A recent Full Federal Court decision has highlighted an important issue for many family businesses and private groups.

If your business pays management fees, rent, administration fees or other charges to a related company or trust, those payments may not be tax deductible simply because they are commercially reasonable or recorded in your accounts. You must also be able to demonstrate a legally enforceable obligation to make the payment.

Why this matters

The decision is particularly relevant for:

• family groups
• private companies
• discretionary trusts
• corporate groups with shared services
• businesses charging management fees, service fees, licence fees or rent between related entities.

What happened?

In Commissioner of Taxation v S.N.A Group Pty Ltd [2026] FCAFC 10, several companies operating within a real estate group claimed almost $19 million in deductions for service fees paid to related trusts.

Although formal agreements had existed in earlier years, the arrangements during the relevant period were largely informal. The taxpayers argued that contracts could be implied from the way the businesses operated.

The Full Federal Court disagreed and ruled that the deductions were not allowable because there was insufficient objective evidence that legally binding agreements existed.

Importantly, accounting records, journal entries and the directors’ understanding of the arrangements were not enough to establish a legal obligation.

Key lessons from the decision

The Court confirmed several important principles:

• A tax deduction generally requires a legally enforceable obligation to incur the expense.
• Related-party transactions are subject to the same legal standards as transactions between unrelated businesses.
• Courts will rely on objective evidence of an agreement rather than what the parties believed they intended.
• Accounting entries and financial statements do not create legal obligations.
• Informal arrangements between related entities can expose businesses to significant tax risk.

What should you review?

This decision is a timely reminder to review any arrangements involving:

• management fees
• administration charges
• bookkeeping fees
• licence or intellectual property fees
• rent between related entities
• employee reimbursement arrangements
• shared staff costs
• trustee service fees.

If these arrangements are informal, outdated or poorly documented, there is a greater risk that the ATO could deny the deductions.

Practical steps to take

Businesses should ensure they have:

• current written agreements covering all significant related-party transactions
• board or trustee resolutions approving the arrangements where appropriate
• clear documentation showing how fees have been calculated
• evidence supporting the commercial basis for the charges
• invoicing and payment practices that reflect the written agreements
• regular reviews to ensure the documentation matches how the businesses actually operate.

Our view

This decision does not stop businesses from charging legitimate management or service fees between related entities.

It does, however, reinforce the importance of making sure those arrangements are properly documented and supported by the way the businesses actually operate.

Many family groups have historically relied on informal agreements or year-end accounting journals. Following this decision, now is an ideal time to review your related-party arrangements before your next year-end.

If you’re unsure whether your existing documentation is sufficient, speak with your Indigo Financial adviser. A review now could help avoid unnecessary tax issues in the future.

Contact Indigo Financial on (08) 8212 8585 if you need help with understanding any of your accounting, taxation and business development needs.