Your Agents Are Contractors. Revenue NSW Might Not Agree.

Revenue NSW has again put real estate employers on notice: internal conjunction arrangements with contractor sales agents are under scrutiny, and getting the payroll tax treatment wrong can mean back payment, interest and penalties of up to 90 percent. This alert explains the difference between external and internal arrangements, why the four contractor exemptions so often fail on audit, how the anti-avoidance provisions work, and the practical steps agencies can take to set up contractor arrangements compliantly. 

If your agency engages sales agents as independent contractors, this update matters. Revenue NSW has again put real estate employers on notice that contractor arrangements, known in our industry as conjunction arrangements, remain squarely under review. Where these arrangements do not satisfy a payroll tax exemption, fines and penalties can follow. 

For more than a decade, real estate businesses have paid a heavy price for misreading the line between a genuine contracting arrangement and one that Revenue NSW treats as an assessable relationship for payroll tax. The good news is that this is manageable. Once you understand how Revenue NSW looks at these arrangements, you can structure them properly and protect what you have built. 

The Two Types of Conjunction Arrangement 

Revenue NSW draws a broad distinction between two kinds of real estate conjunction arrangement, and the difference decides whether payroll tax is in play. 

External conjunction arrangements. Sales agents from different agencies work together to sell a property. It is a business to business relationship with no ongoing connection. Once the property sells, the commission is split and the arrangement ends. Generally, there are no payroll tax consequences for commission paid under an external arrangement. 

Internal conjunction arrangements. Here a licensed sales agent, the contractor, routinely works for and within one agency, usually under a contractor contract. The agent is typically represented under the agency brand, listed alongside the business as Agent on vendor agreements, and relies on the agency to handle trust monies. There is often little practical distinction between the business and the contractor, and the agency exercises real control over how the work is done. This is where the payroll tax risk sits.

Why Internal Arrangements Create a Payroll Tax Problem 

Many agencies leave internal conjunction commissions out of their payroll tax calculation, relying on one of the contractor exemptions in the Payroll Tax Act 2007 (NSW). On audit, Revenue NSW frequently finds those exemptions do not actually apply. In most of those cases the commissions should have been declared as assessable wages, which means the agency has understated its payroll tax. 

Revenue NSW says the common mistakes are a misunderstanding of what an exemption requires, claiming the wrong exemption, or claiming an exemption when none of them apply. 

Case Study
The Exemption That Did Not Hold

An agency we will call Coast Properties engaged three sales agents as internal contractors, all working under the Coast Properties brand, and left their commissions out of its payroll tax returns on the basis that the agents ran their own businesses. On audit, Revenue NSW found the agents worked almost exclusively for Coastline, kept no record of days worked, and held no trust account. None of the exemptions applied. Coast Property faced several years of back payroll tax, interest, and a penalty on top. A short review at the outset would have flagged the problem while it was still affordable to fix. 

The Four Contractor Exemptions, and Why They Often Fail

There are four main contractor exemptions an agency might claim on commissions paid under an internal arrangement. Each is narrower than it first looks. 

Under 180 days (PTA 020). The exemption applies where the services are of a kind the agency needs for fewer than 180 days in a financial year. Selling property is core to an agency all year round, so this one rarely fits an internal arrangement. 

90 days or less (PTA 035 v2). Available only if the contractor worked 90 days or fewer in the year. Every touch counts, a call from a buyer, an inspection, a listing appointment, and most agencies do not keep the day-by-day records needed to prove it. 

Works for other agencies (PTA 021). Available only if the contractor genuinely sells for more than one independent, unrelated agency. Internal agents usually work predominantly or exclusively for one business, so this one seldom applies. 

Engages two or more people (PTA 023). Available where the contractor engages two or more people to perform the services, and is genuinely running their own business with their own systems. The tests are strict and depend on whether the contractor is an individual, a partnership or a company. 

The theme across all four is the same: Revenue NSW expects a bona fide, independent business, not an agent who is part of yours in everything but name. 

Anti Avoidance: Even a Valid Exemption May Not Save You

This is the part agencies most often miss. Even where an exemption technically applies, Revenue NSW can still apply the payroll tax anti-avoidance provisions and disregard the arrangement altogether. 

They can do this where the main object was to obtain the personal services of a licensed agent, where there is a high level of integration and dependency between the agency and the agent, where the relationship looks like employment, or where the arrangement has the effect of reducing or avoiding payroll tax. 

There is no need to prove that the arrangement was intentional. What matters is the effect it has on your payroll tax liability.

