Broking industry challenges ‘stealth tax’ at NSW payroll tax hearing

In her introductory remarks at the hearing, Pannek said: “When first introduced into the payroll tax act in the mid-1980s, the relevant contractor provisions were intended to address anti avoidance.

“They are now capturing businesses such as broking businesses in a way never intended. This threatens not only the viability of small broking businesses, but also the ability of New South Wales borrowers to access a competitive home loan as less brokers means more expensive mortgages.”

Aggregation group Loan Market Group (LMG) has been at the forefront of the payroll tax challenge, having been at the centre of the precedent-setting case arising out of its legal proceedings with the Chief Commissioner of State Revenue of Revenue NSW (RNSW).

In his introductory remarks at the hearing, LMG’s executive chairman Sam White referenced the aggregator’s court case: “The broader uncertainty remains unresolved and is now landing squarely on small business owners and brokers across Australia.

“There are approximately 22,000 mortgage brokers in Australia, a quarter of whom choose LMG to be their aggregator. Most are sole traders or family loan businesses who are now facing a new tax on their revenue, not their profit, which for many is unsustainable.”

In a LinkedIn post, White explained that: "We will cover the historical liabilities, but from financial year 2025, this cost will be passed on. Because, across the board, if we did not have exemptions the imposed payroll tax would absorb 70 per cent of the annual revenue we earn."

Answering questions at the hearing, White said that LMG faced an additional $15 million tax liability nationally following the court case.

Even after the long-running case finished, White said: “There’s still not clarity for this industry. There’s still not clarity for how aggregators should interpret and how revenue New South Wales is seeking to apply the law to these arrangements.”

Pannek said that after the case, the MFAA had witnessed an “escalation of audit activity, and I speak on behalf of our aggregator members, where audits started being conducted across a number of aggregators in industry.

“We saw this very much as a targeted industry approach which we did not feel was appropriate, because we do not feel that the tax should apply,” she said.

In remarks at the hearing, the CEO of the Commercial and Asset Finance Brokers Association of Australia (CAFBA), David Bushby, said: “The legislation being considered by this inquiry contains provisions intended to address arrangements put in place to avoid and evade tax properly paid by an employer in relation to their employees.

“The relationship between aggregators and brokers is not such an arrangement and should not be caught under such provisions.”

Industry’s call for change

In a joint statement, LMG, CAFBA, and the MFAA outlined four recommendations made to the inquiry. These are:

1. Changing the Payroll Tax Act’s contractor provisions to reflect the original intent as anti-avoidance provisions, rather than capture bona fide contractors.

2. Following this, requiring Revenue NSW to review payroll tax Commissioner’s Practice Note CPN 016 in comprehensive consultation with the mortgage broking industry.

3. In the interim, providing immediate relief to the broking industry through an amnesty on audit and enforcement actions and ensuring no retrospective application of the current law.

4. A national dialogue is commenced to seek true harmonisation of payroll tax laws, with a focus on reducing red tape and administrative burden on national businesses.

In a separate submission to the NSW Parliament’s inquiry into the application of payroll tax, the MFAA said contractor provisions are “poorly drafted and outdated, causing significant challenges" for the broker industry.

A “lack of clarity” allows for contractor provisions to be interpreted in ways that do not reflect modern day business practices, the organisation said.

Speaking at the hearing, Pannek said: “Our submission highlights the opportunity for this inquiry to recommend changes to the law so that it reflects its original intent, and in doing so, provides clarity, not only to the broking industry, but to the many other small business industries who have provided submissions.”

Members of the industry provided submissions to the NSW Parliament’s inquiry into the application of payroll tax provisions.

First announced in November 2024, the review was introduced following concerns raised by several industries subject to a new tax impost, including the mortgage broking industry (as well as the transport industry).

The review aims to address the controversial application of payroll tax to commissions paid to mortgage brokers. Recent court rulings have fuelled uncertainty and anxiety within the industry, prompting calls for legislative clarity.

The submissions collectively urged the NSW government to exclude mortgage brokers from payroll tax obligations, saying that current interpretations unfairly classify independent brokers as employees, creating financial strain and industry uncertainty.

They call for legislative reforms, exemptions for genuine independent contractor relationships, and clearer guidelines to prevent unintended tax burdens on small businesses, warning of negative consequences for brokers, borrowers, and competition in the lending market.

Among them is a submission from tax law specialist Dentons (by Sue Williamson, Jack Aquilina, and Nikhil Sachdev), which has been a key player in advising the broking industry on the application of the new tax impost.

At the hearing, Aquilina, Dentons’ managing associate for tax, said smaller businesses were disproportionately affected by the application of current legislation.

“My concern is that the current system is designed at incentivising directly the most vulnerable of those businesses to bear that cost,” he said.

“And that’s what’s really concerning, the issue is actually with the employment, the business structure creates a particular employment relationship. It’s not about the tax. It’s about employment. In the employment context, there are many things that Parliament could do to protect the rights of these people, ensure they have good standards, while at the same time not taxing them.”

The payroll tax has proven unpopular with brokers, with industry associations and aggregators urging the government to remove ambiguity and exclude brokers from the tax application.

Speaking on The Adviser Podcast Network earlier this week, MFAA CEO Pannek described it as a “stealth tax” on the industry that fails to actually reflect how modern businesses operate.

Listen to MFAA CEO Anja Pannek unpack the payroll tax with Annie Kane on the Mortgage and Finance Leader podcast:

Click here to listen on your device

[Related: Broking industry tells NSW Parliament why payroll tax should be reviewed]