Background
The NSW Office of State Revenue (NSW OSR) has been evaluating the relationships between aggregators and brokers to determine payroll tax obligations. Notably, the NSW Supreme Court recently ruled on a significant case involving the Loan Market Group, setting a precedent that could impact other aggregators and brokers across Australia.
Key Points from the Loan Market Case
Court decision and broker relationships
In April 2024, the NSW Supreme Court delivered a judgment for the period 2012-2018 concerning Loan Market’s franchise model. The court found that payroll tax could apply to the earnings between Loan Market and its brokers due to the broad drafting of payroll tax laws, unless specific exemptions are met.
Exemptions: The court highlighted several exemptions, including employing offshore loan processors, engaging family members who perform substantive work, or collaborating with other businesses as genuine service providers.
Implications of the judgment
The judgment noted that payroll taxes apply to the net commission (or salary) paid to brokers, suggesting a reduction percentage reflective of non-labour business components.
The decision is pertinent to both ACL holders and credit representatives alike and signals a potential trend in other states adopting similar enforcement, except for WA.
What This Means for Brokers
Potential appeal: Parties have until mid-May to contest the judgment.
Operational impact: The way you manage your business could influence whether your relationship with aggregators like Connective attracts payroll tax. Particularly at risk are sole brokers who manage all aspects of their business without additional help.
Future assessments: While Connective has not yet been assessed, it is anticipated given recent court outcomes. Tax assessments could potentially consider the last five financial years.
Proactive Steps by Connective
Legal review and strategy adjustment: Connective is actively working to assess potential risks and adjust strategies accordingly. This includes modifying our member agreements to better shield against payroll tax liabilities.
Support and guidance for brokers: We are identifying brokers who might be vulnerable to these taxes and will suggest strategies to potentially qualify for exemptions.
Advocacy efforts: Understanding the burden this ruling could place on small businesses, Connective is collaborating with industry associations to lobby for favourable changes in the payroll tax legislation.
Conclusion
The outcome of the Loan Market case is a pivotal moment for the financial brokerage industry in Australia, signalling a potential shift in how payroll taxes are applied.
Connective is committed to guiding and supporting our members through these changes and advocating for conditions that favour the growth and sustainability of our brokers' businesses.
We encourage all Connective members to stay informed and engaged as these developments unfold.