The ongoing saga of the application of payroll tax to medical centres has taken another turn. On 11 August 2023, Revenue NSW released its payroll tax ruling on the application of the contractor provisions to medical centres in NSW.
The new ruling has solidified the position taken by the NSW Court of Appeal in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue, where the Court found that the “relevant contract” provisions of the Payroll Tax Act applied to arrangements between a series of medical centres and the general practitioners who worked from those centres. This meant that payments made by the medical centres to the practitioners were deemed to be taxable wages under the Payroll Tax Act and therefore subject to payroll tax in NSW. The ruling also incorporates the decision of the Victorian Supreme Court of Appeal in Commissioner of State Revenue (Vic) v The Optical Superstore, which dealt with the application of the contractor provisions as they related to arrangements between medical and optometry centres and their practitioners.
In Thomas and Naaz, one of the key determinative factors that the Court took into account was that the medical centres were collecting the practitioner’s fees and holding them in an account in the name of the medical centre. The medical centre would then deduct a 30% service fee from each individual practitioner’s billings before paying the practitioner the fees that he or she had earned. All but three practitioners chose to follow this service model, and it was these payments that the Court found were subject to payroll tax. It is notable that where the doctors elected to collect their own fees and then remit a service fee to the medical centre, no payroll tax liability arose. The ruling issued by Revenue NSW does not address this kind of arrangement.
Another key element of the Thomas and Naaz and Optical Superstore cases was the degree of control that the medical practice is able to exercise over its practitioners. In its payroll tax ruling, Revenue NSW makes it clear that where the medical centre is able to exercise a higher level of administrative control over its practitioners under its service agreements, it is more likely that the service agreements will be classified as “relevant contracts” for the purposes of the payroll tax law.
Notably, the new payroll tax ruling does not incorporate any kind of payroll tax amnesty similar to those which were announced in Queensland and South Australia. However, the NSW Parliament has recently passed a new Bill which provides general practitioner practices with a 12-month amnesty from the payroll tax provisions. The aim of this amnesty is to allow further consultation between the government and the Royal Australian College of General Practitioners.
So what does this mean for medical centres in NSW?
Essentially, the amnesty puts a pause on all payroll tax audits for a period of 12 months, starting from the time the new Bill commences. This means that Revenue NSW will not be permitted to conduct an audit of a medical centre’s arrangements with a general practitioner, and no interest or penalty tax can be imposed on any tax shortfalls for the 12-month amnesty period.
Interestingly, the 12-month amnesty is not limited to the application of the “relevant contract” provisions – rather, it will apply to all general practitioner arrangements, even where the practitioner is an employee under the law (and not a contractor). The amnesty therefore provides a welcome relief to general practitioner medical centres as they grapple with the potential impact of the new payroll tax ruling on their practice.
However, it must be noted that this amnesty only applies to general practitioners. This means that all other healthcare practitioners – such as dentists, physiotherapists, psychologists and specialists – will immediately be subject to the new payroll tax ruling.
We would advise that all healthcare professionals should review their existing practitioner agreements and their practice structure in light of the new payroll tax ruling issued by Revenue NSW. It is important to note that Revenue NSW generally has the power to go back up to five years to assess or reassess your practice for payroll tax. As the new payroll tax ruling has retrospective effect from 1 July 2018, it is important that all practices review their agreements with utmost priority.
We can assist your practice in reviewing and amending any practitioner agreements and assessing your practice structure. If you have any questions or require advice about your existing arrangements or structure, please do not hesitate to contact our office on (02) 9687 3755.
Published October 2023