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Taking the stand during a NSW legislative council hearing into the application of the contractor and employment agent provisions in the Payroll Tax Act 2007, big guns of the broking industry have highlighted the dire consequences that the new payroll tax laws will have on the broking industry.
Executive chairman of Loan Market Group, Sam White, and CEOs of the Mortgage & Finance Association of Australia (MFAA) and the Commercial & Asset Finance Brokers Association of Australia (CAFBA), Anja Pannek and David Bushby, presented this evidence to the hearing.
Speaking first, White expressed to the committee that the recent decision in their case against Revenue NSW has left the mortgage broking industry “grappling with some serious consequences”.
“While we lost our case, the judge called the outcome ‘harsh’ and highlighted the law’s complexity that makes it difficult to apply fairly,” White said.
“This only illustrates that [these] exemptions, while available, are hard to evidence, particularly for aggregators like us who are required to source detailed evidence from hundreds of independent brokers operating as small businesses.”
White said that although the court ultimately reduced payroll tax liabilities by 65 per cent of the original assessment, there is still a “broader uncertainty” that remains unresolved and is now “landing squarely on small business owners and brokers across Australia”.
“There are approximately 22,000 mortgage brokers in Australia, a quarter of whom Loan Market Group to be their aggregator. Most are sole traders or family run businesses now facing a new tax on their revenue, not their profit, which for many is unsustainable,” White said.
“If a broker earns say $300,000, they might pay Loan Market Group say $15,000 in aggregation fees. The outcome of this case means that we would now be required to pay $16,800 in tax based on the broker’s earnings.
“So, we make 15,000 but we have to pay 16,800 to the payroll tax office across the board, if we do not have exemptions, which [were] granted by his honour. [T]he payroll tax would be more than 60 per cent of our total revenue every year as an aggregator. We can’t sustain that.”
Pannek, highlighting the record level market share of mortgage brokers in the home loan market, said that brokers are “overwhelmingly independent micro and small businesses”.
“The broking industry has been in existence since the early 1990s, with brokers running their own businesses, sourcing their own clients, and working on behalf of those clients,” Pannek said.
“Aggregators emerged in the mid-to-late 1990s, offering services to brokers so they could operate their businesses more efficiently.
“Despite all these facts, drafting relevant contractor provisions and the recent Loan Market ruling, now treat these broking businesses as employees of aggregators. They are not aggregators, they provide services to brokers.”
Bushby said: “The legislation being considered by this inquiry contains provisions intended to address arrangements put in place to avoid and evade tax properly paid by an employer in relation to their employees.
“The relationship between aggregators and brokers is not such an arrangement and should not be caught under such provisions.
“The aggregation model in finance broking developed in response to a market opportunity and need to provide service to financial brokers that better enables them to service their clients efficiently.
“Commercial and asset finance brokers are generally paid by lenders and pay a fee to aggregators for the services that they supply, such as customer record management systems and other IT systems.”
Loan Market Group and CAFBA have now joined the MFAA in calling for the four recommendations made by the MFAA to the inquiry to be included. These are:
1. Changing the Payroll Tax Act’s contractor provisions to reflect the original intent as anti-avoidance provisions, rather than capture bona fide contractors.
2. Following this, requiring Revenue NSW to review CPN 016 in comprehensive consultation with the mortgage broking industry.
3. In the interim, providing immediate relief to the broking industry through an amnesty on audit and enforcement actions and ensuring no retrospective application of the current law.
4. A national dialogue is commenced to seek true harmonisation of payroll tax laws, with a focus on reducing red tape and administrative burden on national businesses.
[RELATED: Boosted market share could result in further scrutiny for brokers]
