NSW Payroll Tax to spur further broker consolidation

The spectre of the NSW Payroll Tax continues to haunt the mortgage broking industry.

With an inquiry ongoing, small brokerages remain in a state of limbo, wondering if they face steep annual levies if they fail to qualify for exemptions.

NSW Revenue argues that single-operator brokers should be treated as employees of aggregators for payroll tax purposes, leading broker associations and aggregators to warn of serious consequences to the mortgage broking industry.

Since such laws tend to be harmonised nationally, it is far from a state-specific matter.

Broker advocates such as Mortgage and Finance Association of Australia (MFAA) chief executive Anja Pannek, and David Bushby, chief executive of the Commercial and Asset Finance Brokers of Australia (CAFBA) have called for clarity on the matter.

For Revenue NSW’s part, it contends that it is simply administering payroll tax “in accordance with legislation, ensuring all tax assessments are issued in a fair and balanced manner.”

But that has done little to assuage industry leaders who view the tax as unfair and unjust.

“The industry’s position is that brokers are not employees and therefore payroll tax should not apply,” Them Lam (pictured top, centre), head of sales and distribution at AFG, told MPA.

“To inflict such a tax – which does not accurately reflect the relationship between brokers and aggregators – on small businesses is simply wrong.” he added. Lam is just one voice in a chorus of disapproval against the tax.

Attention has now turned to what payroll tax could mean for brokers already navigating the significant regulatory burdens common to small businesses.

As pressures mount, will Revenue NSW’s tax grab drive large-scale consolidation in the broking industry?

One factor of many

“Any impact to a small business’ bottom line will inevitably drive further consolidation,” said Lam. “Rising fixed costs, such as regulatory compliance, technology and insurance are other factors driving consolidation, and the introduction of a payroll tax and the additional cost this brings to small businesses would accelerate that trend as scale becomes increasingly important.”

Blake Buchanan (pictured, below), general manager of Specialist Finance Group, drew attention to the significant administrative burdens that brokers have taken on over the past decade, which “has increased the time a broker spends on a file considerably”.

MFAA data shows that around 40% of brokers operate as single operators. This, said Buchanan, “begs the question of ‘can a broker do the same that they were doing years ago given all of the additional work required today at the same standards?’ Realistically something has to give and that would be either volumes or quality.”

nMB co-founder and managing director Gerald Foley (pictured top right) expects more consolidation down the line, though he’s not convinced payroll tax will play a major role.

“Factors that may drive consolidation will include exit strategies being executed through consolidation, access to shared support models, higher commission payments becoming available and brokers looking to become part of a team environment,” Foley said.

Once there is greater clarity on which aggregator/broker models will be subject to payroll tax, “then it is likely that many sole operators will look to employ, including appropriate outsourcing arrangements, and fall outside the payroll tax net,” he said.

The aggregator role

Whatever the reason may be, it seems inevitable that consolidation is coming for the broking industry. As the market changes and evolves, solid broker-aggregator partnerships will become more important than ever.

“While the payroll tax changes will likely result in less single-broker operations as businesses consolidate, I believe the purpose of the aggregator will remain largely unchanged – to support brokers,” said Daniel Marsi (pictured below), chief executive officer of Liberty Network Services. “Aggregators will need to navigate the compliance requirements of any new changes carefully, but this is not new for us.”

outsource Financial chief executive officer Tanya Sale (pictured top left) said that while the payroll tax situation has put increased pressure on brokers, “it was imperative for us as an aggregator to ensure we got on the front foot re(garding) this disruption.”

outsource “had a unique opportunity to help 'foolproof' our brokers’ businesses via the process of our business reviews which our state teams complete on a regular basis,” said Sale. “This allowed us to support our brokers in structuring their businesses effectively to minimise this risk and also assist our brokers to understand the current exemptions that apply.”

Support from aggregators “will be more important than ever to ensure remaining brokerages can maximise efficiencies and continue to operate,” Lam said.

At least one thing is clear: The industry is not taking the issue lying down. Work continues as aggregators and industry bodies actively lobby the government to strike a fair deal on payroll tax.

Or as Sale said: “This is not over yet.”