The NSW government has recently launched a parliamentary inquiry into the Payroll Tax Act 2007. The inquiry was sparked by a case involving Loan Market, a Mortgage and Financial Brokerage company, where commissions paid to independent mortgage brokers were subjected to payroll tax.

The review will focus on provisions related to contractors and employment agents, as well as relevant revenue rulings and practice notes. It will examine how court decisions involving these provisions are made and how they apply to sectors like the on-demand and gig economies.

The Loan Market ruling highlighted how the Act's definition of "work-related services" can encompass relationships traditionally seen as business-to-business. This has caused concern among industry bodies, who argue that the Act is being applied too broadly.

In response, the government has committed to reviewing the Act, focusing on its implications for contractors, employment agencies, and gig economy workers. The review may lead to recommendations for narrowing the scope of payroll tax applications.

While the current legislation provides some exemptions for contractor payments, the Loan Market case has underscored the need for greater clarity. Many have emphasised that the payroll tax was never intended to apply to business-to-business relationships and that many contractors operate as small businesses.

Ensuring businesses understand the legislation and can operate compliantly is crucial for fostering business confidence and job creation in Australia.

The NSW government's recent decision to provide payroll tax relief and exemptions for contractor General Practitioners (GPs) in September 2024 acknowledges the distinct nature of independent contractor arrangements within various industries. This initiative establishes a precedent for potential reforms in the future. 

While the current inquiry focuses on NSW, its implications extend nationally due to the harmonisation of payroll tax laws across Australia.

 

How does Payroll Tax Compare Across States and Territories?

Payroll taxes in Australia differ across states and territories, impacting businesses, job growth, and the overall economy. The report, Regulation Rumble 2024, highlighted these disparities, ranking South Australia and NSW with the most favourable payroll tax rates, while Victoria and the ACT were found to have the least competitive rates.

High payroll taxes can prevent businesses from expanding and hiring, hindering economic growth. The complexity of navigating over thirty different payroll tax conditions across the country poses a significant challenge for businesses aiming to grow.

The report highlighted the need for national payroll reform to address these issues. A national business operating across different states and territories faces the burden of complying with up to eight payroll tax systems, each with varying rates, thresholds, and administrative processes. This complexity and added cost can deter investment and hinder business expansion.

South Australia's success with its low payroll tax rate for large employers and a progressive system that benefits small businesses serves as a model for other states and territories. Victoria and the ACT need to reassess their payroll tax systems to improve their competitiveness and foster economic growth.

Harmonising tax systems is essential to promoting efficiency and ease of doing business in Australia. A national reform fund could encourage states and territories to undertake these necessary reforms, benefiting the economy.