and to lack the requisite nexus to the production of assessable income. This serves as a reminder that taxpayers and their advisors should not assume that ‘paid’ equals ‘incurred’ – a proposition for which paragraph 6(e) of TR 97/7 is frequently cited as authority. The relevant issues are that of characterisation and nexus.
• This decision emphasises the criticality of recording and maintaining sufficient contemporaneous supporting documentation to adequately explain and support a taxpayer’s position. Despite the primary judge sympathising with the difficulties faced by small to medium sized businesses, the FCAFC was less sympathetic, instead emphasising the critical importance of setting out the desired substance of an arrangement in legal form.
• The decision also reaffirms that related party arrangements should, as far as is possible, reflect the same contractual requirements as those that take place between arm’s length parties. Whilst this case involved a purely domestic transaction, this decision can draw parallels to the importance of adequate documentation and agreements in supporting a transfer pricing position between international related parties.
• The courts are increasingly having regard to the legal form of arrangements that come before them and are not rewarding arguments that are based on the purported substance of an arrangement where it differs to the legal form. The Courts have been consistent in this regard and parallels can be drawn to other cases such as Commissioner of Taxation v PepsiCo Inc [2025] HCA 30 where the Court in this instance, siding with the taxpayer, paid strict regard to the intentions of the parties and the legal form of the arrangement that framed those intentions.

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