Recent court decisions mean that medical practices and consultant practitioners should speak with employment lawyers to ensure they aren’t hit with unexpected payroll tax because of how they engage practitioners.

There has been a shift in how payroll tax is approached by the various State Revenue Offices across Australia. Following decisions in Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd [2019] VSCA 197 and Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259, the state and territory governments signalled their intent to impose payroll tax on earnings by medical practitioners that fall under relevant contracts.

Fees paid to medical and other healthcare practitioners operating under independent contracts may now attract company payroll tax. This may have significant financial implications for practices and consultant practitioners.

Optical Superstore

The Optical Superstore business was carried out by the Trustee of four related trusts. Optometrists entered into agreements with the Trustee to conduct eye tests in the stores.  Under the agreements, the optometrists were tenants, and the Trustee was the landlord. The optometrists paid an occupancy fee, whereby fees charged by the optometrists for providing services were received by the Trustee. The Trustee would deduct an hourly scheduled rate or consultation fee percentage as an occupancy fee, plus GST on the occupancy fee. The remaining amount was then paid to the optometrist as a reimbursement.

The Court of Appeal found that the reimbursement amounts were payments for or in relation to the performance of work and, therefore, subject to inclusion in payroll tax calculations.

Thomas and Naaz

The Tribunal found that the contractual arrangements between the contracted doctors and the medical centres owned by Dr Thomas and Ms Naaz attracted payroll tax. The doctors provided medical services to patients on behalf of the practices. Without this service, the practices could not operate a medical centre business.

The doctors provided the service to the patients. The patients assigned their Medicare benefits to the doctors. The practice bulk-billed Medicare for the benefits on behalf of the doctors. The practice collected the benefits, distributed 70% of the receipted funds to the doctor and retained 30% as a service fee.

The Tribunal held that the funds distributed to the doctors were wages and, therefore, subject to inclusion in payroll tax calculations.

The Shift

While each State and Territory has its own revenue authority, they are largely uniform in their provisions relating to relevant contracts and deemed wages.

Following these decisions, the ACT, NSW, Queensland, Victoria, and SA revenue offices issued similar rulings and indicated an intent to enforce payroll tax obligations on medical practices. In NSW, an amnesty is due to end in August 2024, while in the ACT, the amnesty is due to run until June 2025.

In SA, an amnesty on payroll tax is set to end on 30 June 2024. On 22 May, the State Government announced an ongoing exemption for wages earned by GPs for bulk-billed services provided to patients.

In Victoria, a multistage amnesty is set to run until 30 June 2024, with the possibility of extending the amnesty to 30 June 2025, which is available in certain situations. From 1 July 2025, exemptions will be available for bulk billed services, which aligns with SA’s approach.

WA and Tasmania have indicated they do not intend to change the approach to payroll tax for medical practices.

The intended protections gained by entering independent contracting relationships may no longer apply. Your contracting arrangements may need to be reviewed and reconsidered in light of the changes to Payroll Tax.

If you have any questions about this article, please get in touch with Nicholas Maycock or Caroline Knight.