Background – Crackdown on medical practices by revenue authorities
Employers and business entities must pay payroll tax in relation to wages paid to its employees. In addition, such entities must pay payroll tax in relation to contractors engaged under “relevant contracts”.
Traditionally, many medical practices and allied health practices have taken the view that payroll tax is not payable to doctors or allied health practitioners that work in the practice on the basis that such doctors/professionals operate their own medical businesses, and the practices are service providers.
This view has been successfully challenged by the revenue authorities in the Courts in recent years. In particular, in the New South Wales Court of Appeal decision in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCA 40 (discussed in our article) and the earlier refusal by the High Court of Australia to grant special leave to an optometrist practice’s appeal of the decision of the Victorian Court of Appeal in Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd [2019] VSCA 197 (discussed here).
Release of the Rulings
As a result of these successful decisions, both the Victorian State Revenue Office (SRO) and Revenue New South Wales (Revenue NSW) have recently released rulings (Rulings) outlining their views on when medical and allied health practices must pay payroll tax on payments made to doctors and allied health professionals.
It is noted that there are no material differences between the Rulings and the Rulings are harmonised with similar previous rulings in South Australia and Queensland.
However, unlike the amnesties offered by Revenue SA and the Queensland Revenue Office, the Rulings do not indicate similar amnesties for medical practices in New South Wales and Victoria.
The Rulings provide that while “medical centre business” is referred to, the Rulings also apply to allied health practices such as dental clinics, physiotherapy practices, radiology centres etc who contract with medical, dental and other health practitioners or their entities to provide patients with access to the services of practitioners. For the purpose of this article, references below to doctors also refer to allied health professionals.
What do the Rulings state?
The Rulings (as well as the harmonised rulings) state that a medical centre business must pay payroll tax on payments paid to medical practitioners who serve patients for or on behalf of the medical centre.
Therefore, the Rulings set out that the practitioner acts under a relevant contract, which has the result of the medical centre deemed to be an employer, with the practitioner deemed to be an employee and therefore any payments made to the practitioner deemed to be wages under the relevant payroll tax provisions.
Critically, for payroll tax to be triggered, there must be a payment from the medical practice to the doctor. This could occur, for example, under a structure where the medical practice receives all of the payments (eg from Medicare and patients) and retains its “share” and pays the balance to the doctor. This is so even if the funds received by the medical practice are held on trust for the doctor.
However, as noted below, payroll tax will not be triggered where the payments are received by the doctor and a service fee is paid to the medical practice.
What exemptions are available?
Even if payroll tax is triggered, then certain exemptions may apply such that no payroll tax liability arises.
The Rulings set out the 3 exemptions that are more likely to apply to a contract between a medical centre business and a practitioner:
The practitioner provides services to the public generally - section 32(2)(b)(iv).
The practitioner performs work for no more than 90 days in a financial year - section 32(2)(b)(iii).
Services are performed by two or more persons (ie: a practitioner personally provides a nurse or assistant under their contract with a medical centre, see Revenue Ruling PTA-023) - section 32(2)(c)(i)
It doesn’t matter what the arrangement is called
The Rulings outline that labels applied by parties to their relationship does not detract from the character of the relationship between a medical practice business and a practitioner and will be caught under the relevant contract provisions. So for example, arrangements that will be caught can include arrangements labelled as contractor arrangements, service arrangements, management arrangements and landlord/tenant arrangements.
As noted above, the Rulings also note that the source of funds used to pay the practitioner (eg. from the practitioner or practitioner’s entity trust account) does not alter the nature of the relationship between the medical practice and the practitioner and such payments will be taxed as wages.
So are all medical practice arrangements caught by payroll tax?
Despite the Rulings providing various examples on circumstances where payroll tax liabilities exist/do not exist, including where there is a payment made by the medical practice from a practitioner’s trust account to the practitioner (see Example 11), the Rulings are silent on the payroll tax consequences if the money flow is from the practitioner to the medical practice.
It is disappointing that the Rulings have not addressed the critical comments made by the New South Wales Court of Appeal in Thomas & Naaz where the deeming provisions are said not to be engaged in the circumstance where a medical practitioner adopts the “administratively less convenient approach” of remitting a portion of fees received to a medical practice. That is, such arrangements, if structured correctly, should not trigger payroll tax.
Time for medical practices to review their payroll tax obligations
In light of the Rulings, now more than ever, owners of medical or other allied health practices should review their existing structures to ensure that they are aware of the likelihood of payroll tax being imposed by the relevant state revenue authorities on any payments made to a doctor or other healthcare professional.
Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au
