Industry seeks written confirmation on payroll tax moratorium

The issue at hand

Revenue NSW is seeking to retrospectively introduce a new tax on mortgage brokers — a payroll tax on commissions paid to mortgage and finance brokers. According to the industry, the tax is not only irrelevant to broking but has no legal basis and could destroy the entire industry. Indeed, Loan Market has already launched legal action to challenge Revenue NSW’s application of this payroll tax laws.

As of 1 July 2022, the rate of payroll tax is 5.45 per cent for total wages exceeding the threshold of $1.2 million, but the NSW revenue office is seeking backdated tax of up to eight years (plus late payment penalties).

While this is mostly targeting aggregators and brokerages, it is likely the cost of the tax (believed to be tens of millions of dollars) will be passed down to brokers and cannot be passed through to borrowers.

The financial implication of this new tax being applied to broking could bankrupt aggregators and make the cost of broking prohibitive, particularly if the NSW stance is replicated in other jurisdictions.

As such, the broking industry has been busy engaging with politicians from across the political spectrum in the last month to flag the disastrous implications this new impost would have on the ability of mortgage broking to survive and question its legitimacy.

However, despite aggregators, associations, and brokers engaging with Revenue NSW, politicians, and regulators over the past few weeks — and more than 1,130 brokers having so far utilised resources issued by the Mortgage & Finance Association of Australia (MFAA) through the DoGooder campaign to send politicians in more than 95 seats letters on the matter — there has been no formal response to date.

Indeed, the Finance Brokers Association of Australia (FBAA) has said that the NSW shadow finance minister, Anoulack Chanthivong, has suggested that he would be open to placing a moratorium on the issue until further stakeholder engagement has been had on the matter. However, no formal response has been made in writing from his office or the incumbents.

‘Penalties and fines are incredibly harsh’: MFAA

The MFAA has said that while there has been a clear acknowledgement of this payroll tax issue impacting broking, what is needed now is a written commitment.

Speaking to The Adviser about the issue, the chief executive of the MFAA, Anja Pannek, said industry needed this confirmation ahead of the state election next Saturday (25 March).

She commented: “While we are in caretaker mode, we just want to make sure that the government and the opposition have this on their radar and are well prepared and ready to engage and consult with industry…

“We have stepped through, very clearly, industry’s view that payroll tax should not be applied to the arrangements that brokers have with aggregators and that the retrospective application of fines and penalties is incredibly harsh, and should not be pursued. 

“We’ve outlined that the law is unclear and that the practice note on which [Revenue NSW] have relied — and issued very late in the piece (given the law has been around since 2007) — doesn’t reflect how the industry operates and doesn’t take into consideration, in any way, our considerable feedback to [Revenue NSW].

“Brokers run their own businesses, they’re independent. They work incredibly hard to build their businesses. To then have something come along that feels like a new interpretation of a tax and apply it to our industry retrospectively is incredibly unfair.

“If you think it’s not only 5 per cent on commissions, but also the application of up to eight years of penalties and fees, it’s sufficient to place the industry at risk.

“We’ve raised that again in writing and face to face. So, I want to see something in writing, and clear confirmation that will progress what we’ve asked for: a cessation of fines and penalties; a cessation of audit activity until there is some clarification of law; or that the law is changed, which is ultimately what we would like to see pursued because we think the law is erroneous and should not apply to these type of arrangements.”

Lack of formal position ‘flabbergasting’: AFG

Mark Hewitt, the general manager, of industry and partnership development at aggregator Australian Finance Group (AFG), has said that the whole issue is “flabbergasting” and suggested that the application of the law has gone against years of industry engagement on the matter.

As such, he has said the next government should commit to change the payroll tax legislation so that it is clearer and does not apply to the broking industry.

“It’s very frustrating that neither side has come forward with a position in writing yet,” he told The Adviser. 

“Even though they agreed to meet with us, the fact that they haven’t actually produced a formal position, in writing, on it so that brokers can understand and help make their decision around who they want to support at the [NSW] election (in less than two weeks) is really frustrating.

“We are encouraging brokers to take action, get on the phone to their MPs, call their office and ask for a response.”

‘Whole argument is so flawed’: Connective

Mark Haron, the executive director of aggregation group Connective, told The Adviser that one of the big determinations that the industry takes umbrage with is Revenue NSW’s position that brokers are providing a service to aggregators.

“Aggregators provide a service to brokers, not the other way around,” Mr Haron said.

“The whole argument is so flawed … Western Australia came to the correct realisation years ago that aggregators are not subject to payroll tax, but Revenue NSW has not.

“While there are a number of bigger broker groups who are already subject to payroll tax across most states (where they’ve been assessed properly), the way Revenue NSW is looking at it even challenges that basis … they’re going further. 

“So even that will challenge not only aggregators, but will also impact how brokers pay payroll tax — given it’s based on total commissions.”

Lack of consultation the ‘greatest disappointment’: SFG

William Lockett, the founder of aggregator Specialist Finance Group (SFG), highlighted that the broking industry has operated for over 30 years and engaged with all sides of federal and state governments, regulators, and government departments over that time.

“Our industry has never been more professional, or stronger, than it is today, and sees more than 70 per cent of people using the services of a mortgage broker to get residential finance,” Mr Lockett said.

“But, after all of those 30-odd years with mortgage brokers conducting their small-business models, we have one government department in NSW putting a different view on it all and placing a tax that is not relevant to our industry onto us that will have a significant financial effect on the whole industry.

“Not only is it disappointing that they are incorrect in their view [of payroll tax], but the greatest disappointment is the fact that they have not provided our industry with the dialogue and meaningful consultation that it should have, particularly given the longevity and the conduct of our industry with all forms of government.

“All mortgage brokers should be concerned about this — but particularly those in NSW — because not only is it completely incorrect but if it gets up then more than 5 per cent of commissions may be assessed for payroll tax purposes. And, ultimately, the person that will have to wear most of that is the mortgage broker. It’s ridiculous.”

Tax should not exist, says broker

Providing a broker perspective, Atelier Wealth broker director Aaron Christie-David said that he has reached out to his local MP Ryan Park (member for Keira) and sent them the MFAA letter and included a video of what the impact would be for the industry, aggregators, and his business.

Mr Christie-David said he was pleased that Mr Park had already responded saying he would take the matter up and see what he can do, but added that Revenue NSW should change its position.

The Sydney-based broker said he believes the payroll tax should “not exist” in broking, adding that while brokers rely on aggregators for their support, brokers run their businesses independently of their aggregator.

“We run our broking businesses [independently] of the aggregator. I feel that this has been lost in translation … Yes, we rely on aggregators for their support but at the end of the day we are a separate business independent from our aggregator,” Mr Christie-David said.

“We already pay a fair amount of tax in our business and I’m more than happy to pay our fair share of tax when it’s fair. But I just don’t think this is a very fair tax and that is why I’m protesting about this about this new line item, because I don’t think it should exist.

“It feels like we’ve been fighting for the viability of our industry year after year … we want to get on with doing really good business instead of just trying to keep this industry afloat. Look at our market share and what we’re capable of doing; but this drag on the boat just keeps pulling us backwards.

“We just want to get on with business and thrive.”

Brokers wishing to write to their MP using the resources from the MFAA DoGooder campaign can do so here.

[Related: Payroll tax overreach an ‘absolutely criminal act’]