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The outcome of a payroll tax case by the Supreme Court of NSW sets a “dangerous precedent” and is based on “flawed” legislation, broking associations have said.
The long-running court case between Loan Market Group Pty Ltd/Loan Market Pty Ltd and Revenue NSW regarding the application of payroll tax to certain brokers came to a head on Friday (12 April), when the judge - Justice Richmond - ruled in favour of the government office, as reported by The Adviser.
The case - which has widespread implications for the entire broking industry and other payroll tax court cases in industry, such as the Finsure case - focused on the financial years ending 30 June 2012 to 30 June 2018 (before the aggregation group rolled out its Bring Your Own Brand model and acquired Plan, Choice and FAST).
It largely centred on whether brokers operating under the Loan Market brand were deemed to be working under a ‘relevant contract’ where payroll tax applies (as per section 32 of the Payroll Tax Act 2007 NSW).
A relevant contract includes a contract under which one person supplies work-related services to another person in the course of that second person’s business.
Loan Market had argued that payroll tax should not be payable at all, outlining its belief that brokers were customers of aggregators and not employees.
In his judgement, Justice Richmond found that - for the purposes of The Payroll Tax Act - there was a ‘relevant contract’ that existed between Loan Market and active brokers that use its aggregation services.
As such, he found that payroll tax would be payable on the payments passed through the aggregator to all individual operators (whether they are incorporated or not), unless they could establish an exemption.
The judgement reads: “The conclusion that the Broker Agreements constitute a relevant contract under s 32 may be seen as a harsh outcome for LML [Loan Market] because the contractor provisions now found in s 32 were originally introduced as an anti-avoidance measure which was not intended to catch “bona fide independent contractors”..:
“The potential difficulty for a taxpayer is that the exclusions are very specific and may leave a subset of relationships such as those in the present case where the contractor is a genuine independent contractor but may not come within any of the exclusions.”
The judgment appears to equally apply to those who hold an Australian Credit Licence (ACL) or are a credit representative of an ACL held by their aggregator.
While the judge said that payroll tax would be payable for individual brokers in certain instances, there are several exemptions to the application.
Exemptions had been agreed to before the trial, however the judge “clarified and broadened” these beyond what had been previously recognised by Revenue NSW after seven brokers gave evidence concerning how they conduct their mortgage broking businesses and their relationship with Loan Market.
For example, the broadened exemptions mean that payroll tax may not apply to individual operators if:
- a credit representative was under LML’s credit licence for 90 days or less in a given financial year, and only received trail commissions and no upfront commissions during that given financial year;
- A broker engaged offshore loan processor (including, for example, BrokerForce or LMG outsource);
- A broker engaged a family member in the business (on the basis that it can be shown that the family member is doing genuine work for the business). According to Loan Market, examples of evidence would include a job description and an ability to show consideration being made to that person in exchange for their services; or
- A broker engaged another business as a genuine service provider (and can provide evidence to demonstrate this)
Response from mortgage broking industry
Mortgage broking associations have come out strongly against the decision.
Responding to the outcome of the Loan Market Group Pty Ltd v Chief Commissioner of State Revenue NSW payroll tax Supreme Court matter, the managing director of the Finance Brokers Association of Australia (FBAA), Peter White AM, accused Revenue NSW of a “blatant money grab”, adding it was unfair that it was being applied retrospectively.
“We must be clear that this decision applies only to the case at hand involving Loan Market, however my concern is the impact this may have on new entrants to the broking sector and the precedent for other states to attempt a similar money grab,” he said.
White said “the most reasonable approach” by Revenue NSW would have been to help aggregators prepare for any change of interpretation of payroll tax eligibility and set the course for the future.
The FBAA head is now calling on the NSW government to intervene.
“To this point, the government has taken a ‘wait and see approach’ while the legal action was underway,” the FBAA MD said.
“However now that the court has basically stated that the law was wrong but that they have to uphold it, it’s time for the government to fix the problem.
“I will be talking to the NSW Premier and asking his government to draft whatever legislation is necessary to change law that led to this decision and protect small business.
“Both sides of politics must now come together and fix this mess.”
“But, in this case, they took a big stick approach and it’s difficult to see this as anything but an opportunity to use Loan Market to raise extra revenue,” he said.
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