Payroll Tax

Payroll Tax and Healthcare Clinics

  1. RevenueSA have announced a payroll tax amnesty for medical clinics in South Australia. Medical centres around Australia have been put on notice since the release of the judgement in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259 (“Thomas & Naaz Case”). The decision was handed down by the New South Wales Civil and Administrative Tribunal (“the Tribunal”) and upheld by the New South Wales Court of Appeal. Whilst that decision concerns New South Wales legislation and whether there was a relevant contract as defined at section 32 of the Payroll Tax Act 2007 (NSW) (“the NSW Act”), the South Australian legislation includes the same definition of relevant contract at section 32 of the Payroll Tax Act 2009 (SA) (“the SA Act”) with payroll tax provisions in relation to the relevant contracts being harmonised with the NSW Act. Therefore, the decision in Thomas & Naaz Case creates concern to South Australian medical practices and other Australian jurisdictions that have similar legislative provisions.

Health Services

2. The application of whether the employer is providing health services is an interesting point that should be considered:

South Australia

2.1. In South Australia employers providing not-for-profit health services are exempt from being liable for payroll tax:

Wages paid or payable by an employer who provides health services otherwise than for the purpose of profit or gain are exempt wages. (2) The wages must be paid or payable to a person engaged exclusively in— (a) the provision of health services; or (b) work that is incidental to the provision of health services[1]

2.2. A health service provider includes:

(a) a service designed to promote health; or

(b) a therapeutic or other service designed to cure, alleviate, or afford protection against, any mental or physical illness, abnormality or disability; or

(c) a paramedical or ambulance service; or

(d) the care of, or assistance to, sick or disabled persons at their place of residence; or

(e) a prescribed service.

2.3. Hospitals have their own provisions:

Wages paid or payable by a public hospital to a person during a period in respect of which the hospital satisfies the Commissioner that the person is engaged exclusively in work of the hospital of a kind ordinarily performed in connection with the conduct of public hospitals are exempt wages.

Wages paid or payable by a hospital that is carried on by a society or association otherwise than for the purpose of profit or gain to the individual members of the society or association, being wages paid or payable to a person during a period in respect of which the hospital satisfies the Commissioner that the person is engaged exclusively in work of the hospital of a kind ordinarily performed in connection with the conduct of hospitals are exempt wages.

2.4. In theory if a medical practice is working as a charity that is as a not for profit then there is an arguable position that they are not providing health services for profit or gain meaning that the wages are exempt wages and will be exempt from Payroll tax; and

New South Wales

2.5. In NSW the position is different, principally in that the health service provider must be hospital and the exemption would not apply to places such as medical clinics, even if they acted not for profit. As was seen in the Thomas & Naaz case the issue of the health service provider was not considered.

Case Law

  1. Recently there have been a number of cases around Australia that have explored the issues of payroll tax and medical centres:

Thomas Naaz Case

3.1.Thomas & Naaz is a NSW case concerning payroll tax obligations for a medical centre:

3.1.1. The facts of this case are Thomas and Naaz Pty Ltd operated a general medical clinic (“the Clinic”). Practitioners would provide services to the patients of the Clinic. The fees for the services were collected by the Clinic on behalf of the practitioners. The Clinic then distributed payments to the practitioners after deducting the Clinic’s fee.

3.1.2. The issue was whether the payments from the Clinic to the practitioners was subject to the payroll tax provisions. If the contracts between the practitioners and the Clinics for the provisions of services to patients (“the Contracts”) were relevant contracts pursuant to the NSW Act, then then the Clinic is deemed to be an employer and the practitioners are deemed employees for the purposes of payroll tax.

3.1.3. The Tribunal held that the Contracts were relevant contracts under the NSW Act. In coming to that judgement, the Tribunal considered the following factors: services to be provided by the practitioners were on a 5 day per week basis, including weekend rosters; required to request and seek approval for vacation leave; vacation leave was limited to 4 weeks per annum; restraint of trade clauses; and follow protocols and complete necessary documentation at the direction of the Clinic.

