Upper House inquiry a boost in industry's battle against tax
In a major breakthrough for the mortgage and finance industry, the NSW government has announced a parliamentary inquiry into the NSW Payroll Tax Act, a move welcomed by peak industry body, the MFAA.
The inquiry will review the operation of the relevant contractor and employment agent provisions within the Act including relevant case law.
MFAACEO Anja Pannek (pictured above) said the inquiry was the direct result of sustained MFAA engagement with critical NSW government stakeholders regarding the payroll tax.
“We are pleased to finally see action being taken on this longstanding issue for our members,” said Pannek. “We see this Inquiry as a clear acknowledgement that the application of relevant contractor provisions is flawed and needs to be reviewed.”
“At a time when access to finance for a home is more important than ever, this tax penalises mortgage brokers, the very businesses that enable homeownership. At the end of the day, this is a tax on NSW home borrowers.”
MFAA lobbying hard on payroll tax
The MFAA has been highly active in fighting the imposition of payroll tax on aggregators and the subsequent flow-on effect for brokerages, lobbying successfully for a temporary moratorium and labelling Revenue NSW’s application of the payroll tax as unfair and farcical, and a complete overstretch of the law.
LMG had appealed against Revenue NSW’s decision to apply backdated payroll tax for Loan Market brokers between 30 June 2012 and 30 June 2018, adding up to millions of dollars in penalties. The Supreme Court of NSW ruled that LMG had made a significant overpayment and that it was entitled to a refund of some of the $2.32 million it had already paid.
The court had also earlier ruled that while LMG was liable to pay the tax, there were a number of exemptions, including brokers who engaged the services of a offshore loan process or who engaged a family member in the business.
Reacting to the government’s decision to set up an Upper House inquiry, Pannek said the Loan Market case had provided clarity in terms of exemptions for industry – however, the issue of retrospectivity, fines and penalties remained.
“This threatens the viability of broker businesses – many of which are the smallest of small businesses – and will lead to reduced competition and increased costs for NSW homebuyers,” said Pannek.
Reform of payroll tax vital
Pannek said the long-dated payroll tax matter between Loan Market and Revenue NSW demonstrated the need for payroll tax legislation in NSW to be reformed.
“In both the Loan Market decision in April and the Loan Market final orders in November, the court noted that the application of the law was ‘harsh’ and was a matter for Parliament to correct through amending legislation.”
The MFAA also pointed to the NSW government’s recent actions in the healthcare sector, where contractor General Practitioners (GPs) were granted payroll tax relief and exemptions.
Pannek said this set a precedent for acknowledging the unique nature of independent contractor arrangements in different industries and the need for targeted reforms.
The MFAA urged the inquiry to consider a time-bound moratorium on retrospective payroll tax liabilities for aggregator/broker arrangements and legislative changes to bring clarity and fairness to the system.
The inquiry is not just a state issue but a national one, as payroll tax laws are largely harmonised across Australia, said Pannek.
“The challenges faced by our members in NSW are mirrored in other jurisdictions, making this inquiry a critical first step in addressing these issues across other jurisdictions.”
Pannek said together with CAFBA and COSBOA, the MFAA would continue to work constructively on this issue, including engaging with the inquiry on behalf of members.
Terms of reference for payroll tax inquiry
The Legislative Council, (the NSW Upper House), announced the parliamentary inquiry today (November 26), with submissions closing on February 7, 2025.
The inquiry will feature seven MLCs, including Jeremy Buckingham (Legalise Cannabis Party) as chair, Robert Borsak (Shooters, Fishers and Farmers) (deputy chair), and members Sarah Kaine (Labor), Stephen Lawrence (Labor), Bob Nanva (Labor), Chris Rath (Liberal) and Damien Tudehope (Liberal).
It will study the provisions of the Payroll Tax Act 2007 in regards to contractors, employment agents, revenue rulings and the practice notes of the Chief Commissioner of State Revenue’s practices regarding these decisions.
The inquiry will also look into the decision of court cases involve contractor and employment agent provisions and the applicability of these provisions for particular industries, including the on-demand and gig economies.
What do you think of the NSW government’s decision to set up an inquiry into the payroll tax? Comment below.