If the anti-avoidance provisions apply, Revenue NSW sets the contract aside and treats the payments to the contractor as assessable wages. 

The Penalties: Back Payment, Interest and Up to 90 Percent

Where Revenue NSW finds an agency has understated its payroll tax, the consequences are not limited to paying the shortfall. The agency can be required to make back payment of the outstanding payroll tax, pay interest on it, and face a penalty of up to 90 percent of the unpaid tax. 

Assessments can reach back across multiple years, which is what turns a modest annual figure into a significant liability. A short review now is far cheaper than an audit later.

A Licensing Point Agencies Miss

Separately from payroll tax, there is a licensing requirement worth checking. To meet NSW Fair Trading Licensee in Charge and Supervision Guidelines, any independent contractor sales agent in NSW must hold a Class 1 licence, or the agency must directly engage someone who does. It is a common gap, and an easy one to close once you know to look. 

What Your Agency Should Do Now

1. Identify every internal conjunction arrangement in your business and separate them from genuine external ones. 

2. Check which exemption, if any, you are actually relying on, and whether you hold the records to support it. 

3. Look past the exemption to the anti-avoidance provisions, and be honest about how integrated and dependent the arrangement really is. 

4. Confirm each contractor holds the right licence class for NSW. 

5. Get the arrangement reviewed and documented properly before your next payroll tax return, not after an audit letter arrives. 

How Realgate Legal Helps

This is exactly the kind of work we do for agencies every week. We help you set up contractor and conjunction arrangements the right way, so they hold up if Revenue NSW ever looks closely, and so you are not carrying a payroll tax liability you do not know about. We review your current arrangements, tell you plainly where the risk sits, and put the right contracts and structures in place. Legal advice here is not about fear. It is about protecting what you have built and giving you the confidence to keep growing. 

Book a free 10 min call with a member of our team and we will help you get your contractor arrangements right. 

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Key Takeaways

• Internal conjunction arrangements, where a contractor sales agent works within your agency, are where payroll tax risk sits. External arrangements between independent agencies generally do not attract payroll tax. 

• The four contractor exemptions are narrow and frequently fail on audit, usually for want of records or genuine independence. 

• Even a valid exemption can be set aside under the anti-avoidance provisions. Effect matters, not intention. 

• Getting it wrong can mean back payment of payroll tax, interest, and a penalty of up to 90 percent of the unpaid tax. 

• A short review now is far cheaper than an audit later. 

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Next Steps

Map your contractor arrangements, check the exemption and records you are relying on, and have the arrangement reviewed before your next return. If you would like a hand, book a free 10 min call with a member of our team.

Frequently Asked Questions (FAQ)

• Does payroll tax apply to the commissions we pay our sales agents?

  It can. Commission paid under an internal conjunction arrangement, where the agent works within your agency, can be assessable for payroll tax unless a genuine exemption applies. Commission under an external arrangement between independent agencies generally is not. 

• What is the difference between an internal and external conjunction arrangement?

  An external arrangement is a one-off, business-to-business split between independent agencies on a single sale. An internal arrangement is an ongoing relationship where a contractor agent works for and within your agency, usually under your brand. 

• We claim a contractor exemption, does that cover us?

  Not necessarily. Revenue NSW frequently finds the exemption claimed does not apply, often because the records are not there or the agent is not genuinely independent. And even a valid exemption can be overridden by the anti-avoidance provisions. 

• What are the penalties if we get it wrong?

  Back payment of the outstanding payroll tax, interest, and a penalty of up to 90 percent of the unpaid tax, often across several years. 

• Can Revenue NSW ignore our contract even if an exemption applies?

  Yes. Under the anti avoidance provisions, Revenue NSW can disregard the arrangement where it has the effect of reducing payroll tax, regardless of intention, and treat the payments as wages. 

• How do we set up contractor arrangements the right way?

  Have your arrangements reviewed and documented properly, keep the records that support any exemption, confirm the correct licence class, and get advice before your next return. Realgate Legal can help you do this. 

Luke Shumack – Principal, Realgate Legal

Luke Shumack is one of the Principals at Realgate Legal with a Bachelor of Laws and a sharp focus on helping agencies and business owners stay compliant while scaling with confidence. Since starting his legal career in 2021, Luke has worked closely with real estate agencies, startups, and established businesses on privacy compliance, employment law, contractor agreements, mergers and acquisitions, and corporate governance. Known for his tech savvy approach and love of efficiency, Luke blends legal precision with practical business strategy making the complex simple for clients who want to move fast without risk.

Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.