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As recently reported by Broker Daily, there was an inquiry held at Parliament House Sydney on 21 March to discuss the Payroll Tax Act 2007 and try to mitigate any confusion surrounding whether or not a broker is considered an employer under an aggregator.
Industry leaders spoke on behalf of brokers, aggregators, and broker associations. Anja Pannek, CEO of the MFAA; David Bushby, CEO of CAFBA; and Sam White, executive chairman of LMG provided insight before the council and pleaded their case.
When asked by the council whether the Payroll Tax Act is fit for purpose, Pannek said it wasn’t.
“We see the opportunity for the law to be amended to identify what is truly an independent contractor. The intention of the law was to capture avoidance. These are not businesses seeking to avoid the tax,” she said.
“We would be very supportive and would welcome the opportunity to work with NSW Treasury in consultation to have the law amended back to its original intent.”
The “lack of clarity in the law” was a major issue that comes with this payroll tax as confusion has been rife since it was first argued.
According to White, imposing this tax would force aggregators to pass along the costs. When asked if this was a business choice, he said “it’s physically impossible” not to pass along the costs.
“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,” said White.
“It’s 70 per cent of our revenue. Not 70 per cent of our profit. If our profit margin is 20 per cent, the payroll tax is somewhere north of 60 per cent
“You just can’t be in business and pay 60 per cent of your revenue to the government before you can pay your staff. So, it is not a choice. It has to change.”
This causes an issue as to the path forward for aggregators if this tax was to be imposed whether you levy everybody the same or place restrictions on who can join the aggregator, such as no sole traders. Either way, White said the cost will be pushed on to brokers.
“I would submit that it is not a choice that we have. We’ve chosen to not levy the back tax, because I think that’s un-Australian, but we can’t absorb that going forwards. It’s just physically impossible. And anyone who says otherwise, I think they’re kidding themselves,” said White.
What makes the tax especially hard to swallow for some is the fact not everyone does all their work through an aggregator. As highlighted by Bushby, some members he works with submit less than half of their loans through an aggregator.
“The rest of the work he does on different assets and different business needs, finance needs, he does directly with lenders. But his aggregator and the work that he’s done for that aggregator has been assessed by NSW Revenue, even though it’s only part of what he does,” he said.
Bushby said that the commercial and finance broking model is different and lumping everything into one doesn’t account for these differences.
Further, Bushby said that imposing this tax would push out sole traders, which would affect the ability of Aussies to access loans. This would have a flow-on effect on interest rates, placing a detriment not just on the industry but the wider economy.
In a joint statement, MFAA, CAFBA, and LMG recommended the following changes:
- Changing the Payroll Tax Act’s contractor provisions to reflect the original intent as anti-avoidance provisions, rather than capture bona fide contractors.
- Following this, requiring Revenue NSW to review CPN 016 in comprehensive consultation with the mortgage broking industry.
- 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.
- 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.
The law is ‘broken and needs to be fixed’
Following the parliamentary inquiry, Broker Daily spoke with Pannek and Bushby. Each was optimistic on the outcome of the case, noting the need for change.
Pannek said it’s important not just for NSW, but Australia that there are amendments, as the consequences are likely to impact the whole industry.
“The law acknowledges that something is broken and needs to be fixed,” said Pannek.
“If you look at the submissions by other people in our industry, they will say the same thing. They say that there needs to be change. And then if you look more broadly across other industries as well, the message is the same. There needs to be change for clarity.”
Bushby shared similar sentiments, driving home just how negative uncertainty is for the industry.
He said that this tax will simply mean less brokers. Smaller brokerages and sole traders won’t be able to keep up with the added financial pressure.
“It will put downward pressure on the current growing percentage of home loans that originated through brokers. And that will ultimately lessen the pressure on lenders to be competitive. The same thing can happen in terms of brokers who are assisting business with their finance needs. If this is passed onto them, making their business model less viable, then there will be fewer brokers doing the work, which lessens the pressure on lenders to be competitive,” Bushby said.
‘Payroll tax addiction’
Speaking on behalf of the Council of Small Business Organisations Australia, CEO Luke Achterstraat said payroll tax is an “addiction”.
“NSW Government will bring in almost $55 billion in payroll tax over the next four years. Remarkably, this state will raise more in payroll tax than gambling tax. This inquiry is timely. An alarming symptom of the New South Wales payroll tax addiction has been the reckless mission creep of its application beyond the employment relationship,” said Achterstraat.
“Payroll tax was never intended to be payable in a B2B relationship, yet small businesses have been highly anxious since a court ruling harshly found a business providing services to mortgage brokers somehow owed payroll tax.”
More to come...
