Finsure Group CEO Simon Bednar (pictured) has warned that the mortgage broking industry faces wider risks from Revenue NSW’s application of payroll tax, as the group prepares to argue its case in the NSW Supreme Court.
In a letter to the industry, Bednar said Finsure’s review of broker contracts uncovered clauses that could undermine the independence of brokers.
“Terms that limit broker autonomy or substitute their independent judgement with an aggregator’s operating rules places them at risk and creates an impression that brokers cannot run their business with genuine independence,” he said.
“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.”
Bednar added that the case could have long-term implications for competition.
“With this case looming, we face a situation that may narrow the choice and reduce competition across our industry,” he said.
Payroll tax has emerged as a flashpoint for financial services, with other industries also challenging state revenue offices over whether contractors should be treated as employees for tax purposes. For brokers, the outcome could determine whether aggregators’ commission-based models expose them to similar liabilities.
Bednar pointed to Revenue NSW’s recent case against Uber Australia, which resulted in payroll tax assessments totalling $81.5 million. In that case, Uber drivers were deemed to be providing a service to Uber, making the company liable for payroll tax on payments.
“Our business is very different to Uber’s,” Bednar said. “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.”
While Finsure is confident in its position, Bednar said smaller groups may lack the resources to mount a legal defence.
“There may be a handful of other aggregators who could also rally the necessary resources to fight,” he said. “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.”
Bednar stressed that choice lies at the core of mortgage broking.
“That’s what it's all about really – the ability to make a choice,” he said. “It’s that notion which Finsure was built on and continues to promote to this day. Removing choice harms brokers and customers alike.”
Bednar said payroll tax applied in the way proposed by Revenue NSW is “inconsistent with the legislation’s intent and industry practice” and that a favourable ruling for Finsure could be a “landmark moment in the industry’s history.”
However, he cautioned that other aggregators could face similar challenges.
“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,” Bednar said. “Should this eventuate, the 22,000+ Australia mortgage brokers and their millions of customers will ultimately pay the price.”
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
