Why Keeping Inter-Entity Service Agreements Current Could Protect Your Business
- Jul 14
- 3 min read
Many Australian businesses operate through multiple related entities. This is particularly common among family businesses, professional practices and growing organisations that separate trading activities, assets and administration across different companies or trusts.
While these structures can provide commercial, taxation and asset protection benefits, they also create an important obligation that many businesses overlook—keeping inter-entity service agreements accurate, current and properly documented.
At Symmetry Accounting & Tax Pty Ltd, we regularly assist businesses throughout Perth, WA with accounting, taxation, SMSF and business advisory services. One recurring issue we encounter is outdated agreements that no longer reflect how businesses actually operate.
Why Documentation Matters
Related entities frequently provide services to one another. Examples include:
Administrative support
Staff employment
Equipment leasing
Property usage
Management services
Professional expertise
When one entity pays another for these services, those payments often form part of legitimate tax deduction claims.
However, claiming a deduction requires more than simply making a payment. Businesses must be able to demonstrate that the expense directly relates to producing assessable income and that the commercial arrangement genuinely exists.
Without suitable documentation, proving that connection becomes much more difficult.
Recent Court Decision Reinforces the Risks
A recent Full Federal Court decision highlighted the importance of maintaining current service agreements between related entities.
In that case, businesses continued paying service fees after their written agreements had expired. Although the commercial relationship continued much as before, the Court found there was insufficient evidence establishing a legally enforceable arrangement linking the payments to the services provided.
As a result, the claimed tax deductions were denied.
The decision sends a clear message to business owners: continuing business "as usual" does not automatically create a legally recognised agreement for taxation purposes.
Common Issues Businesses Face
Many business groups unintentionally create risk because:
Service agreements have expired.
Business operations have evolved over time.
Payment amounts vary from year to year.
Services are provided without formal documentation.
Directors assume existing arrangements remain valid.
These situations are surprisingly common, particularly in family-owned businesses where commercial relationships have developed over many years.
What This Means for Your Business
Outdated documentation can have significant financial consequences.
Potential risks include:
Loss of valuable tax deductions
Additional taxation liabilities
Interest charges and penalties
Increased likelihood of an ATO review
Greater scrutiny of your overall business structure
Good documentation provides evidence that the commercial arrangement genuinely exists and supports your taxation position if questioned.
Practical Steps You Should Take
Every business operating through multiple related entities should regularly review its service arrangements.
A practical review should include:
Confirming all agreements remain current.
Ensuring services match what actually occurs in practice.
Reviewing fee calculations for commercial reasonableness.
Updating agreements where business operations have changed.
Maintaining appropriate supporting records.
Businesses should also review these agreements periodically rather than treating them as a "set and forget" exercise.
How Symmetry Accounting & Tax Pty Ltd Can Help
Whether your business operates through companies, trusts or an SMSF structure, proactive reviews can help minimise risk before issues arise.
At Symmetry Accounting & Tax Pty Ltd, our accounting, taxation, SMSF and business advisory specialists work with businesses across Perth, WA to ensure their structures remain commercially sound and appropriately documented.
Regular reviews today may prevent costly disputes and unexpected tax outcomes tomorrow.
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