Medical Professional Payroll Tax – Finally Some Clarity

Both NSW and Victoria Revenue Departments have now issued the long-awaited tax ruling to finally confirm their position. In Revenue Ruling PTA-041 (Ruling) Revenue NSW and VIC confirm that payroll tax may apply to payments made by medical practices to their practitioners and this may be the case where there is agreements between the practitioner and practice clinic is considered a ‘relevant contract’.

Under the Payroll Tax Act 2007 (Act) you will find that payroll tax is applied to wages once total wages exceed the payroll tax threshold, however, where there is a contract or service agreement this may be considered a ‘relevant contract’ which deems the parties to be employee and employer with the amount paid under the agreement subject to payroll tax.

Revenue NSW and VIC Authorities have concluded that a relevant contract will often exist between medical centres (and other allied health clinics) and each practitioner operating from the clinic.  The Ruling determines that if a medical centre engages a practitioner to practise from its premises, or holds out to the public that it provides patients with access to the medical services of a practitioner, it is likely that a relevant contract exists.

Revenue NSW and the State Revenue Office Victoria have issued the rulings together since their approaches to the payroll tax legislation is largely the same and they have done so with a view to Harmonising their approaches.  The Rulings are therefore substantively the same as the earlier rulings issued by the revenue authorities in Queensland (PTAQ000.6.1) and South Australia (PTA SA003).

The decisions in Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd [2019] VSCA 197 and Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259 are confirmations of how the law relating to Medical Centres should operate and the Ruling is just reinstating the operation of the law in relation to Medical Centres.

The ruling therefore reflects what Revenue Departments consider to be their position from before the ruling and the cases above they say is based on the rules and the operation of the payroll tax legislation and so the concepts it outlines then applies to agreements that Medical Practices currently have in place.

A reference made in the Ruling to Medical Centre Businesses also includes dental clinics, physiotherapy practices, radiology centres and similar healthcare providers that contract with medical, dental and other healthcare professionals who then provide services to patients of the Medical Centre.

The ruling is worded in such a way that if the agreement provides either expressly or by implication for the medical professional to supply services to the medical centre to therefore service patients either for the Medical Centre or on behalf of the medical centre then it is a ‘relevant contract.

Where there is a service agreement, and the patient fees are collected by the centre on the Medical Professionals behalf and held on trust for them and then there is a deduction for the centre’s service fees before it is then paid to the medical professional.  The definition of paid to the Medical Professional is interpreted in the ruling is a broad enough way to also include the payments made from the trust account to the Medical Professional After the service fee is deducted.

Where the agreement is considered to be a Tenancy Agreement then it may not be considered a relevant contract. This is where the Medical Professional is only renting the premises from the property owner and so they supply their own administrative and nursing staff but only if the Medical Professional is not providing a service to the Medical Centre and owner of the premises. However, it will depend on the wording of the agreement as to whether the terms of the tenancy agreement meet the requirements to avoid payroll tax.

Where to from here?

Our fears have been realised and the Revenue Departments have confirmed what they say their longstanding view in relation to the Payroll Tax and Medical Centre. The Ruling just serves to reinforce it view in relation to both Thomas and Naaz and Optical Superstore. Prior to the ruling there was some uncertainty Revenue Department would apply the payroll tax rules.

At this stage unlike in Queensland there has been no amnesty announced for NSW and VIC and if there was an intention to Harmonise the payroll tax rules then they would have announced the amnesty when the ruling was announced.  So it is uncertain if there will be an amnesty announced?

The Ruling does provide some examples where the Payroll Tax provisions may not apply so not all Medical Centres will be hit with payroll tax and it will be on a case-by-case basis.

Waterford Accountants 5 Step Plan:

1. Review the Medical Centre Payroll Tax obligations and confirm the Total Payroll Tax wages (Employee Wages, Super and FBT).
2. Review each Medical Professional Service Agreement to confirm whether it is a relevant contract. Review the Exemptions as noted in in the Ruling:-
   1. Section 32(2) of the Act to help determine if an exemption may apply to the Agreement. 
   2. Confirm is the Medical Professional is working for 90 days or less in a financial year and whether Section 32(2)(b)(iii) may be applicable.
   3. Where the services are performed by two or more persons then consider if Section 32(2)(c)(i) of the Act may apply.
3. Include the amounts paid to Medical Professionals under what is determined to be a relevant contact with the Payroll Tax Wages at point 1 and compare this to the Payroll Tax Threshold in the relevant state to determine if the you are above the Payroll Tax Threshold.
4. Consider making a voluntary disclosure with the revenue department I For medical practitioners based in Queensland and South Australia, serious consideration should be given to registering for the payroll tax amnesty in those States. Clinics based in Queensland need to have registered their interest before the 29 September 2023 deadline (as we outline in our earlier article), and those based in South Australia by 30 September 2023. There is no amnesty contained in the Ruling and, to date, none has been announced for New South Wales or Victoria. For medical professionals in Queensland and South Australia consider registering for the payroll tax amnesty in those States as medical centres based in Queensland need to have registered their interest before the 29 September 2023 and those based in South Australia by 30 September 2023. There is no amnesty contained in New South Wales or Victoria.
5. Review your current structure to confirm is appropriate based on the announcement and review your service agreement to ensure they are current and in line with the new payroll tax rules. Where you are able to restructure the serive aranegemtn and satisfy one or more of the exemptions consider making changes to ensure the exemption is achieved and document your circumstances.

To ensure you have implemented the Waterford Accountants – Payroll Tax 5 Step please ensure you contact your medical accountant specialist for further assistance.