The recent New South Wales Civil and Administrative Tribunal Appeal Panel’s (Appeal Panel) decision in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2022] NSWCATAP 220 dismissed the medical practice’s appeal and confirmed the New South Wales Civil and Administrative Tribunal’s (Tribunal) decision that payments from a medical practice to doctors who worked at the practice are subject to payroll tax.

That is, the payments made by the medical practice to its doctors were “relevant contracts” under the Payroll Tax Act 2007 (NSW) (Act) and were deemed to be wages under the Act and subject to payroll tax. 

Background

• The medical practice operated a business comprised of three medical centres.

• Various doctors operated from the medical practice’s medical centres.

• Each doctor (or a related entity) had entered into a written agreement with the medical practice.

• The medical practice provided rooms at its medical centres to the doctors as well as shared admin and medical support services.

• The patients did not pay the doctors directly, but were instead “bulk billed” and the medical practice on behalf of the doctors made the Medicare claims.

• 70% of the claims paid by Medicare (without any deductions for tax or superannuation) were paid from the medical practice’s bank account to the doctor, with the remaining 30% retained by the medical practice as a service fee.

• These 70% payments to the doctors were the subject of the payroll tax assessments.

Appeal Panel decision

The Appeal Panel’s decision was significantly centred around the 7 grounds of appeal filed by the medical practice and whether those grounds were questions of law, and if so, whether there were errors of law.

In essence, the substance of the appeal involved an appeal of the Tribunal’s finding that:

• There was a relevant contract between the respective doctors and the medical practice for the purposes of the Act; and

• Amounts paid by the medical practice to the doctors were paid for or in relation to the performance of work relating to a relevant contract.

The Appeal Panel mainly found that the medical practice’s grounds of appeal were deficient as they involved questions of fact, not law, and therefore dismissed the appeal.

Ultimately, despite there being a lack of further elaboration on the core legal issues relating to a “relevant contract” and deemed wages, the dismissal of the appeal by the Appeal Panel confirms the Tribunal’s decision at first instance that payments made by a medical centre operator to doctors are deemed wages for the purposes of the Act.

Significance of decision

The decision by the Appeal Panel is significant as it reaffirms the Victorian Court of Appeal’s decision in Commissioner of State Revenue v The Optical Superstore Pty Ltd [2019] VSCA 197 (as discussed in our article).

This means that if a medical practice makes any payments to a doctor that is a part of its medical centre, it is highly likely that such payments will be caught as wages not just under the Act, but also under equivalent payroll tax provisions across the various states which have harmonised provisions, such as Victoria. That is, they will be subject to payroll tax.

The decision is also significant because while the factual circumstances here pertained to doctors that contracted with a medical practice, the legal principles could equally apply more broadly to other healthcare professionals who contract with a practice such as dentists, physiotherapists, osteopaths and other allied health professionals.

Our recommendation

Owners of medical or other healthcare practices should urgently 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.

For further information, or if you would like to discuss or review existing structures and contractual arrangements between doctors/healthcare practitioners and a healthcare practice owner, please feel free to contact our state taxes team:

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au