27/11/2024
The NSW government has launched a parliamentary inquiry into the state’s Payroll Tax Act, focusing specifically on the contractor and employment agent provisions. The inquiry, which was established on 26 November 2024, will examine the application and impact of these provisions, particularly in industries like mortgage broking and other sectors influenced by on-demand and gig economy models.
Scope of the Inquiry
The parliamentary inquiry will delve into several key aspects of the Payroll Tax Act 2007, especially its contractor and employment agent provisions under Division 7 and Division 8 of Part 3. These provisions have been a point of contention in several industries, and the inquiry aims to bring clarity and fairness to their application. Areas to be reviewed include:
- Contractor Provisions (Division 7 of Part 3): The review will assess how the contractor provisions are applied under the Act, with a focus on industries such as mortgage broking and other service-based sectors.
- Employment Agent Provisions (Division 8 of Part 3): This will look into how employment agencies and brokers are affected by payroll tax requirements, which can have significant implications for their business operations.
- Revenue NSW Rulings and Practice Notes: The inquiry will also consider previous revenue rulings and practice notes issued by Revenue NSW that have impacted the interpretation of payroll tax obligations in relation to contractors and employment agencies.
- Case Law: The inquiry will review key court decisions involving payroll tax cases, which could help in shaping future legislative amendments.
- Impact on the Gig Economy: A key focus will be the applicability of these provisions to emerging business models like the gig economy, where workers often operate as independent contractors, making the application of payroll tax less clear-cut.
- Retrospective Liabilities and Penalties: The inquiry will also examine concerns about retrospective tax liabilities and penalties, which have caused considerable uncertainty and hardship for some businesses.
- Recommendations for Reform: Based on its findings, the inquiry is expected to make recommendations for legislative changes that could improve the fairness and clarity of the payroll tax framework in NSW.
Background and Motivation for the Inquiry
The inquiry follows ongoing concerns raised by industry representatives, particularly in the mortgage broking sector, where the application of payroll tax has sparked significant debate. John Ruddick, a mortgage broker and libertarian member of the Legislative Council of NSW Parliament, played a key role in bringing the issue to light. Speaking on the launch of the inquiry, Ruddick highlighted his deep concern that the expansion of payroll tax could have detrimental effects on the mortgage broking industry, which operates on a commission-based model. He emphasised that the relationship between aggregators and mortgage brokers does not fit the traditional employer-employee framework that triggers payroll tax.
Ruddick warned that a poorly executed payroll tax policy in NSW could set a dangerous precedent for other states, potentially leading to fewer mortgage brokers and increased concentration of the market among larger banks. This, he argued, could result in higher costs for consumers, with brokers’ commissions being passed on to homebuyers in the form of higher interest rates.
Industry Response: Support for the Inquiry
The Mortgage & Finance Association of Australia (MFAA) has strongly welcomed the inquiry, describing it as a critical step in addressing a longstanding issue for their members. According to MFAA CEO Anja Pannek, the current application of payroll tax in NSW is “flawed” and penalises mortgage brokers, who play an essential role in enabling home ownership. Pannek stressed that the tax effectively becomes a burden on NSW home borrowers, adding that while the Loan Market court decision provided some clarity on industry exemptions, issues like retrospectivity and penalties remain unresolved and continue to threaten the viability of broker businesses.
The MFAA pointed out that many mortgage brokers are small businesses, and the retrospective application of payroll tax has already caused financial strain. The association has called on the inquiry to consider a time-bound moratorium on retrospective tax liabilities and recommend legislative changes that would offer clearer and fairer guidelines. Furthermore, the MFAA noted that the NSW government has already provided payroll tax exemptions to the healthcare sector, setting a precedent for recognising the unique nature of independent contractor arrangements in different industries.
National Implications and Broader Industry Concerns
The implications of this inquiry extend beyond the NSW borders. The payroll tax issue in NSW is being mirrored in other states, with mortgage brokers across Australia facing similar challenges. The MFAA has expressed its intention to work with other industry bodies, such as the Consumer and Finance Brokers Association and the Council of Small Business Organisations Australia, to ensure that the inquiry’s outcomes are beneficial not only for NSW but also for the broader industry.
In addition to the MFAA, wholesale aggregator Finsure has also voiced concerns about the impact of payroll tax on mortgage brokers. Finsure Group CEO Simon Bednar has reiterated the company’s stance that the tax, as currently applied, is unjust and disadvantages brokers. Bednar welcomed the inquiry, hoping it would lead to reforms that ensure fair treatment for all players in the broking industry.
What’s Next?
The inquiry is scheduled to close for submissions on 7 February 2025, with final recommendations expected to follow. Given the widespread concern across the broking industry and the significant implications for small businesses, it is anticipated that the findings could prompt substantial changes to the NSW payroll tax framework. With continued legal challenges in the courts, including a case brought by Finsure against Revenue NSW, the outcome of this inquiry could be pivotal in shaping the future of payroll tax policy in Australia.
As the inquiry progresses, industry stakeholders will be closely watching for any developments that could impact not only the mortgage broking sector but also other industries where independent contractors and employment agents are a key part of the workforce. The result could have lasting implications on the broader Australian economy, particularly in light of ongoing changes to the nature of work and business arrangements in the gig economy.
