DRIVERS OF LENDLEASE'S 2016 GLOBAL EFFECTIVE TAX RATE

2016 tax Effective Rate

Our FY16 global effective tax rate (ETR) is 19.1%, compared to the headline tax rate, being the Australian corporate tax rate, of 30%. This is the result of a variety of different factors and circumstances, including:

  1. Lendlease Trust earnings: Under current Australian income tax law, Lendlease Trust is not subject to corporate income tax (taxes on earnings are paid directly by the unitholders).
     
  2. Non assessable income: Legislated tax exemptions and Lendlease’s share of profit after tax on equity accounted investments reduced our ETR.

  3. Variation in tax rates: Lendlease has active businesses offshore and these operations are taxed at different rates. Some jurisdictions in which Lendlease operates have corporate tax rates lower than Australia (e.g. Singapore and UK); other jurisdictions have higher corporate tax rates (e.g. US and Japan). 

  4. Capital losses utilised: Net capital gains realised during the year can be offset by previously unbooked capital losses. 

  5. Retirement living business: Recognition of income for accounting purposes which is not subject to tax under the Australian tax law and recognition of allowable tax deductions. 

  6. Research & Development (R&D) benefit: Represents recognition of the Australian R&D claim for FY15 (finalised and claimed during FY16). R&D is a legislated tax incentive which provides tax savings for expenditure on eligible R&D activities and is aligned to Lendlease’s strong history of innovation.

  7. Tax losses: Represents net derecognition of deferred tax assets arising on tax losses written off during the year, based on a recoverability assessment. 
2016 Effective Tax rate

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Lendlease
Following shareholder approval on 12 November 2009 the shares of Lendlease Corporation Limited ("LLC") and the units in Lendlease Trust ("LLT") were combined as stapled securities. From 13 November 2009 the shares in the Company and units in the Trust have been traded as one security under the name of Lendlease Group on the Australian Securities Exchange and the New Zealand Stock Exchange. LLT was 100% owned by the Company prior to approval of the stapling proposal. Units in LLT were distributed on 20 November 2009 to LLC shareholders as fully franked 'in specie' dividend with a value of 0.1 cent each. That value becomes the initial CGT cost base in each LLT unit distributed 'in specie' to effect the stapling.

Further details in relation to the stapling are available in the Explanatory Statement dated 12 October 2009.
Capital Reallocations

LLC has undertaken two capital reallocations, by way of a return of capital on each LLC share that is applied as additional capital on the stapled LLT unit.

Effective Date Total Capital Rellocated Cents Per Security
26 November 2012 $500.3m 87.10688
21 November 2014 $400.50 69.099769

Each capital reallocation results in a change in the CGT cost base of each LLC share and LLT unit held at that time, with the reduction in CGT cost base in the LLC share being equal to the increase in CGT cost base for the LLT unit.

Further details in relation to the capital reallocations are available in the Explanatory Statements dated 15 October 2012 and 15 October 2014.

The Australian Taxation Office has published Class Rulings in relation to each capital reallocation. Please refer to the following links for 2012 ATO Class Ruling and 2014 ATO Class Ruling.

Cost Base in LLT Unit
If you received LLT units as part of the stapling transaction then the original CGT cost base in those LLT units was 0.1 cent each. Note, that there was no reduction in the CGT cost base in your LLC shares as part of the stapling proposal.

In relation to Lendlease Group stapled securities acquired for $7.70 per new security under the 5 for 22 renounceable entitled offer completed in March 2010, an amount of 0.1 cent was allocated to the LLT unit. Accordingly, the original CGT cost base in those LLT units was 0.1 cent each.

For Lendlease Group stapled securities acquired under the Distribution Reinvestment Plan in March 2011, September 2011, March 2012 or September 2012 the original CGT cost base in those LLT units issued was 0.1 cent each.

Where a Lendlease Group stapled security is disposed of on or after 26 November 2012 the impact of the first Capital Reallocation must be taken into account. If a Lendlease Group stapled security is disposed on or after 21 November 2014 the impact of both the first and second Capital Reallocation mush be taken into account.

LLT units that you held at the time of the first Capital Reallocation on 26 November 2012 will have an increase in CGT cost base of 87.106880 cents per unit and LLT units that you held at the time of the second Capital Reallocation on 21 November 2014 will have an increase in CGT cost base of 69.099769 cents per unit.
Cost Base in LLC Share
The CGT cost base in a LLC share you hold is generally the amount you paid to acquire it, plus incidental costs.

LLC shares that you held at the time of the first Capital Reallocation on 26 November 2012 will have a reduction in CGT cost base of 87.106880 cents per share. LLC shares that you held at the time of the second Capital Reallocation on 21 November 2014 will have a reduction in CGT cost base of 69.099769 cents per share.
Net Assets Split
For the period from 13 November 2009 to 30 June 2016, the relative net assets of a Lendlease Group stapled security, taking into account the Capital Reallocations on 26 November 2012 and 21 November 2014, are as follows:

From: To: LLC Share LLT Unit
13/11/2009 31/12/2009 99.97% 0.03%
1/01/2010 30/06/2010 99.98% 0.02%
1/07/2010 31/12/2010 99.98% 0.02%
1/01/2011 30/06/2011 99.98% 0.02%
1/07/2011 31/12/2011 99.98% 0.02%
1/01/2012 30/06/2012 99.98% 0.02%
1/07/2012 25/11/2012 99.98% 0.02%
26/11/2012 31/12/2012 87.72% 12.28%
1/01/2013 30/06/2013 88.31% 11.69%
1/07/2013 31/12/2013 88.64% 11.36%
1/01/2014 30/06/2014 89.46% 10.54%
1/07/2014 20/11/2014 89.01% 10.99%
21/11/2014 31/12/2014 80.93% 19.07%
1/01/2015 30/06/2015 81.27% 18.73%
1/07/2015 31/12/2015 81.04% 18.96%
1/01/2016 30/06/2016 81.32% 18.68%

Important Information for US Securityholders

U.S. securityholders are advised to consult their own tax advisers with respect to the consequences of holding and disposing of Lendlease securities, particularly having regard to the U.S. passive foreign investment company (“PFIC”) rules.

U.S. “check-the-box” (“CTB”) tax election

During the 2016 calendar year, some entities Lendlease Trust has invested in made a U.S. check-the-box (“CTB”) tax election. There may be U.S. tax consequences for U.S. securityholders. U.S. securityholders should seek their own tax advice in respect of the impact of these elections.

If you have any enquiries, please contact Lendlease at LendLeaseInvestorRelations@lendlease.com

Tax Disclosure Information

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