Queensland medical & health providers - Are you aware of the new payroll tax ruling which may affect you?
Payroll tax for medical centres and practitioners has been a popular topic of discussion in recent years, following court cases such as Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259 (“Thomas and Naaz”).
In Thomas and Naaz, the New South Wales Civil and Administrative Tribunal held that payments made to doctors by Thomas and Naaz under service facility agreements (“SFAs”) were “wages” for payroll tax purposes. This resulted in Thomas and Naaz owing Revenue New South Wales $795,292 in retrospective payroll taxes, as well as penalties and interest. Their recent attempt to appeal the decision was dismissed.
In response to cases like Thomas and Naaz, the Queensland Revenue Office published payroll tax ruling “PTAQ000.6.1 - Relevant contracts - medical centres” on 22 December 2022 (the “Ruling”).
This article focuses on the relevant contract provisions in the Payroll Tax Act 1971 (Qld) (the “Act”) and medical centres engaging practitioners under SFAs.
The Ruling
The Ruling sets out how the Queensland Commissioner of State Revenue (“QLD Commissioner”) will apply relevant contract provisions in the Act to an entity that conducts a medical centre business (“medical centre”), including dental clinics, physiotherapy practices, radiology centres and similar healthcare providers who engage medical, dental and other health practitioners or their entities (“practitioners”) to provide patients with access to the services of practitioners.
Prior to the Ruling, the QLD Commissioner had not confirmed how the provisions would be applied in Queensland. The Ruling therefore provides greater certainty for medical centres about how the Commissioner will approach payroll tax under SFAs.
How will the provisions be applied?
The relevant contract provisions are generally applicable to SFAs entered into between medical centres and practitioners, meaning that payroll tax is likely to be payable on payments from a medical centre to a practitioner under an SFA (as contractor payments).
Specifically, the Ruling outlines that:
a contract between a medical centre and a practitioner will fall within the relevant contract provisions for payroll tax purposes, if all of 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; and
(ii) engages a practitioner to supply services to the medical centre by serving patients on its behalf; and
(c) no exemption is applicable.
2. In relation to subparagraph (b)(ii) above, the Ruling states broadly, “if a medical centre engages a practitioner to practice from its medical centre, or holds out to the public that it provides patients with access to medical services of a practitioner, it is likely the relevant contract provisions will apply”.
3. The source of the funds used to pay a practitioner does not affect the classification of an amount as taxable wages. For example, it does not matter that payments to a practitioner are paid from money held in a trust account or from money received by the medical centre on behalf of the practitioner (whether from patient fees or Medicare payments), even if the practitioner is beneficially entitled to that money.
4. The three exemptions most likely to apply to a contract between a medical centre and a practitioner are:
(a) The practitioner provides services to the public generally.
(b) The practitioner performs work for no more than 90 days in a financial year.
(c) Services are performed by two or more persons.
5. Third party payments of money or other consideration may be taken to be wages paid or payable by an employer to an employee where a third-party payment under a relevant contract would be wages if paid by an employer to an employee under the contract.
What steps should QLD medical and healthcare providers be taking in response to the Ruling?
Medical and healthcare providers with SFAs are at risk of exposure to payroll tax in respect to payments made under such agreements from FY22 onwards, so it is important that providers carefully consider the implications of this Ruling on their circumstances.
We recommend that all current SFAs are reviewed by a payroll tax specialist to assess and quantify the payroll tax risk and determine whether any exemptions are available.
Medical centres that are affected by the Ruling will need to consider factors such as whether they will have to absorb the additional costs, or restructure their business model. If they wish to consider a restructure, anti-avoidance rules should be considered before making any changes, particularly if the Ruling is a key reason for such changes.
Temporary Payroll Tax Amnesty Measure
Given a possible lack of awareness of the payroll tax treatment of such arrangements among general practitioners (“GPs”), the Queensland Government has announced it will provide a payroll tax amnesty on payments made to contracted GPs until 30 June 2025. Medical practices that receive the amnesty will not have to pay payroll tax on payments to contracted GPs and for the previous 5 years (i.e. 2018–25).
It is important to note that:
The amnesty is limited to payments made to GP’s registered with the Medical Board of Australia (excluding other medical doctors or allied health professionals).
New medical practices and practices already paying payroll tax on payments to contracted GPs are not eligible for the amnesty.
Eligible medical practices that wish to apply for the amnesty must lodge an expression of interest form (“EOI”) (available on the Queensland Revenue Office website) by 29 September 2023.
Eligible medical practices that lodge an EOI must review their arrangements by 30 June 2025, voluntarily disclose relevant details (such as annual wage information) and register for payroll tax (if they have not yet registered). Information requirements will vary depending on whether the practice is undergoing (or has undergone) audit activity.
From 1 July 2025 (when the amnesty ends):
(a) All medical practices must comply with their payroll tax obligations and start paying payroll tax on payments to contracted GPs (unless an exemption applies).
(b) Any medical practice that did not participate in the amnesty may be subject to compliance activity. This activity will not be limited to the 2021–22 financial year or later.
For certainty about the payroll tax treatment of your arrangements, you can provide copies of agreements with contracted GPs to the Queensland Revenue Office for review, along with why you consider payments are exempt.
You can access the Ruling here.
The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your particular circumstances.