Payroll Tax Concern for Medical Practices – Should Medical Practices Pay Payroll Tax for Servicing Doctors?

Australian medical practices work hard to provide great patient care while simultaneously navigating the confusing maze of taxation in the complex world of healthcare. These organizations face a variety of compliance issues as a result of the complex laws and regulations that regulate the constantly changing tax landscape. Recent determinations in Victoria and New South Wales have enduring implications on payroll taxes for medical and allied health entities, specifically those holding funds on behalf of self-employed specialists working as independent contractors within Australia.

These determinations, coupled with the recent validation by the Commissioner of State Revenue in Queensland, indicating impending substantial payroll tax complexities for medical centers, serve as a timely caution for both general and specialized healthcare practices. It is advisable for these practices to thoroughly review their payment structures for individuals operating within their establishments.

This article delves into the intricate web of payroll tax considerations within the medical sector, drawing inspiration from key cases that have catalyzed significant shifts. We will explore the implications, understand eligibility criteria, and arm you with insights to effectively manage potential risks. Join us as we dissect the origins of these regulations, unravel the associated intricacies, and empower medical practices to navigate the evolving payroll tax terrain with confidence.

Shift in Payroll Tax Regulations Impacts Medical Practices in Queensland [December 22]

The recent legislation, slated to be effective from its release on December 22, 2022, delivers a substantial blow in terms of payroll tax implications for medical center businesses operating in Queensland. Within this framework, medical practices now bear the responsibility of remitting payroll tax for contracted general practitioners (GPs), and it’s noteworthy that payments rendered to contractors could potentially fall under the tax ambit if their contractual arrangements qualify as ‘relevant contracts’ within the payroll tax context.

Recognizing the potential knowledge gap that might exist among GPs regarding the payroll tax nuances tied to contractor engagements, the Queensland Government has instituted a grace period allowing payments to contracted GPs to remain amnesty-protected until June 30, 2025.

• In light of these changes, it is envisaged that a considerable number of Medical Practices, along with their accounting professionals, might need to undertake substantial updates to their operational systems to effectively address this shift in payroll tax regulations.
• Scope of the Amnesty and Eligibility Criteria
• The amnesty affects only payments made to GPs acting as contractors. For the purpose of availing of this amnesty, a GP is defined as an individual registered as a general practitioner with the Medical Board of Australia. However, it’s important to note that the amnesty does not extend to:
• Other medical doctors or allied health professionals.
• Medical practices that are already in adherence with their payroll tax obligations.
• Newly established medical practices.
• Non-medical businesses that are currently subject to payroll tax for their contractor payments.

Understanding Your Situation

If your current practice includes payroll tax payments for contracted GPs, there is no alteration in your obligations. If you are launching a new medical practice, it becomes imperative to align with these regulations. For established practices that haven’t previously been complying with payroll tax for payments to contracted GPs, there’s a potential avenue to explore – you might be eligible to seek the benefits of the amnesty program.

The regulatory stance adopted in Queensland finds its roots in recent legal decisions, prominently shaping the landscape. Notable cases that have contributed to the formulation of this ruling include:

• Homefront Nursing Pty Ltd v Chief Commissioner of State Revenue [2019] NSWCATAD 145
• Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259

We have examined one of the pivotal cases below, which holds significance not only in shaping payroll practices within NSW but also in influencing other states to follow suit.

Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259
In a pivotal legal case, Thomas and Naaz Pty Ltd faced off against the Chief Commissioner of State Revenue in a matter that hinged on whether medical practitioners engaged by the former could be classified as ‘relevant contractors’ for the purpose of payroll tax. The verdict, handed down in [2021] NSWCATAD 259, brought to light crucial considerations regarding the nature of the services provided and the monetary transactions involved.

Background Information for the case – Thomas & Naaz operated three medical centers under contracts with doctors, allowing them to use the facilities as private practitioners. Under these agreements, Thomas & Naaz provided rooms and shared administrative services with the doctors in exchange for 30% of Medicare benefits for each patient treated at the center.

At the heart of the case, the NSWCAT grappled with two essential questions:
Whether medical practitioners supplied services to the medical center.
Whether the financial transactions between the medical center and the medical practitioners could be categorized as payments ‘for or in relation to the performance of work’.

Resoundingly, both inquiries received affirmative answers based on the evidence presented. In the Thomas and Naaz case, medical practitioners operated within a framework where they were granted rooms and shared administrative and medical support. These practitioners, though not directly paid by patients, offered medical services within the medical centers.

Instead of receiving direct payment from patients, the medical centers collected fees and funneled these funds to the practitioners. The doctors in question were under a written agreement with the medical centers, owned and managed by Thomas and Naaz Pty Ltd. The phrasing of this agreement emerged as a pivotal factor in the NSWCAT’s decision. Notably, the financial flow was structured in such a way that Medicare benefits were pooled in a bank account belonging to the medical center.