Optical Superstore Case

3.2. The optical superstore case is a Victorian case from the Victorian Court of Appeal

3.2.1. The facts of the case are: Optical Superstore Pty Ltd was the trustee of a number of related trusts that in aggregate carried on the optical dispensary business called The Optical Superstore; The optometrists directed Medicare and private patients to pay the consultation fees to the store owner, to be held on trust for the optometrist; The store would then deduct a fee for an optometrist using the store as the premises from which they provided their services and pay the net amount to the optometrist; If the consultation fees were less than the amount that they would be entitled to, based on their hourly rate and time spent in the store, the store would treat the amount paid as a “location attendance premium” to the optometrists; The consultation fees were paid into the bank account of the store owner, with a reference to the name of the relevant optometrists involved. The monies were not, however, held in separate sub trust accounts for each of the optometrists; The store manager “signed off” on the hours worked by the optometrist; A monthly payment was made to the optometrist, consisting of the consultation fees earned less the occupancy fee No invoice was raised by the optometrist as the amount received was thought simply to be a return of moneys to the optometrist; As well as providing optical services via the optometrists, The Optical Superstore sold optical products;

3.2.2. At appeal: The Commissioner argued two points on the issue of whether the amounts had been paid: The trial Judge misconstrued the words ‘amounts paid or payable’ in section 35(1) of the act by deciding that the expression was not apt to describe the transfer of legal titles in money to satisfy a beneficiaries equitable entitlement to that money; and The words should have been construed broadly, so as to capture the provision, giving or transfer of moneys from a bank account of one entity to another entity irrespective of the existence of an express trust; In short, the Court of Appeal held that amounts were “paid” to the optometrists, within the meaning of section 35. The Court said:

“The words ‘for or in relation to the performance of work’ specify that it is a connection between the amount provided and the performance of work which provides the criterion by which the provision of that amount is, or is not, taken to be wages. No other test is posited. In that context, there is no reason why ‘paid or payable’ does not mean simply the provision of money. The definition in s3 expressly states that ‘paid’, in relation to wages, includes their provision. That reading is consistent with the ordinary meaning of the word. To read the word as being subject to a requirement that what is provided does not belong to the recipient is to assume a legislative intention which is not anchored in the statutory text or any identified context.” Further the Court stated:

“the ordinary meaning of ‘payment’ readily embraces a payment of money to a person beneficially entitled to that money”.

3.2.3. The Appeal was allowed and the Court found in favour of the Commissioner that the amounts paid to the optometrists were paid under the terms of the contract and thus liable to payroll tax;

3.3. The cases above show;

3.3.1. There are issues around the concepts and understanding of the nature of payment; and

3.3.2. How the fund flow between the various parties to the contracts is essential when interpreting whether payments are liable for payroll tax;

3.4. If the contract was different in that the Doctor contracted with the medical centre, so that the medical centre was paid by the Doctor on the below terms, the outcome would be different:

3.4.1. If the Patient pays the Doctor or provides the instructions that any Medicare benefit is paid directly to the Doctor, for the services provided to the patient;

3.4.2 The Doctor then reimburses the medical centre for the provision of rooms and other services such as the services of administrative staff;

3.4.3. The amount of reimbursement: could be a proportion of the payment they have received from the patient; based on the number of patients seen by the Doctor; a fee based on the amount of time a Doctor occupies the room; a fixed fee;

3.4.4. Such an agreement would be that the Doctor was not receiving wages from the medical centre but was directly receiving payment for services they have provided to a patient;

3.4.5. However, there are some difficulties with such an arrangement: The control of a Doctor’s practice is now in the hands of the individual Doctor and not the medical centre; It would require diligent record keeping and up to date accounting and banking software in cases where there are multiple Doctors working in a Medical Centre, this is because it needs to be easily be discernible what amounts an individual Doctor is required to pay to reimburse the medical centre; and Could go wrong if such an agreement is incorrectly or poorly written;

3.4.6. By the nature of such agreements in theory, there is a variation in who controls the flow of funds, who the initial payment is made to and what would constitute a payment. Any parties to such an agreement on these terms should proceed carefully.

Revenue Ruling PTASA003

4. RevenueSA has published a ruling PTASA003 relating to their interpretation of the law and cases:

4.1. In South Australia, a medical centre is liable for payroll tax on payments to practitioners if the contract between the medical centre and the practitioner is either a:

4.1.1. Common law employee-employer contract;

4.1.2. relevant contract with a contractor; or

4.1.3. payments are made under an employment agency contract to a service provider.

