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The court hearing challenging how payroll tax applies to wholesale aggregators is expected to be held before the end of the year, according to Finsure.
The first court hearing challenging Revenue NSW’s application of payroll tax to brokers operating under wholesale aggregators is expected to be held in November 2024, it has been revealed.
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Revenue NSW has been seeking to retrospectively introduce a new tax on mortgage brokers – a payroll tax on commissions paid to mortgage and finance brokers – which the industry has said is irrelevant to broking, has no legal basis, and could destroy the entire industry.
While the Supreme Court of NSW has previously ruled that payroll tax should be paid on commissions and payments to brokers in certain instances, this ruling was related to testing specific broker-aggregator models under the Loan Market Group (final orders for this matter are still pending).
However, Finsure Group is now getting ready to have its case heard in the Supreme Court of NSW, in a move that is being closely followed by other wholesale aggregation groups, given it could be precedent-setting.
The group last year provided evidence as to why it thought the application of the tax was incorrect, but this was rejected by the State Revenue Office (SRO) NSW, at which point Finsure was provided with a tax assessment, which it had to pay.
The assessment covered the years 2018–22 and was believed to be an eight-figure sum (around $10 million)
The major aggregation group – which currently has around 3,646 brokers aggregating through it – launched legal proceedings to challenge the interpretation at the beginning of this year and is currently in the process of providing evidence for its court hearing, expected to be held before the end of the year.
Speaking to The Adviser, Finsure CEO Simon Bednar said: “At the moment it’s looking like the case will be heard in November.”
Should the process follow that of the Loan Market case, a judgment could then be handed down around six months later, with an appeals process opening for 28 days following final orders. However, based on the delays impacting the Loan Market case, it could be 18 months before any final orders are handed down to Finsure.
‘We believe the entire application of that tax is incorrect’: Finsure CEO
Reflecting on Finsure’s payroll tax case, its CEO told The Adviser: “We strongly believe that, unlike some other branded organisations, the Finsure Group does not receive a service back from the broker. We provide a service to the broker.
“We don’t have any branding, we don’t have any legal requirements for the brokers to act or behave at a certain way in line with our broader business... so, it is Finsure's position that the entire application of that tax is incorrect.”
According to the Finsure CEO, should the aggregator lose its case (and the exclusions that were applied previously were retained), the tax burden would be about $1.5 million a year (or more, if more brokers join Finsure who fall under a relevant contract).
Bednar told The Adviser that Finsure Group would not charge Finsure brokers for the liability that has already been paid, but – should it lose its challenge – would have to consider how to cover the new tax liability.
“It’s too early to make a decision on this. If there’s a single cohort of broker that is found to be captured by this then we may just make a provision of 5 per cent levy,” the Finsure CEO said.
“But hopefully, if we win, we can move on [and Revenue NSW don’t appeal/lose an appeal], and hopefully they will pay us back our assessment.
“I think all eyes are on Finsure now because this is a wholesale aggregation challenge. Our business model aligns more with AFG, Connective, SFG, the former PLAN/CHOICE/FAST businesses and outsource Financial etc.
“But every aggregator, no matter how similar they are, will have to turn on its own merits when it comes to the fight with the SRO. So there may be exclusions, depending on the type of aggregators. But that has to be determined on a case-by-case basis.
“So, I think that the judge [Justine Hmelnitsky] will want to ensure that he delivers a sound judgment.”
The Finsure CEO recently said he was feeling optimistic about the aggregator’s ongoing case against Revenue NSW about payroll tax, following a successful challenge against the tax collection office in a similar case brought by Uber last month.
In the Uber case, the court found that Uber drivers were acting as independent contractors, operating their own businesses.
“On face value, that’s very similar to the wholesale aggregation market,” Bednar said.
In fact, the aggregation group is now being represented by the barrister who argued on behalf of Revenue NSW in both the Loan Market and the Uber case, Stefan Balafoutis SC, who has an innate understanding of the Tax Office’s position on payroll tax.
You can find out more about the payroll tax case and its implications for the broking industry in this news story from July or watch the full webinar for an in-depth discussion of what it means for broking.
[Related: Finsure ‘up for the fight’ on payroll tax]
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