From this account, the doctors received 70% of their Medicare claims, while the remaining 30% was retained by the medical center as a service fee.

• Whether medical practitioners supplied services to the medical center
• Whether the financial transactions between the medical center and the medical practitioners could be categorized as payments ‘for or in relation to the performance of work.

Resoundingly, both inquiries received affirmative answers based on the evidence presented. In the Thomas and Naaz case, medical practitioners operated within a framework where they were granted rooms and shared administrative and medical support. These practitioners, though not directly paid by patients, offered medical services within the medical centers. Instead of receiving direct payment from patients, the medical centers collected fees and funneled these funds to the practitioners. The doctors in question were under a written agreement with the medical centers, owned and managed by Thomas and Naaz Pty Ltd.

The phrasing of this agreement emerged as a pivotal factor in the NSWCAT’s decision. Notably, the financial flow was structured in such a way that Medicare benefits were pooled in a bank account belonging to the medical center. From this account, the doctors received 70% of their Medicare claims, while the remaining 30% was retained by the medical center as a service fee.

• Crucially, the agreement contained terms that bore similarities to an employer-employee relationship:
• Doctors were obligated to promote the medical center.
• Adherence to roster commitments and physical presence during scheduled sessions were mandated.
• An initial three-month period outlined a minimum hourly rate.
• A leave policy, requiring four weeks of leave per 12 months, was in place.
• A restraint of trade clause, spanning up to two years and covering a radius of five kilometers, existed for departing doctors.
• Ownership of patient files rested with the medical center.
• Doctors were required to follow practice protocols and complete the necessary documentation.

Ultimately, the NSWCAT found an indirect but clear link between the services rendered and the payments extended by the taxpayer. The availability of Medicare benefits to doctors was directly linked to the medical services provided, solidifying the relationship between payments and services. The payments were deemed to be ‘for or in relation to the performance of work’ as stipulated in the agreements. The NSW Civil and Administrative Tribunal upheld the payroll tax assessment, stating that the agreements secured the doctors’ services within the service entity’s facilities, and the services were work-related. Despite appeals, the initial Tribunal decision was upheld, and further appeal to the NSW Supreme Court of Appeal was denied.

Implications of the Recent decision:

• Medical and allied health practice operators need to review their business agreements and relationships with health practitioners to assess potential payroll tax implications.
• Practices operated by a service entity may face increased scrutiny from revenue authorities, leading to payments made to practitioners being subject to payroll tax.
• The consistency of payroll tax legislation across Australian jurisdictions means that the victories in Victoria and NSW may encourage other revenue authorities to investigate medical practices that use service entities for payroll tax liability.

• The Thomas & Naaz’s decisions support the idea that service entities supplying services to contractors for work performance could be subject to payroll tax liability.
• The risk of payroll tax liability for payments between practitioners’ entities in health practices depends on the agreement terms and the daily operations of the centers.
• Billing arrangements commonly used in the private health sector, where fees are collected by the service entity and remitted back to practitioners after deduction, are at significant risk of being subject to payroll tax.

Things to Consider

To lessen the possibility of exposure to payroll tax liabilities, agreements underlying arrangements between service entities and practitioners will need to be carefully reviewed and may be amended. Payroll tax may apply to certain arrangements between a service business and a practitioner, as well as payments made under those arrangements, depending on a variety of conditions. The following is an overview of some important factors:

• Control over work schedules: Practitioners should think about whether they have the freedom to choose the days and times they work.
• Invoicing: Sending invoices to clients and patients under the practitioner’s name may lessen the likelihood that payroll taxes will need to be paid.
• Fee collection: Practitioners should think about the organization that is in charge of collecting patient fees as well as the allocation of services and facility fees to the service entity.
• Restrictions: Prohibitions could be limited to soliciting personnel, clients, and other practitioners upon termination of the services agreement; permitting practitioners to work at other practices may also lower the likelihood that payroll tax would be levied.

In light of the compelling insights gathered from recent prominent cases, the landscape of payroll tax implications is undergoing a notable shift. State Revenue Authorities are poised to intensify their audit focus on the realm of medical and health practices. For those at the helm of medical practices across Australia, this evolving scenario carries potential ramifications that warrant serious consideration. It’s obvious that the road can be just as difficult as the medical industry itself as we maneuver through the complex web of payroll tax concerns for Medical Practices.

These difficulties shouldn’t be taken on unpreparedly or by yourself. It’s essential to approach them proactively and under the direction of a professional. The next step is to get in touch with a qualified tax advisor or legal specialist if your medical practice is struggling with any of the tax difficulties we’ve discussed. This knowledge can help you avoid expensive compliance errors so you can concentrate on what you do best—providing high-quality healthcare services. Keep in mind when it comes to taxes compliance, prevention is always better than cure.

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