Satterley fails in $2.5m tax bid

The Federal Court has knocked back property developer Nigel Satterley’s claim that a $2.5 million payment to compensate shareholders after a failed project should be tax deductible.

Satterley Property Group lodged two appeals in the Federal Court’s Western Australian registry, against the Federal Commissioner of Taxation in early 2023.

The group claimed it paid a total of $2,557,897 in “top up payments” to investors who made losses on projects known as the Austin Cove and Beacham Road joint ventures, to preserve goodwill and SPG’s reputation.

In his judgment, Federal Court judge Anthony Besanko dismissed the appeals, finding the payments’ effect goes beyond preserving the goodwill of SPG.

SPG claimed the payments should be tax deducted because they fall under “general deductions” in the Income Tax Assessment Act 1997.

However, the commissioner claimed the $2.5 million was exempted from that section because it was a loss or outgoing of a capital nature.

SPG admitted the development projects failed financially and could not be financially supported, according to the Federal Court judgment.

“Mr Satterley said that his purpose in SPG expending what became an amount of approximately $5 million on the share purchase and top-up payments, was to maintain the Satterley brand name and its reputation so that its trading and profitability would not be damaged by adverse publicity or legal action,” Justice Besanko said.

“The commissioner submitted that … the top-up payments were an unconditional contractual obligation which SPG had to perform in order to secure the shares from each of the participating shareholders. 

“They fall within the definition of money required to pay in respect of acquiring the shares.

“The purchase of the shares of the participating shareholders was inextricably bound up with the exit of SPG from a loss-making venture, thereby giving SPG the ability to participate in other ventures. 

“This goes beyond the value of the right to SPG being solely attributable to the effect that the right has on goodwill.”

An SPG spokesperson previously told Business News the projects referred to in the appeal related to three main corporate entities involved in only one land development, being Austin Lakes.