NSW payroll tax

Revenue NSW has been seeking to apply payroll tax to the commissions that your aggregator pays you. Revenue NSW’s interpretation is that you are an employee, representative or agent of your aggregator.

Some aggregators have sought to dispute Revenue NSW’s interpretation of the law by bringing proceedings in the Supreme Court of NSW.

As noted above, the decision in the Loan Market matter is the first of these cases, and was handed down on Friday, 12 April. Both parties have 28 days to consider if they will appeal the decision.

While this has been ongoing for several years, we have recently seen a significant escalation in activity through requests for information, audits and assessments by Revenue NSW which is causing immense disruption in the industry.

The issue has become more topical as a result of the decision in the Loan Market case, as well as recently launched legal action by Finsure against Revenue NSW in the Supreme Court of NSW.

The precedent set may have a range of implications, including that other states will seek to impose this same tax.

The position of the MFAA remains that your commissions, as an independent small business owner, should not be subject to payroll tax.

Revenue NSW, is the NSW Government’s tax regulator.

As of 1 July 2022, the rate of payroll tax is 5.45% for total wages exceeding the threshold of $1.2 million.

In March 2023, the MFAA launched a campaign to encourage brokers to contact their local representatives, with the key objective of achieving a moratorium on all activities against the broking sector regarding payroll tax in NSW until there was certainty for industry.

Over 1300 mortgage and finance brokers contacted their local Member of Parliament expressing their concerns about this issue.

The campaign led to the MFAA securing a ‘stop action’ from Revenue NSW which meant that Revenue NSW provided an undertaking not to commence any new audit activity on aggregators until the decision in the Loan Market matter was received.

The MFAA’s position is that the stop action is still in place, and that the stop action extends to any appeal and the outcome of that appeal that either Loan Market or Revenue NSW brings with respect to the Loan Market matter.

No, this is not necessarily. The parties in the Loan Market matter have 28 days to appeal the judgement and we need to allow for legal processes to be followed.

The MFAA will be engaging closely with LMG to understand their plans. The MFAA is also engaging with the NSW Government to discuss the matter, and the implications for legislative change to the payroll tax legislation in NSW.

Payroll tax will apply to individual operators, whether incorporated or not, unless they can establish an exemption.

There are several exemptions for businesses that have self-assessed as having to pay payroll tax. This includes where a business (for example an aggregator) is making payments to another business (for example a broking business) that has two or more people performing the work required under the contract between those two entities.

The work that both people are performing must not ‘de minimis’. De minimis means that the work undertaken by both people must be of a certain threshold.

The judgement in the Loan Market case has clarified and broadened Revenue NSW’s interpretation of the exemptions, to include common arrangements used in broking businesses, such as offshore loan processing and the engagement of contractors, including family members, to help with administrative tasks in a broking business.

The judgement appears to apply equally to sole traders irrespective of if you have incorporated your business or not.

The judgment appears to apply equally to individuals who hold an ACL or are a Credit Representative of an ACL held by an aggregator.

The judgement did not specifically address this scenario. We recommend you speak with your aggregator or obtain legal advice.

The circumstances of the Loan Market Group court case are specific to the contracts that were the subject of the court case.

In that case, only contracts between LMG and mortgage brokers were considered. It depends on the nature of your contract with your aggregator as to whether it is a relevant contract for the purposes of payroll tax.

The circumstances of the Loan Market Group court case are specific to the contracts that were the subject of the court case.

Some of the things relevant to the LMG brokers included employing an administrative assistant or processor in the business or engaging another business as a genuine service provider.

This may be pertinent for you to consider with respect to the way in which you structure your business.

While Revenue NSW is imposing this tax liability on aggregator businesses, the tax is going to be paid on your commissions. It is therefore possible that the tax will be passed down to you depending on how your aggregator is impacted and chooses to deal with any additional taxes. Because your clients do not pay you, lenders do, you will not be able to pass the tax down.

We are therefore concerned that this tax will impact the financial stability of the industry, and how you access services from an aggregator.

We cannot provide you with this advice. You will need to consult with your accountant.

We do not know. It is difficult to quantify the impact. However, we note that the amount of payroll tax currently payable is 5.45% of total ‘wages’.

Not yet, however we are very concerned that if Revenue NSW successfully applies payroll tax in NSW, that other states will look to do the same.

The payroll tax laws are harmonised across all jurisdictions other than Western Australia. This means that this case will be established as precedent for those states.

The important point to note is where the tax liability arises will be important to understand how each of the jurisdictions will consider this case.

While there may not be a direct current impact to you as a salaried broker, we are concerned that the application of this tax on the industry will cause many small broker businesses to fail. This means less broker businesses in NSW which will translate into less future employment opportunities for you, as an employee.

Revenue NSW is imposing this tax liability on aggregator businesses, the tax is going to be paid on commissions you generate for the business you work for, reducing their overall commission payments. It is likely that the tax therefore will be passed down to you in some way.

It is important to note that the MFAA is not able to provide you with legal advice. This includes how the Loan Market decision may impact on your business specifically, or what steps you should take in light of the decision.

If you have questions on how this may impact you, we recommend you contact your aggregator first.

If you have general queries about the MFAA’s advocacy activities, please email us at ua.moc.aafm@xatlloryap