LENDLEASE TO FIGHT TAX BILL

Profit fears amid board change calls

Property developer Lendlease has vowed to fight a $112m tax bill that analysts fear could lead to another profit warning, with activist investor John Wylie’s Tanarra Capital flagging it is open to taking a board seat.

In an update on Monday, Lendlease confirmed it had been hit with a $112.1m tax bill by the Australian Taxation Office (ATO) on Friday.

But it told investors it would seek to dispute the amended assessment related to its sale of a 25 per cent holding in its retirement living villages business. Lendlease also said it would seek to push back on a $24.5m interest bill attached to the notice, which consisted of a tax bill for $62.4m, plus $25.2m in tax obligations for sales in a unit joint venture trust.

It said it had sought approval for the tax treatment of the sale of the stake in the business eight months before submitting its tax return, and obtained independent advice before lodgement.

Lendlease shares closed 2.9 per cent lower $6.10.

Activist investors want more information, while upping demands for board change.

The developer has been under pressure to answer calls for a company split, sparked by activist investor John Wylie’s Tanarra Capital writing to the board, with funds house Allan Gray also pushing radical change and HMC Capital for a more focused strategy.

Tanarra said it “will await further information from Lendlease on its ATO update before forming a view on the matter, which appears complex. Only very limited information has been provided to date”. But the 3 per cent shareholder flagged it could seek a board seat as it seeks to speed up the company’s turnaround.

In Monday’s update, approved by Lendlease’s disclosure committee, it said it still supported its decision to calculate the tax owing on its sale of the stake in the retirement business, which was backed by advice from consulting giant PwC Australia. “Lendlease intends to request remission of the interest in full based on the ATO’s previous written undertaking (February 5, 2020) that no interest or penalties would be applied to the 2018 financial year,” it said.

The group said it calculated the gain on sale of the stake in the business by including the value of liabilities “for which Lendlease assumed the responsibility for at the time of the purchase of the relevant assets in its tax cost base”.

Lendlease ploughed $1.7bn into buying retirement villages, before swapping the contracts with residents from leases to loans in 2014, booking tax deductions at the time.

“Lendlease considers this to be in accordance with the law and consistent with the ATO’s tax ruling on the retirement living industry,” it said.

“The ATO’s position now is that certain liabilities assumed by Lendlease should be excluded from the tax cost base when calculating the gain. The ATO adjustments do not relate to deductions claimed by Lendlease.”