NSW payroll tax debate gains traction

The NSW payroll tax debate is continuing to pick up steam within the mortgage broking industry, with aggregators and the shadow minister for finance Anoulack Chanthivong acknowledging that further clarification is required.

Industry leaders have raised concerns over Revenue NSW’s lack of transparency when it comes to interpreting the payroll tax rules for aggregators, its limited consultation with the industry, and reports that that aggregators have been retrospectively assessed for payroll tax.

Aggregators operate under different models, with some brokers trading under an aggregator’s brand, while others trade under their own brand. However, the overarching view is that brokers are not aggregator employees. Brokers instead contract the aggregator to provide a service to them, therefore payroll tax does not apply.

Specialist Finance Group general manager Blake Buchanan has spoken out about payroll tax to MPA, saying he disagreed with the interpretation and approach taken by Revenue NSW, and that “any assertion that brokers are employees of the aggregator is unfounded”.  Buchanan’s concerns are supported by the two peak industry bodies, the MFAA and FBAA, who said they did not agree with the approach taken by Revenue NSW and that they continued to seek a sensible resolution.

Ahead of the NSW state election on March 25, MPA has sought response on payroll tax from the NSW Labor shadow minister for finance Anoulack Chanthivong, as well as two other broker aggregators.

The Payroll Tax Act 2007 has been around for well over a decade, and Revenue NSW previously told MPA that there was “no change” in the application of the Act to mortgage aggregators, or more broadly to the industry.

Shadow minister for finance’s views on payroll tax

Chanthivong (pictured above left) said that the NSW Liberal government had “failed to provide clarity” on the application of payroll tax.

As a result, he said industry sectors such as mortgage aggregators were “marred by confusion and uncertainty”.

“After 12 years, the tired Liberal government has given up on finding solutions to a problem they have overseen. They should be sitting down with mortgage aggregators to listen to their concerns and work through the issues,” Chanthivong said.

NSW Labor recently promised a one single touch payroll tax collection with the Australian Tax Office that would “streamline payroll tax for 52,000 businesses”, reducing compliance cost and improving productivity for NSW businesses, he said.

“NSW Labor is also committed to engaging with stakeholders and looking at ways to ensure payroll tax requirements are transparent and clear,” Chanthivong said.

NSW Premier Dominic Perrottet was contacted for comment.

Mortgage aggregators comment

Purple Circle Financial Services director Frank Paratore (pictured above centre) described the relationship between his aggregation business and its brokers as one of “pure independence”.

Purple Circle provides services to their independent businesses. Brokers are free to operate on their own and in whatever manner they see fit, he said.

Paratore provided examples of brokers’ independence, such as receiving income from (and paying for) services such as financial planning, general insurances, commercial loans, loan processing, marketing, property sales, accounting, tax advice, car sales and consulting.

“We have no minimum performance requirements with brokers and certainly no financial interest in any of their businesses,” Paratore said.

Under NSW government revenue department rules, Paratore said he understood that payroll tax could be levied against a company under the following arrangements: “Grouping, Related Companies, Common employees, Common control, Tracing of interest and Subsuming”.

According to these rules, if a company or companies fall into any of the above scenarios, Paratore said he understood they may be liable to pay payroll tax.

“The management team at Purple Circle have carefully assessed the assumptions and rationale behind each of these scenarios and are comfortable they fall outside their defined scopes,” Paratore said.

“As long as other aggregators operate their businesses in the same or similar manner to Purple Circle, we are confident none of these businesses have a case to answer to as far as payroll tax is concerned.”

REA Group CEO financial services and Mortgage Choice Anthony Waldron (pictured above right) told MPA that Mortgage Choice had been “in continuous discussion” with the MFAA about the general application of payroll tax to the mortgage broking industry.

“We support the MFAA’s ongoing work with the industry, Revenue NSW and the state government on the issue to clarify this position for all participants and stakeholders in the mortgage broking industry,” Waldron said.

Speaking to MPA on condition of anonymity, an industry source referred to payroll tax assessments carried out on aggregators as “a revenue grab by NSW”.

They noted that backdated assessments on commission paid to brokers was overly harsh and was not in the spirit of supporting Australia’s small businesses.

“There is zero concern for impact on an industry … to go back on a sector and say, ‘I’m looking back eight years’ (plus penalties, plus interest) is a significant amount of money,” the source said. 

“It is very concerning for the possible impact on existing aggregators and brokers, particularly those that don’t have a strong balance sheet or have already reinvested or distributed previous years‘ profits.”

While liability for payroll tax going forward is significant for the industry, the retrospective nature of the tax is a bigger concern, the source said.

“What we need from government is that ‘we believe this application is overzealous and don’t believe retrospective nature is appropriate’.”

Revenue NSW responds

In response to further questions from MPA, Revenue NSW indicated the payroll tax review period was less than eight years.

“Where Revenue NSW undertakes compliance activity on the payroll tax obligations of a customer, the review period is generally limited to the last five years,” the Revenue NSW spokesperson said. “As payroll tax liabilities are considered on a financial year basis, a liability may arise in some years but not others, during the period of review.”

In its initial response on payroll tax when MPA broke the story, Revenue NSW said that there had been “no change” in the application of the Payroll Tax Act 2007 (the Act) to mortgage aggregators, or more broadly to the industry.

While broker aggregators “may not directly employ brokers”, commission payments may be liable for payroll tax if the contract between the licensee and the agent is a “relevant contract under the Act”, Revenue NSW said.

Revenue NSW has provided further clarity around payroll tax rules applying to mortgage aggregators and sub-aggregators, in relation to “contractor provisions” under the Act, stating there were “no plans to review contractor provisions at this time”.

Where contractor provisions apply, commissions and certain other payments may attract a liability to payroll tax, a Revenue NSW spokesperson said.  For mortgage aggregators and sub-aggregators, this is determined “by how they engage brokers”.

“Any payments made by a business to contractors may be liable for payroll tax unless one of the exemptions applies,” the Revenue NSW spokesperson said.

Revenue NSW said the following three exemptions were most likely to apply to mortgage aggregators:

• Services are provided by the agent on no more than 90 days in the financial year
• Two or more persons to perform the work required under the contract in the financial year
• The Chief Commissioner is satisfied that the agent ordinarily performs services of that kind to the public generally (for other unrelated licensees) in the financial year.