Simon Bednar, the CEO of major aggregator Finsure Group, has written an open letter outlining that the impact of applying payroll tax to the mortgage broking industry is greater than he first imagined, warning it could threaten broker independence, competition, and consumer choice
As we continue to prepare for our case in the NSW Supreme Court against the application of the payroll tax system by Revenue NSW, I’m concerned that the mortgage broking industry may be at greater risk than I first imagined.
While I believe our position is strong, our investigation has led us to review broker contracts across the industry, where we discovered clauses which stipulate that brokers must adhere to the aggregator’s explicit instructions. Terms that limit broker autonomy or substitute their independent judgement with an aggregator’s operating rules place them at risk and create an impression that brokers cannot run their business with genuine independence. The lack of flexible fee options for brokers to pay for the services they receive from aggregators, especially imposing high commission split plans and not offering flat fee subscription, takes away a broker’s independence.
I worry when I see clauses which restrict options for brokers and force them to abide by an aggregator’s operational framework. That’s not how brokers should be treated.
I am also concerned about what will happen to competition within our industry. As mortgage brokers know, competition is at the heart of what we do. In fact, it’s how mortgage broking started in the first place, helping Australians to find a better deal on their loan by comparing options between lenders. To this day, I believe it is why Australia’s banking and lending industry is one of the strongest in the world and has proven to be incredibly resilient through some challenging times.
However, with this case looming, we face a situation that may narrow the choice and reduce competition across our industry.
We face a situation that may narrow the choice and reduce competition across our industry
Learnings from Ubers
The recent case between Uber Australia and Revenue NSW – where Revenue NSW had subsequently issued payroll tax assessments totalling $81.5 million – offers insights which help us frame our own legal dispute. Revenue NSW considered Uber Australia liable to pay payroll tax on payments made to its drivers – all of whom Uber considered independent contractors to their business.
The crux of the case was what constituted a service fee. Because Uber was wholly dependent on clipping the payments it remitted to drivers from riders, this was interpreted to be a ‘service’ by the drivers to Uber. As a result, Uber was found to be ultimately liable to payroll tax on those payments.
Our business is very different to Uber’s. The ‘flat fee’ model we offer mortgage brokers means that our business is not dependent on brokers in the same way Uber is wholly dependent on clipping driver’s payments. However, given the various models offered by aggregators across Australia, it may mean other aggregators who predominantly offer percentage models to their brokers, and rely on clipping (like Uber), end up being collateral damage.*
The real victim here is choice
At Finsure, we are fortunate to be in a strong position, with the resources to be able to present our case to seek clarity about the law. There may be a handful of other aggregators who could also rally the necessary resources to fight. But smaller aggregation and sub-aggregation groups may not be so fortuitous. To them, this is a looming threat that has the power to put them out of business and, in turn, hurt our industry by removing options for brokers wanting another choice.
That’s what it’s all about really – the ability to make a choice. It’s that notion which Finsure was built on and continues to promote to this day. Removing choice harms brokers and customers alike.
Our view is that applying payroll tax to our sector in the manner proposed by Revenue NSW is inconsistent with the legislation’s intent and industry practice. Ultimately, this is a matter for the court, and we respect that process. However, our concern is that the Revenue’s approach could limit brokers’ ability to shape their own future, and for Australians, reduce the ability to choose a better deal.
Finsure still remains confident about its position in relation to payroll tax and a court ruling in our favour could be a landmark moment in the industry’s history.
However, regardless of the outcome, I have a real concern that the differing models offered by other aggregators will expose them to a payroll challenge of their own, with each one put under intense scrutiny. Should this eventuate, the 22,000-plus Australian mortgage brokers and their millions of customers will ultimately pay the price.
*We understand that Uber is seeking an appeal to the High Court on this finding, so there remains uncertainty for what this case might mean for our industry.
