Leaders speak out on pressing issue
Industry leaders are disputing what they say is an assumption made by Revenue NSW that aggregators are operating as their brokers’ employers and are therefore liable for payroll tax.
The assumption poses a significant threat to the industry and could ultimately force some aggregators to close their doors, they say.
Under the Payroll Tax Act, NSW businesses are required to register for payroll tax if total wages paid are above a specified monthly threshold. The rate for the 2022/23 financial year is 5.45% of taxable wages above the threshold of $1.2m.
MPA understands that Revenue NSW has approached aggregators operating within the state and in some cases, has assessed them for payroll tax which may apply retrospectively. The MFAA and FBAA confirm that they are aware of the issue and that they have been in discussion with the industry, Revenue NSW and the NSW Government.
MFAA CEO Anja Pannek (pictured above centre) told MPA that in representing the best interests of members, the MFAA simply “do not agree” with the interpretation and approach taken by Revenue NSW in its application of the Payroll Tax Act to the industry.
“Our main concern on this issue is the approach is effectively an additional and inappropriately levied tax on the smallest of small businesses in our industry,” Pannek said.
“We are committed to continuing to work with aggregators, industry participants, Revenue NSW and the NSW Government on this matter and to seek a sensible resolution.”
Specialist Finance Group general manager Blake Buchanan (pictured above left) said he had been involved in forums to discuss aggregators being held liable for payroll tax.
Citing payroll tax as “the biggest issue in 20 years” behind the Royal Commission, Buchanan said he “strongly opposes” the view held by Revenue NSW (also known as the Office of State Revenue) that brokers provide a service to their aggregators.
Brokers operate as their own business entities and have their own turnover, whilst the aggregator provides a necessary service, Buchanan said. There had been limited or no consultation with the industry on the tax, and any attempts to meet with or discuss it have not been acknowledged, he said.
“Any assertion that brokers are employees of the aggregator is unfounded and could only be seen to be a cash grab, Buchanan said.
Whilst Buchanan comments that many aggregators have not presently been assessed by Revenue NSW, based on previous communications, Buchanan said he was confident that each aggregator in the country would be assessed for the tax.
According to the Revenue NSW website, the provisions of the Act may apply to contracts between an Australian Credit Licensee (including an aggregator) and its Agents. If a relevant contract exists, the Licensee or Aggregator is taken to be an employer, the Agent is taken to be an employee, and remuneration (commission payments including trail commission) is to be taken as “wages”, its website states.
Revenue NSW is purportedly holding aggregators liable for the tax on the basis that their brokers provide a service to them - an assumption that Buchanan disputes.
“We provide a service to the brokers, the brokers don’t provide a service to us - and this is what the OSR is alleging,” Buchanan said.
Revenue NSW response
In response to whether a decision had been made to include aggregators in their assessment for payroll tax, a Revenue NSW spokesperson told MPA 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”, the Revenue NSW spokesperson said.
Payroll tax is a "self-assessed tax", businesses are required to register when their total Australian wages are above the payroll tax threshold, they said.
"Where Revenue NSW identifies a customer has not been paying the correct tax, an assessment will be issued for the relevant period," the Revenue NSW spokesperson said.
Brokers operate as independent businesses
As a wholesale aggregator, SFG brokers operate independently: they have their own business name, business infrastructures, strategies, teams, and use their own branding, Buchanan said.
Irrespective of the volume of business they write, SFG brokers are paid at the same ratio, and unlike an employee, their performance is not managed, he said.
“The reason we exist is because of regulations and the requirements of our industry: from a compliance perspective, we indemnify the lenders and the regulators against the performance of members within our group,” Buchanan said.
Historically, Buchanan said there was a grey area where if a broker was a contractor or derived the majority (for example 80%) of their income from one source, they would be deemed an employee rather than a contractor. With SFG, brokers’ incomes are derived from multiple lenders and providers, but there is a requirement that there is a commissions clearing house, such as an aggregator, he said.
“We’re not paying the broker: we’re passing on the commission (minus the fee),” Buchanan said.
Implications of payroll tax for industry
If payroll tax is applied more widely, Buchanan expects aggregators, including sub-aggregators and brokerages, to be liable, affecting their income.
Payroll thresholds apply to the tax, indicating most aggregators, regardless of the size of their business, would be required to pay out, he said.
With a payout ratio typically above 95%, if it is established that the aggregator can’t call on its brokers to pay the backdated fees for payroll tax, this would affect not only profit, but also funds set aside for operational expenses, he said.
“If you look at aggregation from an economic perspective, if the aggregator has to ‘carry the baby’ (with regards to the additional costs), generally, your payout ratio equals more out of 100% than what the tax is,” Buchanan said.
Buchanan said this situation would likely see a number of aggregators overly burdened, forcing them to close their doors. Brokers may ultimately end up paying the fee, eroding their commission, he said.
FBAA managing director Peter White (pictured above right) said that the FBAA had spoken with aggregators about payroll tax for some time, and that Revenue NSW had requested they leave it with them, while they worked through the process.
“I unquestionably agree that aggregators should not be liable for payroll tax on their brokers’ commissions: it’s completely wrong and an ill-informed action,” White said.
Although payroll tax applies to businesses in NSW, White said if were to gain traction, it would likely be applied across other states, having an impact right around the country.
“The end outcome is brokers will be paid less, when we are in a market where they should be being paid more,” White said.
As recently requested by aggregators, the FBAA would now assist in fighting payroll tax, he said.
With the NSW state election scheduled for March 25, the industry is of the view that discussion and clarification around payroll tax is urgently required,
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