On August 11, 2023, the Victorian State Revenue Office (VIC SRO) and Revenue NSW (RNSW) issue respective Rulings regarding payroll tax for medical centres. There is no change in legislation and this is merely providing greater clarity to their longstanding position. What has changed is that since 2018 the SRO has turned its focus to independent contractor arrangements with health service providers. Following the outcomes of the Thomas & Naaz and Optical Superstores cases, both favoring the State Revenue bodies, these practices have come under scrutiny for necessary modifications.
Here are a few important extracts from the VIC SRO Rulings that worth careful reading and consideration.
Relevant contract
It is now established that medical practices will be liable for payroll tax on payments made to independent contractor doctors where the doctors meet the extended definition of “employee” under the Payroll Tax Act, and the payments made to them by the practice meet the extended definition of “wages” under the Act.
“…If a medical centre engages a practitioner to practise from its medical centre, or holds out to the public that it provides patients with access to medical services of a practitioner, it is likely the relevant contract provisions will apply to the contract with the practitioner unless an exception (that is an exemption) applies.
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However, each contract must be considered individually on a case-by-case basis to determine whether it is a relevant contract.”
What are the Exemptions
“Under section 32(2), the three exemptions more likely to apply to a contract between a medical centre and a practitioner are:
- The practitioner provides services to the public generally – section 32(2)(b)(iv). To qualify for the exemption, the practitioner must provide services of the same kind to other principals, such as other medical centres or hospitals (not within the same group).
- The practitioner performs work for no more than 90 days in a financial year – section 32(2)(b)(iii).
- Services are performed by two or more persons – section 32(2)(c)(i).”
Which payments are deemed wages under section 35?
“The amounts paid or payable to each practitioner under a relevant contract are taken to be ‘wages’ paid or payable by the clinic.
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It does not matter that payments to a practitioner are paid from money received by the medical centre on behalf of practitioners, whether from patient fees or Medicare payments, even if the practitioner is beneficially entitled to that money. When the practitioner’s entitlement is recognised and the money is paid or becomes payable, it constitutes wages for payroll tax purposes.
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The source of the funds used to pay the practitioner’s company does not affect the classification of an amount as wages, even if the payment is made from money held in a trust account for the practitioner or the practitioner’s entity.”
What if it is a tenancy contract in place?
“If a tenancy contract refers to a medical centre as a ‘landlord’ and the practitioner as a ‘tenant’, but in substance the practitioner is providing medical services for or on behalf of the medical centre to its patients, the tenancy contract is more likely to be a relevant contract.”
What about other States
The Queensland amnesty is available to payments made to contracted GPs, where those payments fall under the extended definition of “wages” in the legislation, up until 30 June 2025.
The South Australian amnesty is available to payments made to contracted GPs up until 30 June 2024.
There is no indication at this stage that VIC or NSW will implement similar amnesty arrangements. This effectively leaves practices in VIC and NSW exposed.
Western Australia confirmed last month that they were not aligning their legislation with the other states.
Recommendation
Many medical practices would be at risk of being found liable to pay payroll tax on payments made to independent contractor doctors if they are assessed by the SRO. We are currently aware of audit activity across the states which increases the risk.
It is strongly recommended that practices seek specialised legal advice on potential payroll tax liabilities, reviewing contracts with independent contractor doctors, assessing practice documentation, billing and payment protocols, as well as the content of advertising and marketing materials to mitigate potential risks.
Source:
https://www.sro.vic.gov.au/legislation/relevant-contracts-medical-centres
