A recent decision of the Full Federal Court in S.N.A Group Pty Ltd v Commissioner of Taxation [2026] FCAFC 10 highlights risks that can arise when commercial arrangements between related entities are not properly documented.

While the case concerned the deductibility of intra-group service charges for tax purposes, the Court’s decision reinforces a broader legal principle: business arrangements must be supported by clear, contemporaneous documentation- the intention of the parties itself may not be sufficient particularly for the purposes of claiming deductions.

What happened?

A corporate property group underwent a restructure to separate two operating entities from asset owning trusts primarily for the purpose of protecting those assets.

The operating entities paid service fees to the corporate trustees of the trusts for the use of trust assets. Initially this was documented under Licence Agreements, however, those agreements expired the operating entities continued paying these service fees.

SNA claimed in its respective income tax returns deductions for service fees paid to the trustees for the trusts for years following the expiration of the licence agreements.

The dispute arose after the Commissioner of Taxation rejected the deductions on the basis that there was no enforceable obligation once the agreements had expired. This resulted in the Commissioner of Taxation issuing SNA amended income tax assessments and penalty assessments for relevant years following the deductions made by SNA - who objected to the reassessments.

At first instance the primary judge, finding in favour of the taxpayers, accepted that in the circumstances of the relevant years SNA claimed the deductions following expiration of the agreements, a contractual liability existed, requiring the taxpayers to pay the service fees.

On appeal, the Court unanimously overturned the first decision.

Although the issues of whether services had been provided or if the charges themselves were fair and reasonable was not disputed in this case. Rather, the Court turned their attention to the evidence needed in intra group transactions.

Some of the relevant circumstances the Court considered included:

• Written service agreements had expired and were not renewed.
• The financial statements of the operating entities and trusts were approved by directors after the end of the financial year, rather than evidence existing that an agreement to pay the service fees were in place at the time those payments were actually made.
• Tax invoices were not issued between the operating entities and the trusts.
• Payments between the operating entities and the trusts were not clearly identifiable in the books and records of the operating entities and trusts as relating to the services provided.

The group argued that implied contractual arrangements existed. The Court rejected this argument, finding there was insufficient evidence to demonstrate that the inferred conduct of the parties constituted an enforceable liability to pay intra-group fees following the expiration of the pre-existing agreements.

Why this matters for businesses

This decision is a timely reminder that informal arrangements between related entities can create legal and regulatory exposure, particularly where governance and documentation are lacking or are not regularly reviewed.

In many businesses groups, related entities commonly operate under arrangements that are assumed rather than formally documented.  Examples include:

• Service Agreements
• Management Agreements
• Labour hire arrangements
• Leases or licences for the use of real property
• Intellectual property or marketing fee arrangements
• Shared administration or back-office cost allocations
• Hire of plant and equipment between related entities

Where these arrangements are not properly documented, businesses may face challenges demonstrating that payments were legally required or commercially justified.

Businesses operating across multiple entities should ensure that:

• Written agreements are in place for services, asset use, or management arrangements between related entities and are periodically reviewed.
• Agreements clearly set out the scope of services and how charges are calculated.
• Invoices are issued regularly and payments are made consistently with the agreement.
• Transactions are documented as they occur, rather than reconstructed after the end of the financial year.

Beyond tax implications, poorly documented arrangements may also create disputes between entities, governance risks for directors, and difficulties during audits, restructures, or business sales.

How Hillhouse can help

Well-structured legal documentation is essential when operating through multiple entities. Properly drafted agreements and governance processes help ensure that commercial arrangements are clear, enforceable, and defensible if reviewed by regulators.

If your business operates through a group structure, it may be timely to review your intra-group agreements and documentation.

For assistance, please contact Craig Hong and our Corporate and Commercial team or learn more here: https://hillhouse.com.au/expertise/corporate/corporate-commercial/

Our team regularly advises businesses on corporate structuring, governance, and inter-entity agreements to ensure arrangements are legally sound and strategically aligned.