The real estate issue that won’t go away

It’s clear that the issue of independent contractors is a hot potato that nobody really wants to pick up. I recently had the opportunity to engage with a number of different real estate businesses on the topic of independent contractors in their business.

Here's some of the lowdown:

  • Some businesses had already received letters from the Office of State Revenue requesting more information regarding their contractors
  • All that the principals were able to compile to present to the authorities were signed contractor agreements in various forms and tax invoices for commissions paid. My review of the files reflected a poor level of preparedness and a likelihood of a tax payout
  • The advice they received from their advisers was a vague 'let’s see what happens' approach, leaving the principals no comfort whatsoever
  • No one from their franchise head office wanted to talk about it, let alone offer guidance

To be honest, this issue will not go away, and after years of concerted silence and inaction by the industry it is clear real estate agencies have now been pushed into a pretty tight corner.

The issue of contractors first emerged in 2004 when the OFT investigated a top international real estate brand. Despite the obvious pain this business was put through and loss of staff that resulted, they addressed the issues and prevailed to remain one of the top real estate businesses in the world.

We also heard about the business called Freelance, which engaged salespersons via a complex contract hire arrangement to agencies. Their big selling point was ‘No more hassles with payroll, no more payroll tax, no more superannuation’. That business also came under scrutiny and disappeared into oblivion.

In a similar way, ICS Real Estate emerged to sell contract hire services to real estate agencies through specially created trust entities. Many agencies took up this ICS offer but it turned out to be too good to be true, because in 2012, after a lengthy pursuit by Fair Work Australia and the Australian Taxation Office, this business was placed in the hands of liquidators and has been shut down.

More recently we have heard of the successful payroll tax challenge against another major NSW-based real estate group going into several millions of dollars. Other businesses are reporting to us that they are being asked by the authorities to first provide more information.

Clearly for the government to surgically take on one business at a time is a cleaner, quieter and more effective approach. Individually, which agency has the capacity to hire accountants and lawyers to challenge authorities for any lengthy period? Faced with such a conflicting set of rules, it's too costly to fight alone and the only option is to sit down and negotiate down the tax liability, penalties and interest.

I carry a lot of concern when it comes to this issue, as the laws are complex and inconsistent between the different government bodies.

Fair Work Australia has its own perspective whether a contracting arrangement is genuine or sham and the penalties are pretty stiff for getting it wrong. The Australian Taxation Office has its own separate and complex rules, which are different to Fair Work’s. Even if you manage to satisfy these bodies, the Office of State Revenue has a totally different and more aggressive set of rules altogether!

Unfortunately, if you have contractors in your company, the matter is not as simple as to just terminate the relationship and re-employ those agents. There is a trail of issues that require addressing – how and when to unwind the structures; what to do with past unpaid superannuation; re-calculation of the tax liabilities of the business and contractors; legal indemnity issues; and accounting treatment of current listings and outstanding contracts.

More importantly, how does one business actually go back to the ATO, OSR and FWA to come clean on non-compliance without terminal damage to their business, when others get away scot free?

It is disappointing that the industry has not come together to tackle this issue head on with the authorities. What is sad now is that engaging contractors is almost viewed as doing the wrong thing.

Contracting in real estate is where the commercial future of this industry actually lies. In its right form, contracting develops entrepreneurial flair in this industry, moulds future business leaders, increases the prospect of employment, carries better potential to grow business revenue and increases the taxation flow to the government. It is sad that the government cannot see it that way.

There is no better time than now for the best minds in this industry to face this issue together and lobby hard for a tax amnesty, but also push for a better set of rules that carry stronger commercial benefits for the agency industry as a whole.

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Sanjiv Pabari

Sanjiv Pabari

Sanjiv Pabari is the founder and director of Financial Controllers Real Estate, which specialises in real estate agency accounting, tax and performance maximisation. Sanjiv is considered one of the most commercially focused real estate financial experts in the industry with a professional background emanating from KPMG, Ernst & Young and Ray White before he established Financial Controllers Real Estate to work with various real estate franchise groups.

His business currently provides specialised daily accounting, payroll, taxation and business advisory services to a number of award-winning franchised brands and independent agencies. Sanjiv has personally consulted and worked with over 100 business leaders on business formation, stabilisation, profit and growth and is retained by a large number of agency principals as their ongoing business advisor. For more information, email [email protected] or visit

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