Payroll tax and medical practices

Payroll tax and medical practices

Are you concerned about the potential impact of payroll tax on your practice? Here is the latest information on the situation in NSW…

SINCE LAST YEAR, AMA (NSW) has been actively encouraging members to seek professional advice regarding their arrangements and potential payroll tax liability following the Optical Superstore decisions in Victoria. The recent NSW Civil & Administrative Tribunal decision in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue has again highlighted the potential issue for medical practices engaging medical practitioners under independent contractor arrangements. 

Further to meetings held last year with Revenue NSW, AMA (NSW) has continued a dialogue with Revenue NSW regarding the issue of payroll tax for medical practices. Following those discussions, AMA (NSW) has written to the NSW Premier regarding our ongoing concerns about Revenue NSW’s position concerning the relevant contract provisions under the Payroll Tax Act 2007 and the potential consequences for medical practitioners in NSW.

Revenue NSW has indicated its intention to issue a Practice Note to assist medical practices understand what arrangements are likely to be subject to payroll tax. AMA (NSW) has met with Revenue NSW regarding the proposed Practice Note and expressed concern about the approach Revenue NSW has foreshadowed regarding the range of arrangements that Revenue NSW contends may be relevant when calculating the payroll tax liability for medical practices, including in relation to arrangements that until recently have not been captured for the purposes of payroll tax. 

Under the provisions of the Payroll Tax Act 2007 (NSW) payments made under relevant contracts may be considered wages for the purposes of payroll tax. A relevant contract is one under which a person:

• supplies to another person services for, or in relation to, the performance of work; or
• has supplied to him or her the services of persons for, or in relation to, the performance of work.

The current payroll tax threshold in New South Wales is $1.2 million.

There are some exemptions to the relevant contract provision, including:

• where the contract is a contract for services of a kind ordinarily required by the principal for less than 180 days in a financial year; 
• where the contract is a contract for the provision of services by a person providing the same or similar services to a principal under the contract for no more than 90 days in a financial year.

In the Thomas and Naaz decision, the contracts between the medical practices and medical practitioners were found to be relevant contracts. The features of those contracts included:

• reference to shifts, work hours and rosters;
• the medical practitioners were required to comply with protocols of the practice;
• the medical practitioners were on occasion remunerated by the practice on the basis of an hourly rate;
• restraint provisions;
• the practices owned the medical records;
• leave was subject to approval by the medical practice;
• the medical practitioners were required to promote the business of the medical practice.

While there are and have always been some practices that operate on the basis that medical practitioners are engaged to, inter alia, provide services to the medical practice and the medical practice’s patients, other medical practices do not engage medical practitioners to provide services to the medical practice or the practice’s patients, but rather under the contract the practice provides services to the medical practitioner to support the medical practitioner providing services to his or her own patients. Given these contracts are not contracts for the performance of work, this arrangement has, until recently, been understood to be arrangements that do not fall within the relevant contract provisions of the Payroll Tax Act 2007.

Revenue NSW has conveyed its view to AMA (NSW) that regardless of what the contract between a medical practice and medical practitioner may say, a medical practice cannot only be providing services to a medical practitioner but must necessarily be also in the business of providing services to patients, and in order to provide services to patients, it contracts with medical practitioners to provide those services.  

Over the last 20 years, regulatory bodies, professional and accreditation bodies, and governments have all encouraged medical practitioners to move away from models of solo medical practice to models where a number of medical practitioners practice from the same location. In general practice, practitioners are rewarded for doing so in the form of incentive payments paid by the Federal Government.

Practitioners conducting their medical practice from a common location is seen as beneficial for patients and for practitioners. Practising from the same location as others ensures there is professional support available to medical practitioners, and patients benefit from the opportunity for colleagues to confer with one another, and they also benefit by being able to readily access care from another practitioner at their regular practice if their regular practitioner is on leave or otherwise unavailable.  

Government funding models reward general practitioners who practice from the same location. Practice Incentive Payments and other government funding is increasingly important to ensure the financial viability of general practices, given the failure of MBS rebates to keep pace with the actual costs of providing medical services. Some members have expressed the view that the requirement to pay payroll tax will effectively mean the reallocation of Federal Government payments to the State Government and have a negative effect on the viability of many practices.

AMA (NSW) encourages members to seek professional advice regarding their arrangements following the Optical Superstores decisions in Victoria and the Thomas decision in New South Wales. Members should speak with their accountant and seek review of their contracts. AMA (NSW) has arranged for members to access a one-hour consultation with HWL Ebsworth Lawyers to seek advice about their existing contracts and / or obtain an updated agreement for $500 inclusive of GST. If you wish to access this service, please email workplace@amansw.com.au.