Doctors and medical practice principals across Australia are understandably nervous about the implications of broader payroll tax interpretations within the medical and health sector. The Thomas and Naaz case was delivered its final blow, helping set the precedent with their last appeal dismissed by the NSW Court of Appeal back in March 2023. Further bolstered by August’s announcement from NSW and VIC State Revenue Offices, with each releasing a Ruling for medical payroll tax. One that will not lean favourably for practices and their stakeholders.

While smaller practices and clinics may find themselves just skating under the relevant state threshold, most practices will still want to ensure accounting and financial management systems are as efficient as possible and operating in line with their current contracts and business structure.

There are several reasons for this. Firstly, if your business is running a true tenant-doctor agreement with its practitioners, then improper accounting methods could potentially expose you to unnecessary payroll tax liabilities. Secondly, with stricter guidelines around how payroll tax will be incurred and calculated, there are going to be greater compliance requirements and costs borne by all medical and health practices. Lastly, having a more effective financial management strategy and process will alleviate workload and stress from front-of-house staff. Allowing them to better serve patients and other stakeholders of the practice.

With this in mind, we will examine three unique financial structures available to medical and health practices – the traditional method, individual doctor accounts, and FBO (For Benefit Of) accounts. Each brings a vastly different set of costs and benefits, so it is integral to seek expert personal advice to understand which best meets the needs of your business.
 

Traditional Method

Most medical and health businesses are currently operating under this structure, just as Thomas and Naaz were, and it’s often the simplest and most transparent way to manage payments. The basic premise is that all payments within the practice are taken and immediately deposited into a practice clearing account. Depending on the individual contracts, 30-35% of this amount is then retained by the practice with the remaining 65-70% distributed to practitioners into their respective personal bank accounts.

Based on statements release by several State Revenue Offices, we understand that 100% of fees received into the practice clearing account will be deemed practice revenue and any doctor distributions from here (beyond the threshold amount) will incur payroll tax.

The reason this method is so popular among practices is its simplicity. The practice retains control of all money debited from patients, there is no need to access individual doctor accounts and managing the flow of funds is relatively straightforward.
 

Individual Doctor Accounts

The most laborious of the three, this involves taking payment from patients directly into each individual doctor’s account. Often requiring individual payment terminals for each doctor. 100% of the appointment fee is deposited into the doctor accounts, with 65-70% being withheld and 30-35% sent to the practice, usually via a direct debit.

For many practices, this method may help them to align with current tenant-doctor agreements already in place. However, there is a lack of visibility by the practice into total payments received and a reliance on direct debit authorities from doctors to receive payment. Also, some practitioners may not be comfortable setting up a variable amount direct debit facility on their personal account. And there is an added risk of taking payment via the wrong terminal, creating banking reconciliation nightmares for staff and incorrect payment for doctors.
 

FBO Accounts

An FBO (For Benefit Of) account is a great way for a business to manage funds and transactions on behalf of other stakeholders, without ever needing to legally own the account. This acts as a holding account for both the practice and its respective doctors. The reconciliation occurs within the FBO account before any distributions are paid to the practice or doctors.

The key benefits to implementing this method are the greater visibility of funds between the patients, practice and doctors, reduced day-to-day operational headaches within the practice, and greater compliance with tenant-doctor contracts. While there is plenty of upside to this approach, practices will need expert advice on the appropriateness for their business and effectively implementing and managing all the required technology and processes.

Whether or not your practice finds itself eligible for payroll tax in the coming months or years, there will be a far greater emphasis on compliance reporting and process transparency for all medical and health industry participants. So, while the payroll tax saga may be sounding the alarm now, it is a good reminder for practices to ensure that within their business they have robust financial management and accounting structures that offer them greater operating efficiency and regulatory compliance.

If medical payroll tax has you worried, or you simply need to improve your processes to meet evolving requirements, let us partner with you to get the best outcome possible.

Book a call with Anita, our resident medical accounting expert. Or you can contact us here.

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