New QLD medical industry payroll tax ruling

On 19 September 2023, the Queensland Revenue Office issued PTAQ000.6.2, a Ruling in relation to the application of payroll tax to the medical industry in Queensland. This Ruling replaces the previously issued PTAQ000.6.1 which was released on
22 December 2022.

The new Ruling is substantially similar to the original with some additional commentary and additional examples on scenarios which would not be subject to payroll tax as well as scenarios which would be subject to payroll tax.‍

Key takeaways and considerations

From the new Ruling, the view of the QRO is:

• Where Medicare benefits are assigned directly from the patient and/or patient revenue is paid directly to the practitioner as a sole trader (i.e. no clearing account), this won’t be deemed wages for payroll tax purposes;
• Where out-of-pocket fees are paid directly from the patient to the practitioner as a sole trader in addition to the Medicare benefit, this won’t be deemed wages for payroll tax purposes; and
• Where a practitioner is engaged under a relevant contract (i.e. to treat patients for or on behalf of the practice) and the practitioner has their own trading entity (i.e. company) payroll tax will be applied if the patient revenue is paid to the practitioner’s entity. If the practitioner’s entity receives 100% from the patient, then pays the 70% to the practitioner and the balance to the practice, this will be deemed wages and the practice will be liable for payroll tax on the 70% paid to the practitioner by the third-party payer (i.e. the practitioner’s own trading entity) on behalf of the practice.

The QRO has still not provided a worked example of a practice being engaged to provide services to the practitioner, including where the practitioner has their own trading entity (relevant to the third-party payer scenario noted above), or where the practice is using a clearing account as part of its service offering.

What does the updated ruling mean for practices?

The Ruling has been expanded from 16 pages to 29 pages and now includes extensive commentary on determining whether a medical centre business is being conducted (Attachment 1) and factors which may influence “operational and administrative control.” (Attachment 2). The information in Attachment 2 should be of particular interest to medical practice operators outside of Queensland as well as it directly impacts whether a relevant contract may be deemed to be in place.

As a recap, following highly publicised Court Cases in NSW and Victoria, the State Revenue Offices in Queensland, New South Wales and Victoria, issued Rulings on their position on the extension of payroll tax to payments made to doctors and other medical practitioners practicing from medical centres. Since the issue of these Rulings there has been a high level of angst within the industry around how to deal with this significant financial threat to the ongoing financial viability of medical practices.

The application of payroll tax to medical centres has focused on the “relevant contract” provisions which exist in all Payroll Tax legislation (excluding Western Australia). In Paragraph 11 of the new Ruling, “A contract between an entity that conducts a medical centre and a practitioner is a relevant contract under s.13B if all the following apply:

(a)   the practitioner carries on a business or practice of providing medical-related services to patients

(b) in the course of conducting its business, the medical centre:

        (i) provides members of the public with access to medical-related services  

        (ii) engages a practitioner to supply services to the medical centre by serving patients on its behalf

(c) an exemption under s.13B(2) does not apply.

Further to (b) above, factors to consider in determining whether a medical centre business is being conducted for the purpose of this ruling are provided in Attachment 1".

The inclusion of commentary on when a medical centre business is being carried on may be helpful when considering the application of payroll tax to each practice’s arrangements.  

In addition, at Paragraph 17 in the new Ruling, additional commentary is provided with reference to Attachment 2 which deals with factors to consider if there is administrative control over the doctors. This provides guidance in determining if a relevant contract is in place for payroll tax purposes.  

New commentary

A new inclusion is Example 3.4. This example may hold more relevance for specialist medical practice operators. The example deals with the application of an exemption for payroll tax for where a doctor is “providing their services to the public generally”. The example given is a doctor providing services to a medical centre and then also working as a common law employee for QLD Health. The original ruling had created some confusion regarding whether or not this scenario would allow an exemption for payroll tax to apply. The example makes it clear that the Revenue Office believes it would be unlikely that an exemption can apply.

Substantial additional commentary and examples are provided from Paragraph 47 onwards. These examples deal with the calculation of payroll tax under relevant contracts. The examples provided presuppose that a relevant contract is in place. The examples then consider if payments made under the relevant contract would be considered “deemed wages” and then therefore subject to payroll tax.  

The examples provided make it clear that the Revenue Office considers that where a medical practice collects patient fees on behalf of a doctor, whether these fees are assigned via Medicare or paid directly to the practice, and then fees are distributed to the practitioner, that these arrangements will see the payment made to the doctor be treated as deemed wages and therefore subject to payroll tax.  

However, in Paragraphs 56 to 61 of the Ruling, the examples and commentary provided, confirm the position that where payments are made directly to the practitioner, whether directly by the patient or by the patient assigning their Medicare benefit to the practitioner, these payments will NOT be considered deemed wages for payroll tax. Therefore, although there may be a relevant contract in place, these payments will fall outside the scope of payroll tax and will not be included in any payroll tax calculations.  

The Ruling provides references to the Payroll Tax legislation and the Health Insurance Act 1973, to support this position.  

Paragraph 61 of the Ruling confirms also that out-of-pocket expenses paid directly to the practitioner are not considered deemed wages as they are not paid to the practitioner for services as a deemed employee of the medical centre, rather they are for services provided directly to the patient.

A potential trap

Additional scenarios are also provided within the Ruling at Examples 15 and 16. These examples are particularly relevant for doctors trading under a personal services entity.  

These examples indicate that in a scenario where patient fees are collected by a “third party” on behalf of the practitioner, that the subsequent payment to the medical practitioner would still be deemed wages for payroll tax purposes.  

In the example provided, a company (or a trust account) was used for the collection of patient fees with an administration fee then being paid to the medical company and the balance percentage paid to the doctor. Under these arrangements, the Revenue Office considered that the payment to the doctor would still be deemed wages for payroll tax purposes.  

This interpretation extends to practitioner-controlled entities (example 16 of the Ruling). Where a doctor is trading under their own medical company and that medical company collects patient fees directly and then pays an administration fee to the practice and distributes the balance to the practitioner, the payment to the practitioner can still be deemed wages.  

A solution to this issue would be for doctors to trade as sole traders (individuals with their own ABNs). In most cases this option will not impact taxation or asset protection for the doctor. The practice would still need to ensure that its services agreement is clear that the practitioner is engaging the practice to provide services in order to facilitate the practitioner providing care to their patients.

An option with the door closed (maybe)

When considering options for payroll tax mitigation, one scenario which had been considered was the use of unit trusts to engage practitioners. In this scenario, instead of receiving a payment for services the practitioners would receive a distribution from the unit trust.  

The new Ruling looks upon this scenario negatively. However, the example provided was with only one practitioner. As such, further consideration is likely to be needed before practices pursue this option.

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