Payroll tax – who pays the price?

Payroll tax threatens the financial viability of medical practices across NSW and risks exacerbating the challenges patients already face, particularly in rural and regional NSW, in accessing healthcare services.


What is 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.

Medical practices typically operate a ‘service entity’ model whereby the practice collects consultation income on behalf of doctors and then distributes it to individual doctors after deducting a service fee.

The broader application of payroll tax laws would see the distribution of these fees being considered to be payments for the performance of work by the individual doctor on behalf of the medical practice rather than individual doctors providing services directly to patients, being paid by the patient and acquiring services (including the collection of fees) to run their medical practice from the service entity.

Revenue NSW has confirmed that it will broaden its application of existing payroll tax laws to encompass medical practices operating ‘service entities’.

AMA (NSW) is seeking a payroll tax exemption for medical practices and needs your support. Download and share these resources on your social media or at your practice.

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Impact on general practice

Payroll tax has implications for all medical practices, but general practices have the potential to be hardest hit.

The financial stability of general practice has been under threat for years and recent payroll tax decisions will push some practices to consider whether they can continue to remain open.

NSW is already facing a GP-shortage, particularly in rural and regional Australia. Payroll tax will exacerbate challenges to healthcare access, if some practices are forced to close their doors.

Healthcare professionals have worked tirelessly and with little financial reward to assist the NSW Government with the vaccination roll-out and to protect the health of the community throughout the pandemic.

The application of payroll tax in light of these sacrifices is particularly disappointing.

“Most of our practices already run with permanently closed books. A very sad situation locally, and if our practice is forced to wind up as well due to lack of financial viability, I just don’t know where the 20% of our population that we look after will be able to go to seek primary care services.”

A Rural GP

What does it mean for general practices?

This change in the State Government’s position by Revenue NSW on payroll tax for general practice will mean that a general practice may have to pay 4.85% on the payments to the Doctor managed by the general practice.

This cost hurts the general practice not the doctors themselves.

So for a general practice providing services to a doctor who generates an average $250,000 in income (after costs), the general practice could have $12,125 in additional costs per doctor.

If the State Government via Revenue NSW applies this change in payroll tax treatment retrospectively (i.e. for prior years), general practices could also be hit with punitive financial penalties and interest charges on payroll tax amounts that they did not have to pay in the past.

Payroll tax negates practice incentive payments

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.

Need Help?

AMA (NSW) encourages members to seek professional advice regarding their 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. In addition, AMA (NSW) has arranged for members to have access to our Accounting Partner, Cutcher & Neale, who can provide guidance on the practice’s existing financial and tax affairs in relation to doctor arrangements for medical practices.
Please contact our Workplace Relations team at  or call 02 9439 8822  (toll free 1800 813 423 outside metropolitan Sydney) 

Ask your MP for a payroll tax exemption 

AMA (NSW) is asking the NSW Government to give general practices a payroll tax exemption and we encourage you to join our campaign by writing to your local MP.

Please feel free to use this template letter. 

Become an AMA (NSW) member today!