Broker associations voice anger over commissions tax grab

As previously discussed by Broker Daily, the court cases between aggregators Loan Market and Finsure with Revenue NSW are to determine whether brokers operating under the aggregator’s brand (between June 2012 and 2018) were subject to a “relevant contract” under the Payroll Tax Act 2007 (NSW), which would necessitate payroll tax payment.

If the Tax Office is successful, this would see payroll tax on commissions paid through aggregators to brokers. In response, various associations have come together to voice their anger on the topic. Small business advocacy group COSBOA has called upon the government to reform tax law and raise payroll tax thresholds.

“The law as it stands is also ambiguous, which has led to many businesses being forced to take legal action – a costly exercise that would be unnecessary if the law provided the clarity it should,” said COSBOA CEO Luke Achterstraat.

Speaking to Broker Daily, CAFBA CEO David Bushby said that aggregators would likely pass along costs to brokers. For small businesses, this decision could be detrimental and the precedent set could be far-reaching.

“For brokers that are directly impacted, I think it could be quite challenging. It ultimately that will come at a cost to them and the aggregators aren’t able to absorb all the costs. For the brokers that are directly impacted at the moment at least, it has an impact on the viability of some of their operations. It impacts mostly on small sole brokers and that will have an impact on their viability and then consequently the availability of those brokers to provide the services that they provide and the benefits that come from that,” said Bushby.

“My understanding is [aggregators] work on fairly slim margins and if they’re being asked to pay payroll tax on the brokers that are working with them as if they’re employees, their ability to absorb that would come into question and then they would need to examine how they approach their business model and how it works and ultimately there’s only two ways that they can deal with that. One is recover it from the lenders, which is probably unlikely and the second is to seek to recover it from the brokers.

“The case at the moment is fairly focused and it does have a lot of exemptions in it but the risk and the reason why COSBOA and CAFBA are involved as well is because of the risk for it to grow and for the precedent having been set for it to impact and leak into other areas of broking and have an impact on small business which has potential to undermine economic growth and economic activity.”

Bushby believes that if Revenue NSW is successful, other states will follow suit: “There is an agreement around the country that all revenue offices apply decisions from other revenue offices. So, NSW Revenue might be the one pursuing this but it will impact on Victorian Revenue and Tasmanian Revenue and all the others.”

Further to hurting the broking industry, MFAA CEO Anja Pannek said a ruling in favour of the Tax Office could impact borrowers, too, especially first home buyers and SMEs.

“Finance brokers – be they mortgage, commercial or asset based – are the critical enablers of enterprise and aspiration in New South Wales,” said Pannek.

“This support is particularly vital in the context of 13 successive interest rate increases, mortgage stress and heightened cost of living pressures for NSW residents and business owners.

“Our request has been, and remains, for the NSW Government to provide legislated retrospective relief and a moratorium from the application of the Payroll Tax Act to allow the mortgage and finance broking industry time to meet its regulatory requirements, given the significant ambiguity that has and continues to exist. It’s essential that the home buyers and home owners of NSW can continue to benefit from the essential service brokers provide.”

Bushby said that the impact on borrowers could be just as pronounced, as small businesses could close doors, eliminating choice for consumers.

“If there are fewer brokers it limits the ability of consumers and businesses to obtain the best deals to be able to talk to brokers and get lower interest rates or get the deals that they need in the time and in the way that they need. So, the risk to me is that it will happen. It does flow through if broker’s businesses aren’t as viable there won’t be as many brokers and there won’t be as much assistance coming from brokers to their clients,” said Bushby.

This issue could be especially pronounced in regional and suburban communities where small brokerages are a go-to for locals.

“I’m sure some of the bigger brokers and bigger broking firms around the country could absorb some of this but if you look at the current case that we’re actually talking to the NSW government about the decision impacts mostly on the single sole operator brokers and those are the types of brokers that service regional and suburban Australia and provide access to people that the big firms just wouldn’t provide access to,” said Bushby.

Head of broker and third-party distribution at Lend, Andrew Beckett shared his opinion on the matter, noting that hurting brokers could hurt the economy.

"Finance brokers and the services they provide are integral to the functional development of the Australian economy. Whether it's helping a family secure their first home, a small business acquiring assets to fulfil a new contract or a commercial property developer securing large funds to start a project, brokers play an integral part in keeping the wheels turning for a large number of clients today," he said.

"The proposed changes ultimately squeeze the margins out of both broker and aggregator pockets. The attractiveness for smaller businesses to continue operating may diminish over time should these proposed changes be passed. Additionally, for people looking to start a business, the attractiveness of running your own brokerage will decrease and we will see less people choosing finance broking as a preferred career or business model as a result."

Beckett concluded: "Without brokers, so many clients will be flying blind trying to navigate the Australian financial landscape and with the drastic increase in rates over the last 24 months, finding the best deal has never been more imperative for the Australian consumer or business owner."

COSBOA, CAFBA, and MFAA are continuing to push for a fair outcome for brokers, working with NSW government to reach a conclusion.

Related: Imposing payroll tax on brokers would be ‘unjustifiable’

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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