Plea follows Supreme Court’s final orders in LMG case
The MFAA has exhorted the NSW government to change the law governing payroll tax following the release of the Supreme Court of NSW’s final orders in LMG’s payroll tax court case.
In the final orders, handed down by Justice Richmond on November 4, the court has ruled that LMG is entitled to a refund of some of the $2.32 million it has already paid Revenue NSW, and a recalculation of the amount of remaining monies owed.
“It is apparent that even if there is no reduction in penalty or interest, LMG has made a significant overpayment in respect of LML’s (Loan Market Pty Ltd) liability to primary tax, penalty and interest,” the court stated.
The November decision is the latest chapter in Australia’s largest aggregator’s court battle against the imposition of payroll tax. In May 2023, LMG launched an appeal against Revenue NSW’s decision to apply backdated payroll tax for Loan Market brokers between 30 June 2012 and 30 June 2018.
In April 2024, the court found LMG was liable to pay the tax. In its release of the final orders on Monday, which relate to costs, it revoked tax assessments issued to LMG for the 2012 to 2018 financial years dated 7 and 8 January 2020 and those issued to Loan Market for those same years dated 11 June 2020.
The court's final orders determined that LMG should pay $1.3 million in payroll tax plus $133,137 in penalties. This would be referred to the Revenue NSW Commissior to reassess the liability for payroll tax for 2012 to 2018 and then calculate the refund amount.
Both LMG and Revenue NSW have until 2 December 2024 to appeal the decision.
MFAA CEO Anja Pannek (pictured above left) said the cost determination in the case highlighted the need for payroll tax legislation in NSW to be changed.
Pannek said the court had clearly highlighted the application of the law could be seen as ‘harsh’ and a matter for Parliament to correct through amending legislation.
“Our industry has not been avoiding paying relevant taxes, the legislation is ambiguous and over many years and across the industry, legal advice has been sought, and even experts have struggled to understand it, making it difficult for our industry to comply,” said Pannek.
In the April judgement the court ruled that, based on the agreements between LMG and its brokers, mortgage broker commissions are captured under relevant contractor provisions of payroll tax legislation.
Pannek said the ruling also provided some clarity on the legislation, in particular the exemptions that could be applied allowing common arrangements used in broking businesses such as offshore loan processing to reduce the payroll tax liability.
“We respect the court’s decision in this matter, the fact a lengthy and expensive legal case was required shows that the legislation is too complex. The NSW government now needs to confirm this ruling by changing the law and make the law clear so our members can be confident of the path forward.
“This situation has been caused by ambiguous legislation and anti-avoidance provisions being applied in a way that was never intended. Even the judge in the Loan Market case noted the application of these provisions is harsh, and the exemptions are too narrow.”
MFAA fighting for industry
Pannek said the MFAA had been actively advocating on behalf of the industry and would continue to meet with the state government and advocate for legislative changes that would make the law clear and appropriate.
The mortgage and finance broking industry should also be given time to adjust, by bringing in a moratorium, and a guarantee no retrospective penalties would be applied.
“To apply penalties would be harsh and unfair. In fact in this November judgement, the court has reversed Revenue NSW assessments including the application of penalty tax and interest.”
Pannek said the MFAA also continued to encourage Revenue NSW to urgently revise the commissioner’s practice note in consultation with industry. The practice note currently issued by Revenue NSW does not provide appropriate guidance to make it easier for businesses to comply with legislative requirements, she said.
“While our position remains that broker commissions are not a salary – they are business income used to pay expenses before a broker pays themselves – our industry wants to comply with taxation requirements and our members must be given the right guidance to do so.
The MFAA led a successful campaign in March 2023 that resulted in a stop action on any new audits of aggregators by Revenue NSW while this case was before the courts.
“The stop action spared the industry from unnecessary audits, along with the significant time, money and focus they would have consumed,” Pannek said. “The stop action must also continue as there are still legal processes underway from the Finsure case – this must be respected.”
Pannek advised that the MFAA would continue to keep its members informed, and mount a campaign if required to “secure the future of our industry”.
“With payroll tax legislation harmonised across most jurisdictions, this is not just an issue in New South Wales, it is a national issue.”
LMG reaction to court’s final orders
Sam White (pictured above right), executive chairman of LMG, said the case had been closely watched by many because it raised broader questions about payroll tax obligations “that extend beyond us and impacts the entire industry”.
Since April, the aggregator had been waiting for clarity on penalties, interest, and costs, which have now been handed down in final orders.
“One of the standout messages from yesterday was the court’s recognition that the challenges we’re facing with payroll tax aren’t unique to us,” White said.
“In fact, the judge acknowledged that while his initial decision on payroll tax application may appear harsh, this isn’t simply a case of one company needing to adjust – it’s an industry-wide issue.”
White said any real change would require parliament to amend the legislation. “It’s a sentiment that reinforces just how complex and widespread these payroll tax issues are across the industry.”
He acknowledged the court had handed down significant reductions in payroll tax as a result of the application of the exemptions, together with the penalties and interest that were issued by Revenue NSW. “This is a great outcome.”
For the past 30 years, LMG has supported brokers and fought for what's fair, even when things got complicated, White said.
“As a result, we have made the decision to cover all historical costs and liabilities from this case with the implication that brokers will only see changes from 1 July 2024.
“This case underscores just how important it is to stand together and push for transparency and fairness across our industry. It’s complex, but we’re in it together. A massive thank you to all our business owners and brokers who’ve been alongside us every step of the way.”
