Five points to know about payroll tax - Is your practice liable?

Medical practices across Australia may be liable for payroll tax for contracted doctors following a ruling by the NSW Court of Appeal.

The ruling overturns a widely held belief that money transferred to contracted doctors as part of a fee split are exempt from payroll tax. This is relevant even if the practice does not formally pay wages to the doctor, but instead deducts a service fee for each consultation and transfers the balance to the doctor.

Australian Payroll Tax

In a case involving a group of practices owned by Dr Jawahar Thomas, Revenue NSW argued that the 70% of billings that the contracted GPs retained should count as their wages under the NSW Payroll Tax Act 2007. The practice therefore owed five years of payroll tax at a rate of 5.45%, plus interest and a penalty for late payment, amounting to $795,300.

The supreme court judges agreed: “It seems perfectly plain that the medical practitioners provided services to the [practices].”

They said the medical business relied on the GPs treating patients and would not exist otherwise. 

“So far, as the evidence disclosed, there was no source of income for the wages of nursing and reception and administrative staff other than the 30% of the receipts from Medicare and other government agencies generated by the medical practitioners,” the judges said.

Other elements that supported the fact that the doctors were providing services to the business included:

  • Promises by the doctors to attend at the premises in accordance with a roster (ordinarily, five days each week) A commitment not to solicit patients away from the medical centres A non-compete covenant after the contract came to an end.

Here are five points that medical practice owners should know about payroll tax:

  1. Thresholds differ by state and territory, ranging from $700,000 a year in Victoria to $2 million in ACT. Unless a practice can prove that doctors that use its services or premises are independent contractors, the portion of patient billings they retain may count towards payroll tax calculations. Payrolls across different states and territories may be combined to contribute to the threshold in each state. Businesses controlled by the same people or that share employees are grouped for the purposes of payroll tax. An exemption may apply for doctors who have seen patients for fewer than 90 days at a practice in a financial year.

Click here for more information: How Payroll Tax Works

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