What related-party arrangements mean for New Zealand businesses.
A recent Australian court decision has highlighted the importance of clear contractual arrangements when claiming tax deductions for related-party payments. While the case was decided under Australian tax law, the underlying principles are closely aligned with how New Zealand’s income tax rules operate. This case is a reminder for businesses in New Zealand to review their own related-party arrangements.
The Australian S.N.A Group case
In Commissioner of Taxation v S.N.A Group Pty Ltd (2026) FCAFC 10, the Full Federal Court of Australia allowed the Commissioner’s appeal in a case concerning the deductibility of related-party service fees.
The dispute involved two Queensland real estate companies within the Coronis Group that had claimed deductions exceeding AUD 19 million for service fees paid to related trusts for the use of assets and staff. These payments were initially governed by formal written agreements that expired in 2015. Payments continued after the agreements lapsed and were treated as deductible service fees in later income years. The Commissioner argued that the deductions should be denied because there was no legally binding obligation requiring payment of the fees during the relevant income years. Without such an obligation, the amounts could not be considered “incurred” for income tax deduction purposes.
At first instance, the Court accepted that a contract could be inferred from the parties’ conduct despite the absence of written agreements. However, on appeal, the Full Federal Court reached a different conclusion. The Court found there was insufficient objective evidence demonstrating mutual agreement or clearly defined contractual terms requiring payment after the written agreements had expired. As a result, the taxpayers were unable to establish a presently existing legal liability to pay the fees, and the deductions were denied.
Although the decision was made under Australian tax law, similar principles can be relevant in New Zealand when the deductibility of expenses is assessed. When reviewing related-party deductions, Inland Revenue may examine whether there is clear evidence that a legally enforceable obligation exists for the payment claimed as a deduction.
While Inland Revenue’s transfer pricing documentation guidance is directed at cross-border arrangements, the underlying documentation principles it sets out apply equally to domestic related-party arrangements. The guidance emphasises that documentation should be maintained as an ongoing process rather than relying on agreements or analyses compiled years earlier. It also confirms that the burden of proof rests with the taxpayer, a principle that sits directly alongside the reasoning in the S.N.A Group case.
A consistent history of payments alone may not be sufficient if there is no clear contractual framework establishing the liability. For businesses with related-party arrangements, informal practices or outdated documentation may therefore present evidentiary risks if deductions are later scrutinised.
Practical considerations for New Zealand businesses
Businesses operating in New Zealand with related-party service arrangements should review whether their documentation clearly supports the legal basis for those payments. Properly drafted and contemporaneous agreements remain critical in supporting deductions, and it is important that documentation is updated as agreements evolve or approach expiry.
The case is also a reminder that taxpayers need to be able to demonstrate a presently existing legal liability for an outgoing to be considered incurred for deduction purposes. A history of payments without a clear contractual foundation may not establish deductibility, and informal arrangements between related parties may present significant risk if Inland Revenue examines those arrangements closely.
In some circumstances, groups may also consider whether forming a consolidated tax group for income tax purposes or a GST group for GST purposes could reduce the risks associated with intercompany charges.
