The Australian Taxation Office (ATO) is being asked why it is spending $73.4 million to fit out an office in Adelaide’s first skyscraper, when its current building was constructed less than 15 years ago.
According to a submission to federal parliament’s public works committee, the tax office and its more than 2,200 South Australian staff currently occupy levels four to 17 of an office complex at 26 Franklin Street.
The premises was built in 2012 and also attracted a $54.2 million ATO fit out, previous committee documents show.
With its lease expiring in November 2027, the tax office has signed up to relocate four streets away to Festival Tower Two — a controversial 38-storey development currently under construction behind South Australia’s Parliament House.
The current ATO headquarters on Adelaide’s Franklin Street. (ABC News: Ashlin Blieschke)
The tax office said it had agreed to occupy 11 floors of the Walker Corporation development.
The relocation would downsize the ATO’s office space in Adelaide by about 40 per cent — from 31,000 square metres to 19,000 square metres — something the tax office said would achieve “substantial long-term property cost savings”.
But the leasing arrangement has sparked questions about value for money.
Property experts have suggested Walker Corporation would be charging among the highest commercial rents in Adelaide given Festival Tower Two’s billing as the city’s first and only “premium” grade office building.
Plans for the 38-storey Festival Tower Two (left) were approved last year. (Supplied: SA government)
Land economist Geoff Hayter estimated the commercial rent for Festival Tower Two would be more than $900 per square metre.
Mr Hayter — a former director at Colliers International who has since joined the Save Festival Plaza Alliance, which is opposed to the development — said both the rent and $73.4 million fit out were “extravagant”.
“Frankly, the tax office should be cutting its cloth to suit the times that we’re in rather than indulging itself in the level of extravagance that appears to be involved in the deal it has struck with Walker Corp on tower two,”
he said.
“It’s premium space, it’s being touted as the best building in Adelaide … and I don’t see why the tax office needs to occupy the best building in Adelaide.”
Land economist Geoff Hayter says the relocation costs are “extravagant”. (ABC News: Ashlin Blieschke)
Mr Hayter also questioned why the ATO needed to vacate its current office at 26 Franklin Street, which is owned by property funds management company Charter Hall.
He said while a 15-to-20-year life-span for an office fit out was “probably about right”, it was “hard to see that it’s completely run its life”.
“It may well be that some of the fit out there is actually still usable with a bit of refurbishment,” he said, adding that he had not personally been in the ATO’s office.
“Surely, even if only half of it was able to be reused and recycled and they needed to redo some of it … the cost of that would be much less than $74 million.”
ATO says office at ‘end of life’
But the ATO argued in the submission that extending its lease at 26 Franklin Street “would not represent value for money” because the building’s “aging fit-out” would require “a significant refresh to provide fit-for-purpose accommodation”.
The ATO said its existing fit out “is at the end of its usable life” and had “excess storage facilities that do not support an efficient use of space”.
It also said the “strong uptake” of work from home was an opportunity to reduce its office footprint.
“The existing fit-out is not consistent with a modern workplace for technology, amenity, collaboration, serviceability or flexibility, and will be end-of-life by lease expiry,”
the ATO said.
“The work-points are currently 14 years old and, due to their age, bulky size, lack of serviceability and parts, are not economical to maintain or an efficient use of office space.”
The cost of the ATO’s current lease with Charter Hall at 26 Franklin Street is not on the public record. (ABC News: Ashlin Blieschke)
The ATO also argued its new fit out “maximises value-for-money” and would end up “reducing rent costs over the long-term”.
Neither the ATO nor Walker Corporation have publicly disclosed the commercial rate for the tax office’s Festival Tower tenancy.
The cost of the ATO’s current lease with Charter Hall at 26 Franklin Street is also not on the public record.
Greens senator Barbara Pocock said the ATO’s move was a “very poor decision” and called for more transparency over the leasing costs.
“We need to know that the proposal here actually is value for money,” she said.
“I don’t think it is value for money from what I’ve seen, but we don’t have full transparency on what’s being paid and how it compares to other options.“
Greens senator Barbara Pocock says the relocation is a “very poor decision”. (ABC News: Ashlin Blieschke)
A spokesperson for the ATO said its decision to move followed a “competitive open-market procurement process” which determined Festival Tower Two “represented the best value-for-money outcome”.
“The market approach was open to all interested parties, including the existing landlord.”
Walker Corporation and Charter Hall did not respond to requests for comment.
Mid-range or premium?
The $73.4 million office fit out was also subject to scrutiny at a public works committee hearing last week.
Liberal National Party MP Andrew Willcox, the committee’s deputy chair, told ATO officials the proposal was “the most premium fit-out that I’ve ever seen”, questioning why that was being afforded to a government department.
But Liam Page, assistant commissioner, ATO Property, rejected that characterisation, and said the cost was “mid-range” when compared to other fit outs.
“We have not asked in this case for anything over and above anything that we have delivered elsewhere in other workspaces,” he told the committee.
“I would say that the cost of this proposed fit-out is similar to costs of other fit-outs that have been delivered for the ATO recently.”
The ATO says its current lease at Franklin Street is not consistent with modern workplaces. (ABC News: Ashlin Blieschke)
Asked why it could not downsize within its existing office, the ATO said extending its existing lease would mean “that we have to utilise the full space that we have currently”.
The ATO’s lease with Charter Hall expires on November 1 next year, but the Festival Tower is not scheduled for completion until the end of 2028.
When asked, the ATO did not explain what it would do in the interim.
Assistant commissioner Adrian Jeczewski told the committee last week that “actively looking at what contingencies need to be put in place if we cannot move in based on the current milestones and time frame”.
