There has been a recent shift in focus by the State Revenue Offices throughout Australia targeting medical practices which engage doctors as contractors. A shift which may have implications for medical practices in regard to payroll tax obligations.
It is not uncommon for medical practices to reach an agreement with a doctor to share the doctor’s billings. The agreement usually provides for the medical practice to provide the premises, infrastructure and support staff for the doctor and in exchange takes a percentage of the doctor’s billings.
There have been some recent cases in this area which make it clear that payments made to the doctors under this arrangement can be subject to payroll tax. The State Revenue Office can audit the medical practice and claim payroll tax for up to 5 years in arrears, plus charge penalties and interest.
The most recent case is Thomas and Naaz v Chief Commissioner of State Revenue decided in the Civil and Administrative Tribunal (NSW).
- An appeal by the taxpayer to the Appeal Panel in NSW was unsuccessful.
- The taxpayer ran four medical centres in NSW and engaged doctors under service agreements.
- The payments made under the agreements were held to be subject to payroll tax.
The Tribunal closely examined the agreements between the medical practice and the doctors. The Tribunal held that the contractor provisions under the Payroll Tax legislation applied to the arrangement and that none of the exemptions allowed for contractors applied.
Needless to say, the decision had a devastating effect on the medical practice and resulted in a liability to the NSW State Revenue Office of nearly $800,000.
It is of paramount importance that any arrangement between a medical practice and the contracted doctors is documented in such a way that puts the payments outside the contractor provisions of the Payroll Tax Act.
It is also important that the working arrangements between the medical practice and the doctors are in accordance with the agreement.
We at Tobin Partners can provide advice to medical practices as to the best way of documenting the arrangement between the medical practice and the doctors and ensure that the arrangement follows the agreement.
At a time when the medical sector is under extreme cost pressures, this is an issue that should be addressed to avoid potential and significant tax liabilities being imposed.
If you would like to discuss the situation in regard to your medical practice, please contact me either via email or phone.
Peter Tobin, Tobin Partners Lawyers peter@tobin.net.au or call 0438 001 809