Payroll Tax and how it may affect the Mortgage Industry

Payroll Tax and how it may affect the Mortgage Industry


In 2023, the industry has been wrangling with the concept of Payroll Tax.  Like everything else QED tries to keep you informed on, we thought it was timely for us to try and break this argument down into simple, bite-sized facts for you to absorb.

  • Payroll Tax is payable by a company with an "employee" payroll over a certain threshold.
  • The definition of an "employee" depends on many aspects of the legal relationship between the two parties.
  • Even though we "emotionally" know what the aggregator-broker relationship is meant to be, the legal realities of aggregator service agreements might turn out to be different.

Payroll Tax is a State-based tax throughout Australia.  In essence, when a company has a payroll that exceeds a threshold amount, the company is liable to pay a percentage of tax to the State government.  The threshold varies from State to State but is generally in a range of $1.0 - $1.5 million annually and the rate of tax is around 4.5% - 6.5%.

If you are a company domiciled in NSW and you pay your employees a total of $1.5 million per year, you will be liable to pay $81,750 in Payroll Tax.

This is all really straightforward if you are a regular company, with regular employees, signing on and off every day.  But what is an "employee"?  It's not as clear as it used to be.  

If you are not a PAYG employee working under a formal contract of employment, you could still be considered an employee.  It's slightly different in each State but the concept is similar.  If your arrangement with a company looks like you receive more than a particular percentage of your income from that company; if the company is a central point of contact and organisation for many of the functions you perform; if the company is your primary gateway to the end-user customers then, generally, you will be considered an employee.

Many businesses and the people that work in and around the business to "get the money in" have gravitated towards structures that might be construed as an employer-employee relationship.

If you look at the example of Doctors, which first kicked this news story off, this is a prime example.  Doctors carry lots of overheads.  They have to pay staff, insurances, rent, advertising, supplies, equipment...the list goes on.  Over the past decade or more, Doctors have been attracted to franchise-style medical centres.  They can share costs, get economies of scale, share facilities and staff.

This all probably sounded great when the doctors were looking at how much money they could save and add to their bottom line.  Brilliant, as they rubbed their hands together.  However, what does that look like now?  They are getting paid from a single source - the clinic.  They're not responsible for the outgoings of the clinic.  They come in, they see patients, they get paid.

Now they're looking rather like employees, aren't they?  They didn't see that coming when they were rubbing their hands together.  "Oh this is a harsh NEW tax!!" they cry to the press and Opposition parties.  No, it's not - you just didn't see yourself walking into it!!

So how does this relate to mortgage aggregators?  

The answer is that it might not - but it will depend on how broker-aggregator agreements are set up.  In the beginning, aggregators were a helpful, hand-holding place for brokers to get together and give the banks a single contact source, especially for the distribution of commissions.

In "substance", we all agree that aggregators are meant to be a mere service provider to brokers.  Brokers pay aggregators, either a fee or a commission-share to provide the services.  These services include commission distribution, lender liaison, training, software platforms, compliance advice as well as many other, bolt-on, paid-for services.

However, where have aggregators moved to over the past 10-15 years?  This is not the truth, not even QED's opinion but it's something we wonder about.  As aggregators have become more significant and powerful in the whole broker-lender relationship, the relationship dynamic has shifted with their broker members.  Some aggregators appear to be considered as the more "important" party and the brokers are fighting more and more to be heard and recognised.

So what does this look like in the legal agreements, especially as far as this relates to the Payroll Tax issue?

The issue is that the "form" of these agreements might be different from a legal perspective.  Brokers are not paid from the many lenders to which they introduce consumers.  They are paid from a single entity.  The aggregator controls the broker's accreditations.  The aggregator allows the broker access to the third-party lending channel.  The aggregator can dismiss and effectively end the career of a broker.  Without the aggregator, the broker finds it almost impossible to do business.

Suddenly, this could be construed to be an employer-employee relationship.  Maybe.  Hopefully not.  If the aggregator is deemed to be an employer, they are liable for the Payroll Tax, not you.  However, you can be sure they will find some way to pass it on.

So, these are the facts.  Most of what we have seen thus far has been highly emotional.  Emotional arguments will not change the Payroll Tax legislation in the States.

MFAA Full MemberAustralia Compliance Institute