Leading non-institutional licensee, Synchron, has scored a significant win for Australian financial services licensees on the issue of payroll tax.
Synchron Director, Don Trapnell said the State Revenue Office (SRO) Victoria had assessed that Synchron was liable to pay payroll tax in relation to the commissions and fees it collects on behalf of some of its advisers. “The SRO’s assessment was that authorised representatives who do not employ two or more people are considered employees or relevant contractors for payroll tax purposes,” Mr Trapnell said. “The implications for Synchron and for licensees across the industry were enormous.”
The assessment meant that potentially all licensees would be liable to pay around five per cent payroll tax on the gross revenue of these authorised representatives, backdated seven years. “It would have meant a huge tax bill for licensees and had the potential to send smaller licensees broke,” Mr Trapnell said. “In effect, the SRO was trying to apply payroll tax in relation to the smallest of small businesses – advisers who have just started out, or those who choose not to employ anyone.”
While some other licensees had decided it would be easier to settle, Synchron felt an obligation to contest the SRO assessment. “As a substantial licensee, we felt we had an obligation not just to ourselves but also to the industry not to blindly accept the assessment given to us,” he said.
Synchron argued that its legal obligation to collect fees and commissions on behalf of authorised representatives, coupled with the fact that Australian financial services licensees are also legally required to provide other functions such as compliance, education and training, meant these authorised representatives were not employees or relevant contractors for payroll tax purposes.
In February 2014, Synchron requested the matter be referred to the Supreme Court and supplied significant documentation arguing its case. The matter was set down for trial in February 2017, however on 1 June, Synchron’s lawyers forwarded a letter from the SRO Victoria stating:
‘The Commissioner has determined on the basis of the evidence presented by your client that your client is correct, to contend that the arrangements between your client and its authorised representatives are not relevant contracts for the purposes of section 32 1(B) of the Payroll Tax Act 2007.’
According to Synchron director John Prossor, “We believe that’s the correct and just outcome from this matter, firstly for Synchron and for its authorised representatives, but also for the industry at large.”
The situation arose following the Harmonisation of Payroll Tax in Australia which saw the removal of a NSW exemption for authorised representatives of Australian Financial Services Licensees. “When the exemption was removed, the prevailing view was that it would have little causal effect,” said Synchron Independent Chair, Michael Harrison. “In reality, as soon as it was removed, the SRO jumped on the issue.”
Mr Harrison said the situation is also an unintended consequence of the Corporations Act which Synchron lobbied to have changed in 2014. “We teamed up with law firm Lander & Rogers to push for amendments to the Corporations Act which would allow financial advisers to receive payments directly from product providers,” he said. “Payments for advisers must be paid by clients to licensees who hold the money in trust for their advisers. We have seen two examples in our industry of licensees who went broke and liquidators took money owed to their authorised representatives because the licensees had no facility to hold that money in trust. It is one of the reasons why we pay our advisers daily.”
In a case spanning five years and costing Synchron more than $500,000 in legal fees, Synchron campaigned heavily on the issue, approaching industry bodies and prominent politicians. “Despite earning the sympathy of some high profile Ministers, politicians were unwilling to take any action that would impede the collection of state payroll tax,” Mr Harrison said. “We were largely on our own.”
Mr Harrison said the SRO’s assessment also ran counter to the Australian Government’s desire for business modernisation. “In today’s world advisers don’t have the same need to employ physical staff,” he said. “They use software and virtual assistants such as paraplanners who work within other organisations to do many of the tasks required in a financial advice business. The way we do business has changed with the times, but with its focus on the number of employees within a financial advice business, the SRO did not recognise this; it did not recognise these businesses as small businesses in their own right.”
Synchron sent a video on the issue to its authorised representatives on 9 June, 2016.
