Unpacking the NSW payroll tax review

The NSW Parliament is currently conducting an inquiry into the application of the contractor and employment agent provisions in the Payroll Tax Act 2007, which could have widespread ramifications for the broking industry.

First announced in November 2024, the review was introduced by John Ruddick, former mortgage broker and currently a Libertarian member of the Legislative Council of NSW Parliament, following concerns raised by several industries subject to a new tax impost, including the mortgage broking industry (as well as the transport industry).

The Adviser spoke to Ruddick on the Mortgage & Finance Leader podcast to find out more.

Q. What is the NSW payroll tax review focusing on?

We’re having an upper house inquiry into the issue of payroll tax and how it applies to third-party operators. I’m very pleased that we got that inquiry up and my impression is that the Minns government is genuinely curious about trying to get this right. So that’s a good thing.

I will be involved in the committee and we’re going to be calling in various people (for example, the MFAA and many others, banks and lenders) and trying to work out this issue [whether] industries like mortgage broking and the relationship that a mortgage broker has with an aggregator, is that meant to fall under the net of payroll tax? Now I absolutely believe it should not and I’ll be making that case…

It’s not just about mortgage broking, but I think mortgage broking will be sort of front and centre.

Q. What are the ramifications of the NSW payroll tax impost on broking?

If this becomes the law of the land, what it’s going to mean is that the aggregator is simply going to have to take roughly 5.5 per cent of all income and just give it to the state government. So under this model, the aggregator is going to have to pay [single operator] brokers a lot less.

And, if they happen to say, “Sorry, Mr Single Operator, we’ve got to pay you less commission.” Well, that means some [brokers] are going to go out of business. Some of them, who might only be 50 at the moment, might think they’ll just retire early. So all up, it’s not good.

As it currently stands, that is a real threat [to single operator brokers]. In fact, what it’s going to do is it’s going to create an incentive [for brokers to merge]. If you have two single operators and they’re going to be subject to payroll tax unless things change, then they would become one business. Now why do we want the government to force little businesses to do that?

I think that NSW is the test case. And this is often what state governments do when it comes to a new tax. They get one of the states to do it as a trial balloon. I think that the other state revenue offices, they’re always looking to get more and more money off the people.

Q. What do you hope that the review will achieve?

All these industries that are affected by this potential change need to have legislative clarity. So we need to know exactly what is and what is not an employer-employee relationship.

Something important like this should not be decided by judges, it should be decided by the Parliament. And this is why the inquiry is a good thing. I’m hoping that out of that, we can come up with some firm recommendations for the government. Because these decisions have been made by judges. What I’m hoping is that the Parliament can give us clarity and say, “Look, this is not for judges to decide. This is the role of the Parliament to set these rules around payroll tax.”

I’m hoping the inquiry demonstrates that it would be absurd to call a mortgage broker an employee of an aggregator. And not just this industry, but across a wide range of industries. If the courts and the government get their way and we have this big impost of 5.5 per cent, a massive payroll tax, on our big employers, our wealth creators, it’s going to really, really hurt the economy in general.

I think by the end of this year, we’ll have clarity.

1. The Legislative Council began accepting submissions between November and February and is now reviewing submissions.

2. It is expected that the council will then invite relevant members who have submitted to the inquiry to attend public hearings this month (which the public can attend or view online).

3. Following hearings, the committee will deliberate for a period of weeks before releasing a final report with recommendations.

4. The findings and recommendations of the inquiry are expected to be released in a report by April 2025.

5. Should the committee provide a unified report to Parliament, it is likely that the recommendations would be taken up by the Minister for Finance (with any relevant legislation put to Parliament).