Payroll tax for medical centres

I hang out with lots of doctors and right now they are all talking about payroll tax.

Last year a NSW case found a medical centre had to pay payroll tax on its contracted GPS. This was followed up by a ruling by the Queensland Treasury saying the same (Although the Queensland government is now saying the ruling won’t apply until 2025 – not sure they can tell the QLD Commissioner of Taxation to ignore the law for a few years but we all know how things work in Queensland).

This means that the conventional medical centre model (where the owner of the medical centre provides the building, admin staff, consumables, record keeping, Medicare claiming, and charge say 30% of the Medicare payment, but the GP does all the medical work and has the right to the Medicare payment) leads to the owner of the centre paying payroll tax on the payments they make to the contracted GPs.

This is a great way to understand payroll tax and the contractor rules.

You see, no matter what jurisdiction you are in, payroll tax rules generally start with all contractors are subject to payroll tax. Then, once you start with all contractors subject to payroll you then start to look for exclusions.

In the QLD Payroll Tax Act, a contractor is subject to payroll tax if the contract provides for the supply of services in relation to the performance of work by one party for or on behalf of the other party… so unless you are buying goods it may fall into this broad definition.

However, the as the Commissioner says in his ruling, all contract for service are included “unless one of the exemptions in s.13B(2) applies”.

So every contract for services is in and now we start excluding some of them by looking at the exclusions.

How does all this apply in a medical centre?

Well the cases have found that the GPs working in these centres are providing services to the centre. On its face value it appears that the medical centre is the contractor of the GP, providing services to the GP for 30% of their Medicare payment.

However, when you read the contracts between the GPs and medical centres, it looks like the GPs are providing services to the medical practices as well… like working five days a week, applying for time off, 2 year restrictive covenants, not working for others…

If the cases and the QLD ruling is correct and the GPs are providing services to the medical centres (the contract terms are the important issue here) then to avoid paying payroll tax, the medical centre owner needs to find an exemption.

The only that may apply is the exemption that the contractor provides the same service to the general public (para 13B(2)(b) (iv)). This sounds good when you first read it until you realise the contract states the GP can only provide the service they provide to the medical centre (not the service they provide to the patients) to this one medical centre.

Most of the other exemptions (less than 90 days) will only apply in very specific cases and not the general medical centre contracting a GP scenario.

So how to fix this?

  1. Don’t have any obligations for the GP to do anything in the contract. If the GP is not providing any services to the medical practice then there cannot be payroll tax. The medical centre won’t want this but it solves the problem.
  2. Therefore, have two separate agreement. One for the services provided by the medical centre to the GPs – where the fee paid to the medical centre is 31% of the Medicare payments. Then have a second agreement for the services the GP agrees to do for the medical centre (for which the GP is paid 1% of the Medicare payments). This means only the second payment is subject to payroll tax and the GP still gets 70% of the medicare billings.

    Or just wait to see if the Government caves in and changes the law.
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