Payroll tax and medical practices

AMA (NSW) recently met with Revenue NSW to discuss the increase in payroll tax audits undertaken in relation to medical practices.

During discussions, Revenue NSW indicated that following the Optical Superstore decisions it will regard any ‘payment’ of money to medical practitioners by medical practices as being a relevant payment for the purposes of payroll tax.

While much has been written about the Optical Superstore decisions and what it means for medical practices, members are advised to seek accounting and legal advice about their arrangements given what Revenue NSW has indicated to AMA (NSW).

The Service Arrangement model described below had, until recently, been considered an arrangement which would not give rise to a potential liability under the Payroll Tax Act 2007.

Payroll Tax Act in NSW

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 is $1 million.

There are some exemptions, including where the services are provided for less than 180 days in a financial year.

The Optical Superstore Decisions

In Optical Superstore:

• All fees charged for the provision of optometric services by the optometrists were required to be paid to the trustee to be held in its bank account;
• For bulk-billed patients, the optometrists had to nominate the trustee as the recipient of Medicare payments;
• For privately-billed patients, the invoice was rendered by the optometrist, but payment was required to be made direct to the trustee;
• Consultation fees were paid into the trustee’s main operating account;
• At the end of each month the optometrist submitted the number of hours worked in a store. A monthly payment was made to the optometrist (calculated by multiplying the number of hours worked by the applicable rates at the time) (the reimbursement amount);
• No invoice was raised by the optometrist for the reimbursement amount;
• In cases where the amount to be reimbursed was less than the payment due, Optical Superstore would make a payment to the optometrist to effectively make up the balance.

Service Arrangements and the decision in Optical Superstore

Arrangements whereby a medical practitioner who is conducting his or her own business, providing services to his or her own patients, and acquiring support services from the medical practice have been regarded to be arrangements that did not give rise to a potential payroll tax liability (the Service Arrangement). Under the Service Arrangement, the services provided by the medical practice to the medical practitioner include billing services. Commonly, medical practices collect fees on behalf of the practitioner, bank them in a practice bank account, and on a regular basis, following deduction of the applicable service fee, remit the balance to the medical practitioner.

It has been long understood that the remittance of fees by the medical practice to the medical practitioner under the Service Arrangement was not a payment for, or in relation to, the performance of work and further was not a payment subject to payroll tax because the money belongs to the medical practitioner and is being held by the medical practice on behalf of the medical practitioner.

The Victorian Court of Appeal in the Optical Superstore case found that the ordinary meaning of payment readily embraced a ‘payment’ of money to a person beneficially entitled to the money.

Optical Superstore did not appeal the finding made in the Victoria Supreme Court that the amounts paid or payable were for, or in relation to, the performance of work under a relevant contract.

Discussions with Revenue NSW

Based on our discussions with Revenue NSW, the position adopted by Revenue NSW is that amounts ‘paid’ to the medical practitioner under the above Service Arrangement may be subject to payroll tax unless one of the exceptions under the Act applies.

What do we suggest members do next?

While there may be arguments that Optical Superstore is distinguishable from the Service Arrangements described above, such as the fact that the amount of the money to be returned and / or paid to the optometrists was calculated by reference to hours worked which is not the case under the Service Arrangement described above, given the position Revenue NSW has foreshadowed we believe it is prudent for members to seek advice about whether they should continue to bank fees into practice accounts and remit balances to medical practitioners working under Service Arrangements.

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, email workplace@amansw.com.au.

AMA (NSW) Advocacy

The recent bushfires and COVID-19 have had a significant impact on medical practices across NSW, particularly in rural and regional communities. These disasters, together with Revenue NSW’s proposed change of approach in relation to payroll tax following the Optical Superstore decisions, threaten the ongoing viability of many medical practices.

AMA (NSW) raised these concerns with the NSW Health Minister and the Treasurer. We have asked the Treasurer to consider an exemption for medical practices under the Payroll Tax Act 2007 and / or a period of amnesty to allow medical practices to review and seek advice about their arrangements.