Relevant contract provisions: Finding the right outcome for mortgage brokers and financial planners

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Although the relevant contract provisions have been around and more or less unchanged for years, the debate around their interpretation rages on. Financial planners and mortgage brokers have recently found themselves at the centre of discussions, with huge consequences on the line for their businesses.

We sat down with Sarah Klarich and Adam Nicholas from PwC, ahead of our 21st Annual State Taxes Convention, where they’ll be leading Session 10B: Financial planners and mortgage brokers – when payroll tax is an industry-wide problem.

In this session, they’ll look at a set of rules called the relevant contract provisions which are complex and continue to be tested with different business structures and different regulatory regimes as they continue to evolve in the modern environment.

In particular, they’ll focus in on how those rules apply to Australian financial service license holders, Australian credit license holders and authorized representatives they contract with. They’ll also highlight some of the complexities coming under the microscope of tax practitioners, businesses - and Revenue NSW.

To start, can you tell us what first piqued your interest in relevant contract provisions and the complexity around them?


For me, it stemmed from essentially a simple payroll tax audit that we were working on for a client, where we got the sense that the provisions were being applied in a way that was not supported by any specific precedent of direct relevance to the complexities of this particular type of business. And that evolved to a need for us to understand how the audit team was applying the provisions across the nuances of the business, and we found ourselves asking, is this the way these rules should be interpreted?

That's obviously evolved into a broader matter now that affects not just one client, but also the industry at large.


We take a particular interest in getting the right outcome. The ‘right’ outcome is not always a ‘win’ for a client  sometimes the ‘right’ outcome is what the revenue office is proposing. …

… However, in the absence of certainty and confidence in how the rules are being applied, we find ourselves in a challenging situation as we're seeing firsthand the impact these rules – and this line of interpretation, has had on the owners and executives of the businesses being audited. It's hugely material, it's having a significant personal and commercial impact on them both as individuals and as professionals. It's impacting the ability of some of them to enter into sale transactions. It's impacting the valuation of some of these businesses when undergoing commercial reviews.

At this stage, these audit findings are coming with a big backpay – plus penalty and interest obligation. And the thing is, if a business knows a ruleset is going to be interpreted in a certain way, they can apply the rules and factor those costs into their commercial pricing model. If that happens consistently across an industry, nobody is at a competitive advantage. We need to work towards achieving this type of scenario which requires ongoing proactive engagement involving business, advisors and our regulators to deal with these issues before they become retrospective audit risks which will only serve to damage business prosperity.

So, this is having serious impacts on clients. Which aspect do you think has the biggest impact or is the most interesting?


Ultimately this is a question of whether these rules apply or not and if they do, how the exemptions can be applied by businesses in a manner which will give them certainty. Of course, the outcome can often be material in these industries.

Most, if not all of the businesses we're talking about operate on a low margin, high volume basis commercially, which means that being a 5.5% on-cost years down the track with retrospectivity under audit with interest and penalties, can be enough to reduce or eliminate margins and the viability of a commercial arrangement.

If we at least get to a position of certainty and consistency across these industries, at least businesses can assess the impact on their businesses – now and in future, and recalibrate their way forward so that commercial success isn’t constrained unnecessarily.


For me, it's a very different type of interpretative issue to what we see with most other topics. It’s highly subjective and this shows through the a hardline approach we have seen taken in some instances, compared to more practical approaches being taken in others.


One thing I might just throw in there is, we've probably dealt with a double-digit number of businesses in this industry and I think we could say with confidence that we've seen different lines of interpretation and application of these rules and different evidentiary requirements across just them – notwithstanding facts often remain relatively consistent. Getting to a point of consistency is really important – one cannot understate the significance of this to businesses.

If delegates walk away with one key insight from your session at the conference, what would you like it to be?


I think the biggest thing is really: is the interpretative approach we are seeing the right application of these provisions?

But I think more broadly, there is a question, the root of this line of interpretation is a case from 2005 from the financial planning industry. Why has it only spread to mortgage broking over the last few years? Also, what are the other states going to do, because we haven't seen much so far.


Yeah, I think that hits the nail on the head. I'd look at it as: the relevant contract provisions were brought in for a purpose. That purpose is, bit by bit, being broadened out and stretched to reach a broader ambit of arrangements. I suspect we’ll see this play out in the gig economy and health space more over the coming years. To some extent this is unsurprising, as business structures evolve with legislation that remains relatively static.

Maybe the broadening out of these rules with evolving business arrangements is right, maybe it's wrong, or maybe there’s an answer in the middle. But there's a need for regulators and tax professionals  and legal professionals, for that matter  to be aware of instances where things are not black and white and to have a robust and transparent discussion about them to try and resolve those issues, so that we end up with what actually is the right outcome, having regard to the law and the policy intent of that law.

Find out more about the State Taxes Convention and how you can catch Sarah and Adam’s session to hear more on this incredibly important topic.

1-May-26-2021-03-16-58-81-AMAbout Sarah Klarich

Sarah Klarich is a Senior Manager in the Employment Taxes Team within PwC’s People & Organisation Group. Sarah has over 9 years of experience in advising her clients in relation to employment tax matters including FBT, Payroll Taxes, Superannuation Guarantee, PAYG Withholding obligations and contractor management policies and procedures.


2-May-26-2021-03-16-58-81-AMAbout Adam Nicholas

Adam Nicholas is a Chartered Accountant and a Partner in the Employment Taxes Team within PwC’s People & Organisation Group. With 14 years of experience across a range of disciplines and industries, Adam works with organisations to understand and manage the increasingly complex rules which come with having a workforce. This includes assisting businesses with advice and support in understanding and planning for the changing Australian regulatory environment, and the employment tax obligations framework within which employers operate.


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