The Medical Payroll Tax Saga

What is payroll tax?

 

In Australia, any employer who pays wages to its staff or contractors above a threshold amount is liable for payroll tax. The imposed thresholds and tax rates will vary across each state or territory, from $700,000 to $2M and 1.2% to 6.85%, respectively.

 

Historically, many medical and allied health practices have operated under a ‘service entity’ model where practitioners are “tenant-practitioners” as opposed to employees or contractors to the practice. The practice collected patient payments on the practitioners’ behalf and then distributed them to the practitioner, less a service fee that covered the service entities costs. It was a widely held belief that operating under this model did not render the service entity liable to payroll tax on the payments made to the practitioners.

 

Recent SRO (State Revenue Office) tribunal outcomes has created some ambiguity to how these rules are interpreted for medical practices, leaving many healthcare providers uncertain about their future potential payroll tax obligations.

 

 

Why are they bringing in these updates?

 

While payroll tax has been a long-running issue within the medical industry, two main catalysts have now brought it to the forefront.

 

The first was back in 2018 – a verdict given in the Victorian Civil & Administrative Tribunal (VCAT). In the case of The Optical Superstore & Ors v Commissioner of State, it was found that payroll tax can be applicable to certain payments within a medical practice. Although occupancy fees and remittances were not classed as wages or payment for services, incentives applied under the tenancy agreement were deemed as a wage and hence incurred payroll tax.

 

Then in 2021, Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue set a new precedent for medical centres being held responsible for payroll tax for some, or all, of their tenant doctors. Due to how Medicare Bulk Billing payments were handled, the contract agreements satisfied the “performance of work” requirement under the Payroll Tax Act (The Act) and hence deemed to be wages. This led to the three locations operated by Dr Thomas and Ms Naaz incurring nearly $800,000 in accrued tax liabilities and penalties.

 

The SROs for New South Wales, Victoria, Queensland and South Australia have since released Rulings for guidance on medical payroll tax and how it will be applied to specific medical centre businesses in each respective state. Western Australia has announced it has no intention to pursue medical practices for payroll tax liabilities. We have included links to each SROs Ruling at the bottom of this article.

 

Some states are offering amnesty on previous tax periods. With pundits calling it out as an attempt to get unknowing practices to self-nominate for payroll tax, even if they are not required to pay it. While there is still some ambiguity over where many practices fall on the payroll tax spectrum, we are seeing more transparency as time progresses. If you are at all concerned about these rulings, please consult your taxation lawyer for better clarification of the law and where you sit.

 

What does this all mean for practices?

 

The implications for practices and practitioners are wide spanning. While there is still not enough available information to assess how payroll tax obligations will be evaluated, we do know that regardless of your practice structure there will be greater compliance and regulatory costs. Including maintaining up-to-date and transparent clinic data and building systems and processes that are representative of the practice’s business structure.

 

Practice managers are already stretched without the added load of having to ensure every account or transaction meets the most current compliance and regulatory requirements of the ATO and SROs. Plus, operating margins of many practices have now been compressed to the point of almost being untenable. Reversing existing legacy systems and processes to implement newer ones that stand up to the stricter compliance standards now being imposed can be a monumental and costly task. One that is well beyond the scope of many practice managers and principals.

 

An AMA NSW member was recently quoted - “I don’t think I am alone in my considerations that if it is not financially viable to run our practice in a manner that permits optimal patient care and outcomes, then I would elect to close our practice entirely. Rather than restructuring our systems into a fragmented model with substandard care that then ticks Revenue NSW’s boxes.”

 

This is the daunting reality for many Australian medical businesses, who are already dealing with revenue margin compression, and competition for patients and doctors.

 

 

What can general practices do to cushion the blow?

 

With a wide breadth of how each SRO can apply these new payroll tax Rulings to GP and other medical and health clinics, getting legal advice specific to your practice and state is in many cases the most appropriate first step.

 

However, regardless of the structure you choose to move forward with, implementing accounting and financial management processes that are reflective of your practice structure and contracts will be essential. Helping you minimise the cost of compliance, alleviate pressure on admin staff, offer a best-in-class patient experience, and deliver real-time data and insights into your business.

 

While it may feel like an impending dooms day for many general practices, it does not need to be an all-out financial disaster. There may be a challenging adjustment period, however by partnering with a medical accounting expert, most practices can adapt to ensure they optimise processes, reduce their cost of compliance, and minimise practice resource wastage. Saving time and money in the long-run.

 

 

How can we help?

 

At Aretex, we specialise in bookkeeping, accounting solutions and financial management for medical practices of all shapes and sizes. Providing a hybrid outsourced accounting model that offers the knowledge, experience and service of a locally based partner, with the cost savings of an offshore delivery team. We seek to understand your business down to the finest details and help build and implement a solution that accommodates all your requirements.

 

Reach out today to learn more about how we can guide your practice, or group, through these uncertain times and help deliver consistent accounting, data and processes across your entire practice or group.

Information, articles, topics and ideas on this website are published for general information purposes only and are not specific to any person or circumstance. Any advice is general in nature and does not take into account any person’s particular financial situation, investment objectives and needs. Consider seeking advice from a qualified adviser before making any financial decision based on the information you find in this article. Before acting on any information found in this article, consider the appropriateness of advice with regard to your own financial situation, objectives and needs. Information in this article is not a substitute for financial consultation or advice.

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