Related-Party Services and Charges May Not Be Tax Deductible: Lessons from the S.N.A. Group Case

Related-Party Services and Charges May Not Be Tax Deductible: Lessons from the S.N.A. Group Case

A recent Full Federal Court decision in Commissioner of Taxation v S.N.A. Group Pty Ltd highlights the importance of properly documenting related-party arrangements.

The Court denied tax deductions for payments between related entities where written agreements had expired and there was insufficient evidence of a new binding agreement. The case serves as a reminder that businesses should ensure related-party service arrangements are supported by current signed agreements, clear pricing terms, and appropriate records such as invoices and board minutes to reduce tax and GST compliance risks.

If your business makes payments to related entities for services, assets, staff, intellectual property or shared resources, a recent court decision has provided an important reminder to document these arrangements properly or risk losing the tax deduction.

What happened in the S.N.A. Group case?

In Commissioner of Taxation v S.N.A. Group Pty Ltd [2026] FCAFC 10, two related operating companies claimed deductions for payments they made to related trusts for the use of business assets (including rent rolls, intellectual property, systems, and staff). The written agreements supporting those payments had expired in 2015, but the payments continued for several years.

The ATO argued those later payments were not deductible because there was insufficient objective evidence to establish a binding post-2015 agreement (after the written agreements had ended). Under the income tax legislation an expense needs to be “incurred” before it can be deducted (i.e. the taxpayer must be completely subjected to the liability in the relevant tax year).

In the first instance, the primary judge found in favour of the taxpayers. The court accepted that new contracts could be inferred from the conduct of the parties (ongoing use of assets and payments).

However, the Full Federal Court unanimously allowed the Commissioner’s appeal and overturned that decision. It found there was not enough objective evidence to show that a new binding agreement had been formed after the old written agreements expired. The Full Federal Court emphasised that, while contracts can sometimes be inferred from conduct, the taxpayers must be able to point to objective evidence of mutual assent and sufficiently certain terms. In this case, the evidence did not establish a binding post-2015 agreement. As a result, the claimed deductions were not allowable.

Why this matters for private business groups

Many private groups operate with a high level of trust and informality between related entities. While that may work commercially, it can create serious tax risk. This case shows that continuing a long-standing arrangement is not enough on its own. If the paperwork has expired, is incomplete, or does not reflect what is actually happening, the deduction may be vulnerable to challenge.

Key takeaways for business owners

• Do not assume a payment is deductible just because it has been made every year.
• Make sure related-party arrangements are supported by current, signed agreements.
• Ensure each agreement clearly explains what is being provided, how charges are calculated, and when payments are due.
• Review older agreements regularly so they do not quietly expire while payments continue.
• Keep contemporaneous records that support the commercial basis of the arrangement.

What should you do now?

Now is a good time to review any payments your business makes to related companies, trusts, or other entities. This includes management fees, service fees, rent, licence fees, staff recharge arrangements, and intellectual property charges. If an agreement has expired, was never signed, or no longer matches the way the arrangement works in practice, it should be updated as soon as possible.

• Identify all related-party payments across your group.
• Check whether each arrangement is covered by a current written agreement.
• Confirm that pricing and payment terms are clearly documented.
• Make sure invoices, minutes, calculations and payment records are retained.
• Review whether the legal documents match what is actually happening in the business.

It may be helpful for taxpayers to maintain records such as board minutes, signed agreements, correspondence showing agreed pricing methodology, invoices, and calculations to support the dollar amounts charged.

Although GST was not in issue in the S.N.A. Group case, related-party arrangements can also raise separate GST compliance issues where documentation, invoicing or reporting is inconsistent or incomplete.

Final thought and suggested action

This case does not mean related-party charges are inherently non-deductible. It does, however, highlight the need for thorough documentation. We recommend reviewing your related-party arrangements during year-end tax planning. Contact us to discuss your circumstances further.