Medical practices are in the spotlight again over their payroll tax obligations following the NCAT decision in by Thomas and Naaz Pty Ltd v CCSR [2021] NSWCATAD 259 (“Thomas & Naaz case”), which was handed down on 3 September 2021.
Currently, medical practices have particular business structures where the payment to doctors are not subjected to payroll tax. This is facilitated by the relationship between the medical practice and doctor being of a contractor and subcontractor nature.
Previously in Commissioner of State Revenue v The Optical Superstore Pty Ltd [2019] VSCA 197 (“Optical Superstore case”), patients would consult with optometrists at the Optical Superstore and pay the Optical Superstore for the “optometrist fees”. This fee was held on trust for the optometrist and later reimbursement to them. The Supreme Court of Victoria held that this reimbursement of money paid to the optometrists were for payroll purposes and subjected to payroll tax.
Thus, the medical community were worried about the application of the payroll tax to their contractor provisions. Now their concerns have been confirmed by the Thomas & Naaz case. NCAT found that the arrangement which the practice had in place with their doctors attracted payroll tax under the contractor provisions. Whereby:-
- The doctor provided the service to the patients;
- The patients assigned their Medicare benefits to the doctors;
- The medical practice (taxpayer) on behalf of the doctor would submit the assignment of claim for the Medicare benefits;
- Medicare paid those benefits to the practice;
- The practice retained 30% of the amount from Medicare and paid the remaining 70% to the doctors.
Without the services of the doctors the practice could not operate its medical business. The Tribunal held that the payments to the doctors were for or in relation to the performance of work and therefore subject to payroll tax as “wages”.
This approach seen in Thomas & Naaz conceptualizes that where a service entity supplies its contractors for, or in relation to the performance of work falls well within the definitions of a ‘relevant contract’ in the legislation. An unexpected result of payroll liability for a structure that was previously believed not to attracted any in the industry.
Thus, payments from a medical and healthcare practice to their contracted practitioners may now trigger payroll tax obligations in respect to those payments. The consideration of this risk comes down to the terms of the contract agreement and perhaps the day-to-day operations of the practice.
Such business structures may still be used by similar healthcare providers. Operators of such businesses may wish to obtain advice and review whether this current business structure is compliant with the new changes.
If you have any questions which you would like to discuss, please contact us at Macrossan & Amiet Solicitors.
