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The broking association has urged the NSW government to change payroll tax law to make it more transparent.
With final orders having been handed down for the long-running payroll tax court case between Loan Market Group (LMG) and Revenue NSW this week, the Mortgage and Finance Association of Australia (MFAA) is now urging the state government to update the law to remove any further uncertainty for the broking industry.
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The broker associations have long argued that they do not believe payroll tax should be payable on mortgage broker commissions.
Following on from the final orders for the Loan Market case being handed down, MFAA CEO Anja Pannek flagged that the presiding judge, Justice Mark Richmond, has repeatedly highlighted that the application of the law can be seen as “harsh” and is a matter for Parliament to correct through amending legislation.
For example, in the April 2024 judgment, he said: “The conclusion that the broker agreements constitute a relevant contract under s 32 may be seen as a harsh outcome for LML [Loan Market] because the contractor provisions now found in s 32 were originally introduced as an anti-avoidance measure which was not intended to catch ‘bona fide independent contractors’.”
Similarly, he flagged this week that “the fact that the application of the law to the LM Group may appear harsh – that is a matter for Parliament to correct by amending the legislation”.
As such, the MFAA CEO is now urging the state government to amend the legislation as a matter of urgency, particularly as other payroll tax challenges – such as Finsure Group’s – are yet to be heard.
“This situation has been caused by ambiguous legislation and anti-avoidance provisions being applied in a way that was never intended. Even the judge in the Loan Market case noted the application of these provisions is harsh, and the exemptions are too narrow,” Pannek said.
“Our industry has not been avoiding paying relevant taxes, the legislation is ambiguous and over many years and across the industry, legal advice has been sought, and even experts have struggled to understand it, making it difficult for our industry to comply.”
While she acknowledged that the legal challenge has determined that some of Loan Market Group’s broker agreements are captured by payroll tax and provided some clarity on that specific example (and relevant exemptions may be), more needs to be done to provide clarity to the rest of the industry.
“We respect the court’s decision in this matter, [but] the fact a lengthy and expensive legal case was required shows that the legislation is too complex,” Pannek said.
“The NSW government now needs to confirm this ruling by changing the law and make the law clear so our members can be confident of the path forward,” the MFAA CEO said, adding that the association is continuing to encourage Revenue NSW to urgently revise the commissioner’s practice note, in consultation with industry.
According to the MFAA, the note issued by Revenue NSW does not provide appropriate guidance to make it easier for businesses to comply with legislative requirements.
“While our position remains that broker commissions are not a salary – they are business income used to pay expenses before a broker pays themselves – our industry wants to comply with taxation requirements, and our members must be given the right guidance to do so. It is vital that the commissioner’s practice note reflects how our industry operates, and we want to work with Revenue NSW to get it right,” she said.
In addition, the MFAA has said that the broking industry needs more time to adjust to the tax impost, suggesting a moratorium (such as the one implemented in 2023) should be given to the industry while the Finsure case is challenged, alongside a guarantee that no retrospective penalties will be applied.
“To apply penalties would be harsh and unfair. In fact, in this November judgment, the court has reversed Revenue NSW assessments, including the application of penalty tax and interest,” said Pannek.
However, she added that the legal reading has a wide-reaching implication: “With payroll tax legislation harmonised across most jurisdictions, this is not just an issue in New South Wales; it is a national issue.”
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: Final orders handed down in Loan Market payroll tax case]
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