NSW payroll tax law to be reviewed

This inquiry – established on Tuesday (26 November) – will look into and report on the application of the contractor and employment agent provisions in the Payroll Tax Act 2007. Specifically, it will look at:

• The provisions in Division 7 of Part 3 of the Payroll Tax Act 2007 on contractors.
• The provisions in Division 8 of Part 3 of the Payroll Tax Act 2007 on employment agents.
• Revenue rulings and Commissioner’s practice notes issued by Revenue NSW addressing the contractor and employment agencies provisions in the Payroll Tax Act 2007.
• Decisions of courts in cases involving the application of the contractor and employment agencies provisions in the Payroll Tax Act 2007.
• The applicability of the contractor and employment agent provisions in the Payroll Tax Act 2007 on particular industries including the on-demand and gig economy.
• Any other related matter.

The inquiry will be held by the Legislative Council of NSW, chaired by Jeremy Buckingham (of the Legalise Cannabis Party), which also includes Damien Tudehope (leader of the opposition in the Legislative Council and shadow treasurer and shadow minister for industrial relations), alongside committee members from the Australian Labor Party; Liberal Party; and Shooters, Fishers and Farmers Party.

Submissions to the inquiry will close on 7 February 2025.

It comes after John Ruddick, mortgage broker and libertarian member of the Legislative Council of NSW Parliament, brought the matter to Parliament earlier this month.

Speaking to The Adviser about the launch of the inquiry, Ruddick said: “I am delighted the NSW parliament will hold an inquiry into the matter of the application of payroll tax in NSW.

“As someone who had worked in mortgage broking for more than two decades before my election I am particularly keen for public scrutiny in how an expansion of payroll tax could cripple that great industry.

“The relationship between aggregators and mortgage brokers does not come anywhere near the type of relationship which would trigger payroll tax. I am confident this NSW inquiry will help the Minns Government come to the right policy setting.

“If NSW gets this wrong it will become a precedent for other states and badly damage the mortgage broking industry. It would result in there being less mortgage brokers and a concentration of the market in the largest banks. The alternative would be a hike in commissions being paid to brokers which will obviously flow through to consumers in the form of higher interest rates. All bad outcomes. All unnecessary outcomes.”

MFAA welcomes inquiry

The Mortgage & Finance Association of Australia (MFAA) today welcomed the announcement, saying that the review comes amid sustained engagement by the association and critical stakeholders in the NSW government.

“We are pleased to finally see action being taken on this longstanding issue for our members,” said MFAA CEO Anja Pannek.

“We see this inquiry as a clear acknowledgement that the application of relevant contractor provisions is flawed and needs to be reviewed.

“At a time when access to finance for a home is more important than ever, this tax penalises mortgage brokers, the very businesses that enable home ownership. At the end of the day, this is a tax on NSW home borrowers.

“Yes – the Loan Market case has provided clarity in terms of exemptions for industry; however, the issue of retrospectivity, fines and penalties remains. This threatens the viability of broker businesses – many of which are the smallest of small businesses – and will lead to reduced competition and increased costs for NSW homebuyers.”

The MFAA said that the protracted tax matter between Loan Market and Revenue NSW demonstrated the need for payroll tax legislation in NSW to be reformed, highlighting that in both the Loan Market decision in April and the Loan Market final orders in November, the court noted that the application of the law was “harsh” and was a matter for Parliament to correct through amending legislation.

The association has said it will urge the inquiry to consider a time-bound moratorium on retrospective payroll tax liabilities for aggregator/broker arrangements and to recommend legislative changes that bring clarity and fairness to the system. It noted that the NSW Government had already granted payroll tax relief and exemptions to the healthcare sector, which the MFAA said set a precedent for acknowledging the unique nature of independent contractor arrangements in different industries and the need for targeted reforms.

It said that the payroll tax issue has national implications.

Pannek said: “The challenges faced by our members in NSW are mirrored in other jurisdictions, making this Inquiry a critical first step in addressing these issues across other jurisdictions.”

Together with CAFBA and COSBOA, the MFAA said it would continue to work constructively on this issue, including to engage with the inquiry on behalf of members.

The inquiry comes as the broking industry continues to challenge Revenue NSW’s reading of the law and its application to the broking industry. While final orders from the Loan Market case were handed down earlier this month, another legal challenge – brought against the tax collection office by wholesale aggregator Finsure – is set to be heard before the end of the year.

Commenting on the recent inquiry announcement, Finsure Group CEO Simon Bednar said: “As we’ve stated before, our position is that the current application of the tax is incorrect so we would welcome any review or change by the NSW Government into the payroll tax framework.

“Right now, we strongly believe that mortgage brokers are being unfairly disadvantaged by this tax, which could have enormous consequences for our industry as a whole.”

[Related: ‘Payroll tax is payable’, judge finds in Loan Market case]