4.2. Since the Thomas & Naaz Case, the Commissioner of State Taxation has released Revenue Ruling PTASA003 Relevant Contracts – Medical Practices (“the PTASA003”) giving guidance on what is a relevant contract pursuant to the SA Act. The PTASA003 applies to the following medical centres:

4.2.1. GP clinics;

4.2.2. Dental clinics;

4.2.3. Physiotherapy practices;

4.2.4. Radiology centres; and

4.2.5.Other similar healthcare providers who engage health practitioners to provide patients with access to the services of practitioners.

4.3. A contract between a medical centre and a practitioner is a relevant contract if all of the following apply:

4.3.1. the practitioner carries on a business or practice of providing medical-related services to patients;

4.3.2. in the course of conducting its business, the medical centre:

4.3.3. provides members of the public with access to medical-related services; and

4.3.4. engages a practitioner to supply services to the medical centre by serving patients on its behalf; and

4.3.5. an exemption under section 32(2) does not apply.

4.4. Therefore, if a practitioner supplies services patients for or on behalf of the medical centre then the contract between the 2 is likely a relevant contract and the payments to the practitioner subject to payroll tax, unless:

4.4.1. the practitioner provides services to the public generally;

4.4.2. the practitioner performs work for no more than 90 days in a financial year; or

4.4.3. the services the practitioner is contracted to provide is performed by 2 or more persons (the additional persons must be engaged by the practitioner and not the medical centre).

Payroll Tax Amnesty for Medical Practices

5. On 22nd June 2023, the Treasurer approved a temporary payroll tax amnesty measure in relation to payment made to contracted general practitioners (being a doctor registered as a general practitioner with the Medical Board of Australia). The amnesty period is from 1st July 2018 to 30th June 2024 (“the Amnesty Period”).

5.1. To be eligible for the amnesty, the deemed employer must:

5.1.1. be a designated medical practice, being a medical centre as discussed above and set out in PTASA003;

5.1.2. made payments under a relevant contract to contracted general practitioners before 22nd June 2023 without lodging and declaring those payments for payroll tax purposes; and

5.1.3. required to be registered for payroll tax pursuant to section 86 of the SA Act, but is either: not registered and makes payments pursuant to a relevant contract during the Amnesty Period to contracted general practitioners; or is registered but is not declaring payments, made pursuant to a relevant contract during the Amnesty Period to contracted general practitioner, for payroll tax.

5.2. Medical centres receiving the benefit of the amnesty will not incur payroll tax on payments to general practitioners during the Amnesty Period. The purpose of the amnesty is to provide medical centres who are not currently complying with their payroll tax obligations, or have been subject to audit activity, in relation to payments to contracted general practitioners with sufficient time to review their arrangements and implement necessary changes to become compliant with the SA Act.

Key Deadlines

6. As stated above, the amnesty is only temporarily available with strict key deadlines. Below are the key dates to be eligible for the amnesty:

6.1. before 22nd June 2023: have made payments under a relevant contract to contracted general practitioners;

6.2. 30th September 2023: due date for submitting an expression of interest to RevenueSA to be considered for the amnesty; and

6.3. 30th June 2024: due date for submitting voluntary disclosures to RevenueSA.

How We Can Help

7. If you have clients that are operating a medical centre, Cartland Law can assist you with:

7.1. reviewing their current contracts to determine whether they are relevant contracts;

7.2. determining whether they are eligible for the amnesty;

7.3. preparing an expression of interest to RevenueSA (to be submitted by 30th September 2023);

7.4. preparing a voluntary disclosure to the Commissioner of State Taxation (to be submitted by 30th June 2024); and

7.5. advising on the implementation of required changes to ensure future compliance with payroll tax obligations.

[1] Payroll Tax Act 2009 (SA) section 51

This Article Was Created By.

Joseph Primerano

Associate Solicitor
Joseph holds a Graduate Diploma of Chartered Accounting. Before joining Cartland Law, Joseph worked as a public accountant assisting clients with a wide range of accounting services including tax compliance, review and preparation of financial accounts, succession planning and business advisory services.

Llewellyn Wood

Associate at Cartland Law
Llewellyn holds a Masters of Taxation and Masters of Law. Llewellyn has worked for Revenue Authorities, and in Private Commercial Practice. He has provided a range of tax and legal services including succession planning, business structuring, liquidation and insolvency matters and appeals to tribunals.