Medical and Other Professional Practices and Payroll Tax
Because of the decision in Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd as trustee for OS Management S Trust & Ors, [2019] VSCA 197 (“the Optical Superstores case”) the Offices of State Revenue throughout Australia are investigating medical practices with renewed vigour. The Offices of State Revenue are investigating payments to contractors such as doctors working as independent contractors and assessing payroll tax on the payments.
This payroll tax case was decided in the Victorian Court of Appeal on 12 September 2019 in favour of the Commissioner. The Court found that payments made to independent contractors, in this case optometrists, were subject to payroll tax.
Facts
Briefly, the facts were:
- Optical Superstores made arrangements with its optometrists to pay them or their companies or trusts;
- The optometrists used the consulting rooms at Optical Superstores premises and performed services for the public;
- The optometrists bulk billed Medicare fees which were collected by Optical Superstores;
- The fees were held on trust for the optometrists and then partly reimbursed to the optometrists after deducting occupancy fees for the use of the consulting rooms;
- The payments reimbursed to the optometrists were calculated by reference to the number of hours work performed by the optometrists.
SRO’s payroll tax assessment for independent contractors
The SRO assessed payroll tax on the payments to the optometrists.
First Appeal in favour of Optical Superstores
Optical Superstores successfully appealed against the assessments to the Victorian Civil and Administrative Tribunal.
Second Appeal in favour of Optical Superstores
The SRO appealed the Tribunal’s decision to the Supreme Court of Victoria but failed in its appeal.
Third & Final Appeal in favour of SRO
The SRO appealed again to the Victorian Court of Appeal, which on 12 September 2019 overturned the earlier decision and upheld the payroll tax assessments.
Leave to appeal to the High Court refused
The High Court refused to grant Optical Superstores special leave to appeal against the decision. As a result,Optical Superstores were stuck with paying the payroll tax assessments.
Court of Appeal decision
The Court of Appeal held that distributions to the optometrists were deemed wages under the contractor provisions. The Court rejected the notion that in these circumstances the distributions were not included within the meaning of ‘payments’ under the Payroll Tax Act.
Impact of decision
The Optical Superstores case marks a sobering warning to operators of medical practices.
The decision impacts on medical practices that have structured their arrangements in a way similar to Optical Superstores. The decision also impacts on arrangements where doctors are engaged as ‘independent contractors’ by a medical practice on the understanding that money received by the doctors under these types of arrangements would not attract payroll tax.
Payroll tax is a significant imposition on business. For payroll tax rates and thresholds see https://www.tobinpartners.com.au/how-payroll-tax-is-calculated-in-australia/
Medical practices’ legal structures
I am aware that many medical practices are structured by engaging doctors as “independent contractors” and not employees in the expectation that payroll tax won’t apply. Despite the doctors signing independent contractor agreements and entering into the agreements via their own companies or trusts, the Office of State Revenue is now able to attack these arrangements and claim payroll tax on the payments to the doctors unless one of the contractor exemptions can be applied.
Legal assistance for medical practices
We can assist to limit the imposition of payroll tax by structuring medical practices where payments to independent contractors will not attract payroll tax.We have many years of experience in minimising payroll tax for professional practices and businesses.
For further information contact Tobin Partners by email or call Peter Tobin directly on 0438 001 809.
Article by Peter Tobin, Tobin Partners Lawyers
Disclaimer
This article contains general information only. It should not be relied upon as legal advice. Formal legal advice should be sought on particular matters canvassed.
