Payroll tax for medical practices - Queensland Public Ruling

Key takeaways and considerations

‍1.  Medical practices in Queensland will need to consider the impact of the Queensland Revenue Office’s (QRO) current interpretation of the payroll tax framework as set out in the Ruling. Medical practices in other states and territories are not directly impacted by the Ruling, but should continue to monitor developments, including whether other state and territory revenue offices adopt a similar approach to the QRO.

2.  The Queensland Premier has indicated that revenue audit activity for medical practices in Queensland will be suspended until July 2025, and Business Queensland has stated that there will be a “payroll tax amnesty” (suspension) for GPs only and only on application (until July 2025), however, the QRO is yet to confirm this.

3.  All Australian medical practices (particularly those in Queensland at this time) should seek legal and accounting advice about their operating model and agreements with medical practitioners.

Background

On 22 December 2022, the Commissioner of State Revenue in Queensland provided a Public Ruling addressing payroll tax for medical practices in Queensland (Ruling).

Importantly, the Ruling applies to all healthcare professionals, including specialists, dentists and other allied health practitioners in Queensland and has potential implications for other states/ territories given the similarities in their regulatory frameworks.‍

What was the position of practices before the Ruling?

Payroll tax is a state tax payable on “taxable wages” which includes payments made to employees as well as payments made to some contractors where they are engaged for their labour under a “relevant contract”.
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Prior to this Ruling and other recent cases, medical practitioners working in most medical centres were thought not to be subject to payroll tax as the medical centre and medical practitioners worked in two separate but inter-dependent businesses.

On 22 December 2022, the Commissioner of State Revenue in Queensland provided a Public Ruling addressing payroll tax for medical practices in Queensland (Ruling).

Importantly, the Ruling applies to all healthcare professionals, including specialists, dentists and other allied health practitioners in Queensland and has potential implications for other states/ territories given the similarities in their regulatory frameworks.‍

• The medical centre provided administrative services to the practitioner who provided medical services to patients.
• Patient fees were typically collected on behalf of the practitioner as part of this service.
• A service fee was deducted from these fees with the balance remitted to the practitioner.
• Under a properly functioning and documented service agreement, payroll tax was taken not to apply as the practitioner was not providing services to the medical centre and therefore a “relevant contract” did not exist.

More recently, the revenue authorities in Queensland and in other states and territories have issued notices to medical practices requiring the payment of payroll tax in respect of payments to medical practitioners (generally, the doctor’s percentage of billings). There has been no change in the law. The revenue authorities have simply taken a different approach in applying the payroll tax law.

The Ruling comes after more than a year of concern for the medical profession after the New South Wales decision of Thomas and Naaz in September 2021 (which was subsequently upheld on appeal in July 2022) and several other similar cases. The appeal decision upheld the order for Thomas and Naaz to pay nearly $800,000 in payroll tax, as payments made under service agreements were considered taxable wages under NSW’s payroll tax legislation. A further appeal to the NSW Supreme Court is pending.

Key comments in the Ruling

The Ruling attempts to provide clarity with several worked examples of where a relevant contract will and won’t exist for payroll tax purposes.

What the Ruling seeks to clarify

What the Ruling seeks to clarify is that:‍

• A “relevant contract” will exist for payroll tax purposes where practices represent to the public that they provide patients with access to medical services of a practitioner
  – see paragraph 13 of the Ruling.
• If a relevant contract exists, all amounts paid to the practitioner will be wages for payroll tax purposes regardless of whether those funds are paid from a trust account or otherwise paid from money received by the practice on behalf of the practitioners
  – see paragraphs 45-49 of the Ruling.
• Practices should review their websites to ensure that the way they are advertising themselves to the public is accurate. The QRO has indicated that a medical centre advertising the services offered by the practitioners may be an indicator of a relevant contract. Many practices currently advertise the services of the practitioners so that the public know who consults from the practice and what services the public can access. One possible method to reduce the risk may be for each practitioner to have their own independent website for marketing and advertising purposes.
  
  A relevant contract will exist where:

o  the practitioner is engaged to service patients for or on behalf of the practice;

o  the practice provides patients with access to medical services provided by the practitioners; and

o  the practice provides services and facilities to the practitioners by attracting patients, advertising the services offered by the practitioners and managing services provided to the patients (including billing and maintaining patient records)

– see paragraphs 4, 15 and 16 of the Ruling.

‍What the Ruling doesn’t clarify

Unfortunately, the Ruling does not specifically consider an operating model where all the following occur:

• The practice is engaged by the practitioner under a services agreement;
• The practitioner is not subject to any rostering or control by the practice;
• The practitioner wholly receives their own medical revenue direct from the patient and third-party providers. The practitioner then pays the practice for services provided; and
• The practitioner “owns” all their own patients and patient records.

Therefore, there remains some ambiguity for practices that are being engaged by the practitioners to provide administrative services under a “proper” services agreement.

What does the Ruling potentially mean for medical practices and medical practitioners?

Outlined below are some key high-level potential consequences:

• The Ruling will likely result in the QRO seeking payment of payroll tax from practices in respect of medical practitioners working at the practice regardless of their terms of engagement (e.g. service agreements).
• If practices want to retain a level of operational control over the work performed by medical practitioners (such as days of work, room allocation etc.) and want to protect their relationship with patients (ownership of medical records, non-compete clauses), the QRO has indicated its position is that the doctor’s work is then being performed “for or on behalf of” the practice and accordingly the practice will be liable for payroll tax.
• The QRO’s interpretation may extend into other states/territories given the similarities in their regulatory frameworks.
• The increased cost of payroll tax may have significant ramifications for medical practices and the community.
• The ruling is not the law.  It is simply the QRO’s interpretation of the law.  There will still be ambiguity about payroll tax liability which will need to be resolved by the courts.
• A finding that payroll tax is payable does not automatically mean that income tax, leave and superannuation entitlements will be payable.  Liability for those amounts will need to be determined separately.

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