Recent developments in payroll tax and medical practices
Are you a general medical or allied health practice? If so, you are probably worried about the recent developments in payroll tax cases.
What was the case that started it all?
In Victorian case The Optical Superstore Pty Ltd & Ors v Commissioner of State  VCAT 169, the Applicant (Optical Superstore) was the owner and operator of an optical clinic. The Victorian State Revenue Office raised amended assessments for payroll tax in respect of payments made by the Applicant to optometrists who provided services to the general public at the Applicant’s facilities.
The key aspects of the case were as follows:
• The Applicant owned and managed an optical store,
• collected income from optical sales and the provision of eye tests to customers, and
• paid a portion of the income from its customers to the optometrists.
Still, the SRO contended that the payments to the optometrists constituted payment for work performed by the optometrists under the ‘contractor provisions’ of the payroll tax law, as the arrangements involved ‘relevant contracts’ in relation to the performance of work by the optometrists to the owner of the clinic.
Consequently, the payments to the optometrists were deemed to be wages and subject to payroll tax.
Does this sound familiar?
Many general medical providers operate in exactly same way. The GP’s have their own patients, there is no employment agreement as such as GP’s operate through their own ABN’s, and the medical practice agrees to collect all the payments on GP’s behalf for a percentage of the fee (service fee).
The concern that the above case will have vast implications on many medical and healthcare providers is real. However, at this stage there is no further information available from the State Revenue Office.
While payroll tax is a state-based tax, with different thresholds and rates of tax for each state, the states are trying to gradually create a consistent system when it comes to payroll tax rules.
As a result, the case from Victoria may have impact on other states as well. We have already seen increased interest in all state revenue offices in medical and allied health practices, in how their service arrangements are structured and what they consider to be assessable for payroll tax.
In NSW, a 2016 case involved a radiology practice, Winday International Pty Ltd vs Chief Commissioner of State Revenue. In this case radiologists paying a facility fee to the practice were deemed to be employees for payroll tax.
What does this mean for you?
While we are not able to give you a definite answer (purely because the SRO doesn’t have one yet either), here are some tips on how to stay compliant and avoid unnecessary attention:
- Make sure you document your relationship with the practitioner. The legal document should clearly show the “independent associate” agreement, proving that the practitioner is running their own practice, has autonomy over the working hours, owns the patient records which will all solidify that they are not employees for payroll tax purposes.
- Review your internal documents and policies. None of these should refer to “staff” or “employees” but rather “practitioners”. These are simple things but quite often the Commissioner gets hung up on the smallest legalities.
- Do not declare income received on behalf of your practitioners. As a practice, you are merely collecting any billings on behalf of the practitioners and holding them on trust until paid out to them. The process is most transparent if you have a separate bank account open for each practitioner, where all the fees are banked into, any expenses and fees that apply to the relevant practitioner are taken out of this account and the rest is paid out on a regular basis.
- The practice invoices the practitioner for the service fees, as a percentage of the billings. These can then be taken out of the relevant bank accounts but 100% of the billings is deposited into the bank accounts first.
- Whilst it is common for the practitioner to be offered guaranteed income for the first few weeks of work, and this helps with the recruitment process in many cases, it should be avoided if you want to stay out of the payroll tax trap. Not only is the guaranteed income portion most certainly seen as wages for payroll tax purposes, but also may make it hard to prove that the practitioner is in fact independent from practice, rather than deemed employee.
If you have more questions in relation to the above or any other taxes, need help with getting your practice organised, and your accounting processes reviewed for efficiencies, do not hesitate to contact us on 07 3160 7386 or firstname.lastname@example.org.