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The long-running court case between Revenue NSW and aggregator Loan Market came to a head in April last year after the court determined that particular commercial arrangements between aggregators and mortgage brokers classified brokers as contractors under the Payroll Tax Act 2007 (NSW).
Despite 41 per cent of NSW brokers being sole traders, this means that even those business revenues are subject to payroll tax as a result of the ruling.
While exemptions exist for broking businesses with multiple brokers, no such exemption applies to sole traders who generate an average revenue of $182,000 before deducting wages, fees, and other expenses.
In response, industry bodies including the Mortgage & Finance Association of Australia (MFAA) have lodged submissions to the NSW government following the announcement of the state government launching an inquiry to review the operation of the relevant contractor and employment agent provisions within the act including relevant case law in November 2024.
Under the proposed tax, these self-employed professionals would be liable for an additional $68,000 in payroll tax – including five years’ worth of back taxes – a burden that MFAA CEO Anja Pannek has described as completely unfeasible.
“We are deeply concerned that the long-term impact of this stealth tax will have devastating consequences for small broking businesses across NSW, and for borrowers who will see the cost of their mortgages increasing in the middle of a housing and cost of-living crisis,” Pannek said.
“After years of inconsistent interpretations in the law, it’s time for this legislation to be reviewed and corrected. NSW taxpayers deserve clarity, fairness, and a system that supports small business owners rather than penalising them for their productivity.”
A few months after the ruling, managing director of MC Finance Group, Matthew Chik, told Broker Daily that imposing payroll tax on all brokers would be an “unjustifiable” move from state governments.
“This would directly affect our profit margins, potentially forcing us to reconsider certain aspects of our operations,” Chik told Broker Daily back in September.
“Unfortunately, this could mean reducing staff or prioritising higher-value transactions, which goes against the very purpose of brokers – helping a wide range of consumers, especially first-time home buyers who need the most assistance.
“This shift might also cause more mortgage brokers to exit the industry, leading to fewer options for consumers and potentially lower service quality.”
According to the MFAA, its modelling has highlighted “far-reaching and unintended consequences” of the payroll tax and said that it would extend far beyond the broking industry.
The industry body said that the ruling could set a precedent leading to other industry run by small businesses to be targeted by Revenue NSW.
“As Payroll Tax laws are largely harmonised across Australia, this isn’t just an issue in NSW – this is a national issue. Hairdressers, dentists, tradies and any sole traders across the country could be targeted,” Pannek said.
“These small businesses are the lifeblood of the Australian economy. We’re surprised this government would target small businesses and everyday homeowners for more tax.”
A similar case was seen last year where the court determined that payments to Uber drivers did not qualify as “for or in relation to the performance of work” under the payroll act, which meant that payments are not to be considered wages and therefore extended payroll tax provisions are inapplicable.
This case provided a glimmer of hope for the broking industry, as Uber’s platform operates similar to aggregators in the sense that it is a service platform distributing revenue from lender partners to brokers.
A further consequence highlighted by the MFAA may be the reduction in broker numbers due to the financial pressure of the payroll tax, which would force many businesses to adjust their models or close their doors permanently.
“Without brokers, consumers will have fewer choices and in turn face higher mortgage costs and more difficulty accessing credit, further exacerbating the housing affordability crisis in NSW. This isn’t just a tax on brokers – it’s a tax on borrowers and families trying to secure a home,” Pannek said.
“If the NSW Government fails to act on this issue in line with their current commitments, our data shows the average NSW borrower – who already carries a larger mortgage than those in other states – could end up paying up to $100,000 more over the life of their loan.
“We’re calling on the Minns Government to demonstrate leadership by supporting home loan borrowers and small businesses.”
[RELATED: Government to review payroll tax]
