- On January 10, 2020
- January / February 2020
Payroll Tax: Toll on rural health
Faced with a crippling tax assessment, Dr Simon Holliday decided to fight back – not just for himself, but to protect other rural and regional practice owners in NSW.
Taree general practitioner, Dr Simon Holliday, has spent hundreds of hours and over $50,000 in legal advice fighting Revenue NSW’s payroll tax assessment of his regional practice.
In 2016, the state revenue office determined that the net earnings of five past or present contractors and Dr Holliday, as practice owner, were all subject to payroll tax over the previous five years.
He disputed the assessment upon legal advice and, the following year, the tax office dropped the assessment on one year, one contractor, and on Dr Holliday.
This second assessment left him with a liability of $140,000, and a warning that if he contested this assessment, he would face an additional 20% penalty.
Dr Holliday, a general practitioner for 30 years in the regional community, described it as a major blow.
“And we were treated with such contempt,” he says, adding that there was complete indifference from the agency about the impact this tax would have on the delivery of healthcare services in the area.
“Nobody cares whether somebody is hurt on this matter. And nobody cares if fewer disadvantaged people will be able to access healthcare. Nobody cares if farmers who are struggling with the drought can’t access a health service, nobody cares about Closing the Gap with Indigenous people. This is not the issue for state revenue – that’s not their problem.”
Rural general practices struggle with medical recruitment. And like many rural and regional practice owners, Dr Holliday relies on international medical graduates to staff his surgery.
“It’s a very competitive task to get IMGs, they can pick and choose, and they want a guaranteed minimum when they start, they want education, and they want to get the best deal they can.”
Most IMGs prefer to be employed on a contractor basis, he adds.
In Dr Holliday’s case, the IMG contractors’ earnings were directed to the practice bank account before being released to the IMGs, net of practice fees. For their first few months, the IMG contractors were guaranteed a minimum sum.
“This was because naturally all are concerned the position may not be as lucrative as that described during recruitment,” Dr Holliday says.
This arrangement is not unusual among rural and regional practices. However, it did pique the interest of the state tax revenue department, which determined that if bulk-billing monies flowed to the practice account, they became the property of the practice before being paid to the contractor.
Dr Holliday believed this determination undermined Medicare.
“Medicare pays the rebate to the patient. With what is known as bulk-billing, the patient can pass their rebate to the doctor who looked after them. Medicare law is clear the money is not paid to a third party.”
Faced with the complexities of tax law, trust law and contract law, many practice owners who have faced similar tax assessments have rolled over. But Dr Holliday decided to appeal the case to the Civil and Administrative Tribunal.
“My barrister said to me, you’ve really taken one for the team. And I did feel that we had to fight this one,” he says.
For Dr Holliday, several principles were at stake.
“If practice owners faced a 5.75% impost on the earnings of contractors, many may become unviable harming both the public, and the public purse,” he says. “The State Government has much invested in reducing presentations to emergency departments, improving suicide-risk detection, keeping the mentally ill out of jail, reducing traffic accidents and reducing the unequal health and mortality outcomes of regional populations. Losing GPs could set all these programmes back.”
He adds that the 5.75% tax levied by Revenue NSW disadvantages NSW practices in recruiting relative to other states, and also penalises practices that train GP registrars.
“I hoped the Tribunal hearing would be a chance to apply a brake to the Treasury’s blinkered approach to regulatory functioning.”
He was disappointed that none of these matters had any relevance to the hearing. The case only addressed the statute law and Common Law. Regardless, he was predominantly vindicated by the verdict.
The magistrate determined bulk billed money is money paid to the patient for their medical services, and if the doctor accepts the support payment then the patient can assign it to the doctor, they don’t assign it to the practice. Bulk billed monies cannot be construed as services in relation to work. That removed almost 94% of all monies the tax department had assessed Dr Holliday for.
Despite the win, the ordeal isn’t completely finished for Dr Holliday. The tax department issued him with a bill for $18,500, plus $5000 in penalty taxes. While he paid the first sum, he has contested that the $5000 penalty tax is unreasonable, given that more than 90% of the previous assessment was thrown out.
If they insist on the penalty tax, Dr Holliday says he is prepared to go back to the Tribunal.
Dr Holliday likens the payroll tax to Centrelink’s robodebts.
