Loan Market payroll tax ruling handed down

The case, pitting Loan Market Group Pty Ltd/Loan Market Pty Ltd against Revenue NSW, concluded on Friday (12 April), with Justice Richmond ruling in favour of the tax office’s stance.

Central to the case was whether brokers operating under the Loan Market brand between June 2012 and June 2018 were subject to a ‘relevant contract’ under the Payroll Tax Act 2007 (NSW), which necessitates payroll tax payment.

Justice Richmond’s judgment established that a ‘relevant contract’ did indeed exist between Loan Market and active brokers utilising its aggregation services.

Consequently, payroll tax becomes payable on payments channelled through the aggregator to individual operators, unless specific exemptions apply.

These exemptions have been broadened beyond previous recognitions to encompass scenarios such as engagement durations under Loan Market’s credit licence, utilisation of offshore loan processors, hiring family members, or engaging genuine service providers.

Loan Market has a window of 28 days to consider appealing the judgment.

Executive chairman Sam White expressed disappointment, emphasising the complexity of the case and its implications for the broader industry.

In an update to broker members on Monday (15 April), White said: “Revenue NSW is of the view that LM, for the period from 2012 to 2018, have what is termed a ‘relevant contract’ (a term defined in the Payroll Tax Act where the Commissioner believes that, in our case, a broker supplies services to an aggregator), and has therefore made an assessment that payroll tax should be paid on commissions and payments to our brokers.

“We believe this is completely wrong – our brokers are our customers, not our employees.

“It is a complicated case and judgment and we’ve spent the weekend closely analysing and dissecting the judgment with our legal team.

“On the key threshold question, His Honour has ruled that, for the purposes of the Payroll Tax Act, there is a ‘relevant contract’ that exists between Loan Market and the brokers that use its aggregation services. This does not mean that brokers are employees of Loan Market, but that for payroll tax purposes only, there is a deemed relationship where payroll tax is payable on broker payments passed through from lenders to aggregators to broker, unless the broker business can establish they fall into an exemption.

“This is obviously a disappointing outcome.”

However, White noted that while the judge found that payroll tax applied broadly, he also agreed with Loan Market’s position that the exemptions that a broker business could fall under were wider than the position adopted by Revenue NSW.

“With the support of our NSW brokers, this has led to a substantial reduction of payroll tax from the application of the exemptions to be calculated and agreed between the parties,” he said.

White added that there were still some ambiguities to be worked through such as “the application to the other service plans that don’t use the Loan Market brand, and where we don’t share in commissions” (such as through its Member and Partner (BYOB) businesses.

“We believe there is still some ambiguity in how broadly this case applies to other LMG service plans,” he said.

“[Over the coming weeks] we will be seeking to clarify this question, and how the state revenue offices will look at other LMG service plans.”

The verdict holds significant consequences for brokers and aggregator groups alike, as it imposes a new tax burden on the industry. Moreover, it could see other revenue offices across the country look to not only introduce a similar tax burden but also look to similarly recoup back taxes.

Both the Finance Brokers Association of Australasia (FBAA) and the Mortgage & Finance Association of Australia (MFAA) have strongly opposed the outcome of the Loan Market payroll tax case, with the FBAA accusing Revenue NSW of a “blatant money grab” and calling for government intervention to fix the flawed legislation.

The MFAA also expressed disappointment, emphasising the unfairness of subjecting mortgage brokers to payroll tax and advocating a national overhaul of the legislation to provide clarity and fairness for small businesses in the industry.

[Related: Broking industry ramps up payroll tax action]