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Industry advocates have met with the NSW government to highlight the threat payroll tax poses to small broking businesses.
Three peak industry bodies have joined forces to advocate for mortgage and finance brokers threatened by Revenue NSW’s interpretation of payroll tax.
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Broking industry groups, the Mortgage & Finance Association of Australia (MFAA) and the Commercial and Asset Finance Brokers Association of Australia (CAFBA), were joined by the Council of Small Business Organisations of Australia (COSBOA) in a meeting with NSW Minister for Small Businesses Steve Kamper MP and NSW Minister for Finance Courtney Houssos MP on 18 September.
In the joint meeting, the peak bodies warned the ministers about the threat posed by “unclear” interpretation of the payroll tax legislation.
Last year, Revenue NSW, the NSW government division that collects taxes, contacted several aggregators and sub-aggregators seeking backdated payroll tax for the broker members.
Employers that pay wages to employees are required to pay tax if their payroll surpasses a certain threshold and Revenue NSW contended that brokers fall under a contract provision defined in the Payroll Tax Act, making aggregators liable to the tax.
However, aggregators – including Loan Market and Finsure – have challenged this reading, saying they provide a service to the brokers, rather than the other way around.
Luke Achterstraat, the CEO of COSBOA, who represents more than 500,000 small businesses in the state, said part of the problem is the ambiguity associated with the legislation in its current state.
“The law as it stands is also ambiguous, which has led to many businesses being forced to take legal action – a costly exercise that would be unnecessary if the law provided the clarity it should,” he said.
Anja Pannek, the MFAA CEO (who spoke about the ramifications of payroll tax during a webcast on The Adviser in July), lent her voice to calls for clarity.
“Our request has been, and remains, for the NSW Government to provide legislated retrospective relief and a moratorium from the application of the Payroll Tax Act to allow the mortgage and finance broking industry time to meet its regulatory requirements, given the significant ambiguity that has and continues to exist,” Pannek said.
“It’s essential that the home buyers and home owners of NSW can continue to benefit from the essential service brokers provide.”
The MFAA CEO has previously warned that it is likely the cost of this new tax would be passed down to some brokers, hitting single operators the hardest.
“This tax would represent an added cost to our industry that cannot be passed on to customers. This means the smallest of small businesses in our industry will bear the brunt of this – at a time when we are working hard to support our customers who are facing cost of living pressures and increases in their mortgage interest rates,” she said at the time.
David Bushby, the CAFBA CEO, also said that the application of this payroll tax on brokers could lead to many small broking businesses closing.
“The NSW Small Business Commissioner’s own research shows that as interest rates have gone up, small business confidence has gone down,” he said.
“These small businesses deserve the support finance brokers provide, and the choice of financing options that are only possible because of brokers.”
Aggregators on notice
The meeting comes as the industry continues its legal challenges of the Revenue NSW stance.
Final orders of the court case between Loan Market Group and Revenue NSW are yet to be handed down after the judge reserved the judgment on final orders and costs in September.
During the July webcast, LMG executive chairman Sam White highlighted the complexity of the issue and said it’s the smaller businesses and bigger businesses that are likely to have a problem.
“This is largely because the small businesses may not be eligible for an exemption and larger businesses may have their own business payroll tax liabilities,” he said at the time.
Another legal challenge is also going through the courts, with aggregation group Finsure telling The Adviser that it anticipates its first court hearing challenging Revenue NSW’s application of the tax to be heard before the end of the year.
The Finsure case will likely set a precedent for other wholesale aggregation models.
In September, the aggregation group’s CEO Simon Bednar 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.”
The major aggregator – which has around 4,000 brokers operating under it – said earlier this year that it was optimistic about its case, given a successful challenge against the tax collection office in a similar case brought by Uber.
In the Uber case, the court found that Uber drivers were acting as independent contractors, operating their own businesses.
Finsure 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.
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