“This is a big issue where we’ve got out of control tax revenue departments who their job is to generate revenue and not worry about the impact on health services or communities – their job is to raise revenue.”
Despite the emotional toll this has taken on his life, Dr Holliday has no plans of retiring. He has restructured his practice and moved to a new location within the town.
He became a doctor because he believed – and still believes – it is genuinely an important service and has some intrinsic value.
“It’s a very special thing to be able to help people through difficult times.”
And in rural or regional NSW, particularly in areas where people are facing drought or fires, or even both, the connection between doctors and their community is even closer.
“You engage with your community in many different ways,” Dr Holliday says. “They might be the teacher of your kids, but you’re also in community groups together and you may have looked after their mother, and their wife’s brother lives next door to you.
“General practices aren’t the glamour end of health. Hospital-based medicine is probably more prominent and where more funding is directed. But I think general practice is where the main grunt of healthcare occurs. And people really do appreciate having somewhere they can bring their fears and troubles and distress.”
Case Summary: Payroll Case Decision
The Tribunal determined the bulk billed fees were not payments to the Practice in Dr Simon Holliday’s case. Future payroll tax cases will be decided on the particular facts and circumstances of each case.
Many medical practices engage with medical practitioners on a contractual basis. Pursuant to the provisions of the Payroll Tax Act, some contractor arrangements may be subject to payroll tax.
Section 35 of the Act provides that amounts paid or payable by a business owner or the putative employer during a financial year for, or in relation to, the performance of work relating to a relevant contract are taken to be taxable wages paid or payable during that financial year.
Subject to a limited number of exceptions, a relevant contract is defined in the Act to include a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person, supplies to another person services for, or in relation to, the performance of work.
In 2018, Dr Holliday’s general practice, which engaged with medical practitioners on a contractual basis and paid the medical practitioners a percentage of their billings, appealed a determination by Revenue NSW that the amounts paid to the medical practitioners were assessable for the purposes of payroll tax. The matter was determined by the NSW Civil and Administrative Tribunal and has been remitted to the Commissioner for re-determination.
- General practitioners were engaged by the Practice to provide general practice medical services on behalf of the Practice.
- The terms of the contract included the following:
- GPs were to provide general practice medical services and such other medical services as may be agreed from time to time.
- Four weeks’ notice of termination was required.
- GPs were engaged as independent contractors and responsible for taxes and other compliances.
- The GP was solely responsible for controlling the manner in which services are provided.
- The Practice paid the GP fees. A GP was guaranteed minimum earnings for the first 13 weeks. Thereafter the Practice paid the GP 71.5% of the GP’s gross earnings (inclusive of GST).
- The GPs were obliged to provide services for a minimum 10 x 4 sessions per week.
- The GPs were entitled to four weeks’ unpaid leave of absence each year.
- The GPs were required to maintain Professional Indemnity insurance at their own expense.
- Medicare and DVA payments were made to the GPs as a consequence of the assignment of benefits by the patients to them. The GPs directed Medicare / DVA to make the payments to a clearing account managed by the Practice. For patients who were not bulk-billed, payments were made directly to the Practice.
- Most patients were bulk billed.
- The Practice treated amounts received for medical services as income and payments to contractors were treated as expenses.
- The Practice conducted the business of a medical centre at which GP services were provided. The Practice required the services of GPs to carry on the business.
- The accounting and taxation treatment of the receipts provided some indication of the character of the receipts but it was not determinative of the outcome.
- The Medicare and DVA entitlements paid by the practice to the GPs did not fall within the meaning of a relevant contract for the purposes of the Act.
- The Practice took on the role of collecting what the GPs were entitled to from Medicare/DVA, the GPs did not assign their entitlement to Medicare / DVA benefits to the Practice.
- Payment for medico-legal reports and payments from cash paying patients did not fall in the same category as the Medicare and DVA payments.
The matter was remitted to the Chief Commissioner of State Revenue for reassessment in accordance with Tribunal’s reasons.
Each case will be decided on the basis of its facts and circumstances. In this case, bulk billed fees were found not to be payments from the Practice to the GPs, but fees assigned by patients to GPs that were collected by the Practice. The finding in this regard did not extend to fees when patients were not bulk-billed.