Recent court and state tax rulings over payroll tax and the relationship between medical practices and practitioners have prompted eye clinics to consider the implications for their own businesses.
The NSW tribunal decision from Thomas v Naaz, September 2021, and the subsequently rejected appeal in March 2023, has put medical practice operators on notice.
At the crux of this case: the medical practice in question entered into contracts with doctors and provided rooms and shared services. The practice billed patients on behalf of the doctors, and then paid the doctors, keeping a portion as a management fee. It was ruled these payments to doctors were indeed wages and subject to payroll tax, rather than an invoiced management fee.
Now, other practitioners are pondering whether they should be classified as medical practice employees working under ‘relevant contracts’, with respect to state payroll tax legislation. It’s not the first time such a ruling has caused uncertainty, with the Victorian legal system making similar rulings against optometry network The Optical Superstore in 2019/20.
The payroll tax harmonisation agreement means that medical practices in all states (except Western Australia) may be liable for additional payroll tax expenses. The WA Government has stated it does not intend to change its laws based on tribunal decisions in other states.
In South Australia and Queensland, amnesties have been issued for GPs. Recently, the NSW Government announced a 12 month “pause” on payroll tax audits, penalties and interest for GPs and their practices, but Victoria hasn’t made any such announcement.
Following the recent Thomas v Naaz appeal dismissal in March, state revenue office rulings have recently been released online. These aim to provide clarity on the application of contractor provisions regarding payroll tax liability for medical centre businesses that contract medical and health practitioners. It’s important to note there is no change to the provisions; the law has not changed, but is additional information about their interpretation.
So, what does this mean for medical practices?
Ultimately, steps should be in place to ensure that the service contracts between practitioners and the practice entity do not qualify as ‘relevant contracts’ under the guidelines.
Further, practices should ensure doctors are collecting their own fees directly, rather than through any facility of the practice. This is because funds being collected and paid through the practice may be construed as evidence of wages as part of an employment relationship.
Practices should ensure the agreements accurately reflect the legal relationship between the practitioner and practice. They should also ensure the communications and actions of the facility do not represent the practitioners as if they are employees, or that their relationship with the facility has features of an employer-employee relationship. This includes things like specifying when leave can be taken, controlling rosters etc.
If the State Revenue Office is convinced there are no ‘relevant contracts’ in place at the practice, then there is a lower risk it could be the target of an audit. But if the State Revenue Office is not convinced the practitioners have engaged the practice as service providers – and instead can be seen as employees – the practice should look to the exemptions for ‘relevant contracts’ stated in the rulings.
This may also mean if the agreement is a sub-lease arrangement that the details and leases are accurate and appropriate. The exemptions are:
1. Issuing services to the public – a practitioner facility requires a decision from the State Commissioner regarding this exemption that is required every financial year.
2. 90-day rule – this is a matter of law and does not require private ruling or a determination from the chief commissioner. This will purely exempt practitioners who have performed services at the facility less than 90 days within a financial year. Important to note that a day may be an hour or a full day.
3. Patients having care delivered by more than one person – in an ophthalmology clinic this can be relevant to orthoptists/technicians that screen or perform diagnostic testing. Notably, these people must be employed directly by that practitioner and not the facility.
It’s important all practices consider their governance structures, financial structures and give consideration to the rulings. Plus, practices might want to thinking about other services, other than doctors, that may fall under this ruling.
It’s vital all practitioners also consider this issue. Should an audit be conducted and financial liabilities repaid, it does not necessarily relate only to the practice/facility, but may extend to the practitioner. Remember, the rulings have dated the conditions from 2018 and audits can be retrospective for a period of five years. It is recommended business owners and managers get their own advice from advisors that understand the relevant legislation, and recent legal cases.
About the Author: Donna Glenn has been the business manager at Gordon Eye Surgery in Sydney for over 16 years. She is also an advisory member of the RANZCO Practice Managers Committee, chairs the RANZCO Professional Standards committee and is a NSW representative for the AAPM committee.
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