Medical Professionals & Payroll Tax – Where to from here?

Medical payroll tax illustration

Medical Professionals & Payroll Tax – Where to from here?

We have previously blogged about our concerns regarding the New South Wales Civil and Administrative Tribunal (NCAT) payroll tax case of Thomas and Naaz Pty Limited v Chief Commissioner of State Revenue which was released on 3 September 2021.

There has been much commentary around this payroll tax case since the ruling was released and Revenue NSW is yet to release a practise note which one would hope may provide some guidance for Medical Professionals on how to address these Payroll Tax concerns. It is uncertain when this practise note will be released and so Medical Professionals are at a loss as to what to do in the meantime and what steps they should take now in light of these NCAT rulings.

To provide some path to safe harbour we have determined the top 5 steps toward reducing the exposure to Payroll Tax for Medical Professionals. These steps toward safe harbour do not guarantee safe passage but they can help to identify those areas of greatest exposure and where they are addressed could potentially minimise the likelihood Doctors under a service agreement are treated as under a ‘relevant contract’ as defined Section in s31 (1)b) of the PT Act.

Until we receive further guidance from Revenue NSW we can only attempt to establish a path to safe harbour as far as this is available. We, therefore, recommend you consider the Top 5 steps we have noted below.

Service Agreements

Review existing service agreements to address those areas the NCAT ruling has highlighted as being relevant.

The arrears of concern for existing service agreements that should be addressed include:

  • Restraints of trade where a Doctor was to leave the Medical practise;
  • Ownership of the patient files by the medical practise ;
  • Stipulations around minimum hours of work or set hours of work per day for the Doctors;
  • Payment of minimum retainer amounts paid to Doctors where patient billings are low;
  • Referring to the Doctor as contractors/subcontractors in the service agreements;
  • Set annual leave requirements for the medical professionals;
  • Various other clauses that highlight a Relevant Contractor relationship between the medical practise and the Doctor.

Patient Billings and Flow of Funds

You should review your current patient billings arrangements and ensure patient billings are received directly by the Doctor and not into the Practise Trading account.

Alternatively, you may also consider having all patient billings paid into a dedicated Trust bank account instead of the Practise Trading account. Service Fees ought to then be paid from this Trust bank account to the Practise Trading Account. With disbursements to the Doctors only paid from this Trust account and never from the Medical Practise trading account.

Financial Reporting

Review your current patient billings and how this is reported both in your practise accounting software and Financial Statements and Tax Returns.

In both cases check to ensure the Patient Billings are not reported in the Profit and Loss reports as Income of the Practice. Only the Service Fees should be reported as Practise Income in the Financial Statements and Tax Return of the Medical Practise and only the Service Fees should be reported in the profit and loss account of the Medical Practise accounting software.

For management reporting purposes the patient billings should be recorded in the balance sheet Clearing Account and Trust Bank Account where patients are billings flow to a dedicated trust bank account.

You should ensure your current accountant/bookkeeper is aware of the above concerns and takes steps where necessary to adopt change to the reporting and sets accounting rules to ensure this is how it is reported in the future.

Finally, you should also review your existing Service Fee invoices to ensure they correctly reflect the above accounting methods and make changes where necessary. You may also consider moving to recipient created tax invoices arrangement where applicable.

Practise Advertising and Promotion

Review your Medical Practise Marketing to ensure you only promote the medical services as being provided by each of the individual Doctors and not as being provide by the Medical Practise. This is to ensure the Medical Practise is not seen as the provider of Medical Services but the Doctors so as to establish the Doctors as not working under a relevant contract or as an employee. Instead the only services provided by the Medical Practise are the administrative services with all Medical Service provided by the Doctors and this message need to be clear.

This may vary for some Medical Practises where there are also employee Doctors and Medical Registrars working in the practise and so you should carefully address the treatment of those Doctors under these arrangement and how services provided by these Doctors are marketed.

You should start by reviewing your Website to ensure the promotion of Medical Services by the individual doctors with applicable disclaimers providing detailed clarification of the services of the Medical Practise as being limited to Administration Services. Existing website disclaimers therefore should be reviewed by solicitors and where there are currently no website disclaimers then consider including them on your Website to clarify the position of the Medical Practise in relation to the services provided by the Medical Practise and the Doctors.

Restructuring your arrangements

Where after reviewing and changing your current arrangements in relation to (1) – (4) i.e. your services agreements, flow of funds and financial reporting would result is more negatives than positives then you may consider restructuring your current arrangements completely.

Some of those changes suggested above may result in a loss of management control and or an economic loss in value of your Medical Practise business. So it is important to weigh up the whole impact of making any changes to your current arrangements just to avoid the payroll tax obligations.

Where you come to the conclusion that the cost of making changes are just too high and you have too much at stake then consider Restructuring your arrangements as follows:

  • Review Doctors on a service agreement and consider changing them to employees or contractors under new offers of employment.
  • Review Doctors service fee agreements and negotiate new terms to allow for the increased cost of payroll tax that would be payable by the Medical Practise.
  • Calculated your Payroll Tax obligations and review your Patient Billing Model to ensure your Medical Practise will not be out of pocket.
  • Consider increasing your Patient Fees and moving to increased Private Patient Billings.


It is uncertain just when the NSW government will release a Practise Note in relation to the NCAT payroll tax case of Thomas and Naaz Pty Limited v Chief Commissioner of State Revenue.

Rather than idly wait until some guidance is provided work must begin to charter a path to safe harbour for those Medical Practices with Payroll Tax exposure. We have developed the Top 5 Steps for Medical Practises to consider here with careful consideration from their accountants and financial advisers.

Implementing the changes suggested in Steps (1) to (5) will not improve your position retrospectively however may better your position going forward.

Although there is no guarantee either way it is better than taking no action at all.

Keeping you informed

We will continue to write blogs in this area of concern and liaise with legal specialists in the areas of commercial law and payroll tax. As new information becomes available we will also be presenting Webinars to keep you informed.

Working with you

Where you would like assistance with the above 5 Steps to Safe Harbour please do not hesitate to contact one our Medical Specialists.