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Four states (NSW, SA, QLD & VIC) have all released a Payroll Tax ruling on medical centres (the NSW one is at https://www.revenue.nsw.gov.au/help-centre/resources-library/rulings/payroll/pta-041 but they are all the same) and, as expected, the Rulings say in many cases payroll tax is payable on the standard medical centre arrangement… because if you read the contract the GPs working in the medical centre clearly fall within the Payroll Tax contractor provisions. 

Read the contract… Idea 1 is change the contract fundamentally

Now before you scream at me that I am wrong, notice I said, “if you read the contract”. Don’t tell me what you think the arrangement is, read the contract and show me how the contractor provisions do not apply.

Appendix 1 to the ruling shows the types of clauses in these contracts and it is not “just a GP hiring a room to run their practice in.” If the contract was merely the GP hiring a room and the facilities of the admin staff there would be no Payroll Tax.

In Attachment 1 to this Ruling the NSW Commissioner states that the contract between a medical centre and a practitioner or the entity through which their services are provided, generally deal with the following matters (the bold ones sound very employee-like and sound nothing like a “renting a room” agreement):

1. The medical centre and the practitioner agree that the practitioner will provide competent, professional medical services to patients.
2. The agreement can be terminated by either party by giving notice as specified in the contract.
3. The practitioner is engaged as a contractor, is solely responsible for medical advice or medical procedures, and must take out professional indemnity insurance at their own cost to cover malpractice.
4. Responsibilities of each party for controlling the manner in which services are provided
5. Responsibilities of each party in the determination and payment of fees by patients, including decisions as to which patients may be bulk billed to Medicare, payments by the Department of Veterans’ Affairs (DVA) and other specified fees and amounts paid or payable
6. How patients’ fees are shared between the medical centre and the practitioner or the entity through which the practitioner’s services are obtained
7. How Medicare and DVA benefits are to be assigned and shared by the medical centre and the practitioner
8. Provision for the practitioner to periodically invoice the medical centre; or for the medical centre to invoice the practitioner or the entity through which the practitioner’s services are provided
9. Hours or days of attendance by the practitioner may be specified.
10. The practitioner’s entitlement to take a leave of absence may be specified, including any requirement to seek approval from the medical centre or to ensure a minimum number of practitioners are available to service patients.
11. The practitioner may be required to provide the medical centre with specified information and documents, and to keep and maintain records required by law.
12. Ownership of, or access to records, including patient information may be specified.
13. There may be restrictions on copying or removing records from the medical centre.
14. The practitioner may be required to promote the interests and welfare of the medical centre.
15. The practitioner may be required to commit to provide a share of duties relating to after-hours calls, home visits and nursing home visits.
16. The medical centre agrees to provide the practitioner with administrative services, clerical and professional staff and facilities, plant and equipment necessary for the practitioner to provide medical services to patients.
17. The practitioner must ensure that they have a Medicare provider number and local medical officer status with DVA.
18. The medical centre does not provide medical services to patients, is not registered as a medical practitioner and does not have a Medicare provider number.

This is not “just hiring a room” by a GP… So if you want to stop Payroll Tax applying, then write a contract where the GP ONLY hires a room and pays an admin fee. To avoid Payroll Tax by rewriting the contract, read this quote from the Ruling and make sure the Medical Centre does not have “operational or administrative control over the practitioners”…

“However, the medical centre has operational or administrative control over the practitioners if it is able to influence matters such as who practices at the centre, the hours and days when they practice, and the space within the centre where that occurs.”

But what is the amount Payroll Tax is applied to?

Idea 2 – Set up a trust account for the practitioners… 

Have a look at this example from the Ruling before trying this…

Example 11—Payments by a medical centre to a practitioner’s company taken to be wages

Under a relevant contract between ABC Pty Ltd (“ABC”), which operates a medical centre, and Fox Pty Ltd (Fox Co), ABC is deemed to be an employer and Dr Fox, whose services are provided under the contract, is taken to be an employee. ABC is required to pay 70% of the gross revenue generated by Dr Fox to Fox Co as a deemed employee of ABC. The gross payments by ABC to Fox Co are taken to be wages paid by ABC.

The source of the funds used to pay the practitioner’s company does not affect the classification of an amount as wages, even if the payment is made from money held in a trust account for the practitioner or the practitioner’s entity (see Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd [2019] VSCA 197 at [64]–[68]).

Idea 3 – Have a third party make the payments… 

Have a look at this example from the Ruling before trying this…

Under section 46 of the Act, ‘third party payments’ of money or other consideration may be taken to be wages paid or payable by an employer to an employee. This provision applies to a third-party payment under a relevant contract that would be wages if paid by an employer to an employee under the contract.… 

Example 12—Wages paid by a third party to a practitioner—Section 46 of the Act

ABC Pty Ltd (“ABC”), which operates a medical centre, enters into a contract with Dr Wolf who agrees to serve patients for or on behalf of ABC. The contract is a relevant contract under section 32(1) and none of the exemptions under section 32(2) of the Act apply.

ABC is taken to be an employer under section 33 of the Act. Dr Wolf is taken to be an employee under section 34(a).

The contract provides patient fees including bulk billed Medicare rebates are to be assigned by Dr Wolf to P Pty Ltd (P Co). At the end of each month P Co is required to pay 30% of the revenue to ABC and 70% to Dr Wolf.

Under section 46 of the Act, the payments by P Co to Dr Wolf are taken to be wages paid by ABC to Dr Wolf because the payments are remuneration for the services of Dr Wolf that would have been wages if they had been paid or payable by ABC (a person taken to be an employer) to Dr Wolf (a person taken to be an employee).

Idea 4 – Totally change the payment structure…

What about another idea people are talking about where the GP claims the Medicare amounts themselves into their bank account and then paying 30% of this amount to the Medical Centre. But why are they paying the 30%? More importantly, why does the contract require such a 30% payment? Because we rewrote the contract so that it is just a hire of a room and admin contract.

Just changing the payments does not change the contract…

Have a look at this quote:

It does not matter that payments to a practitioner are paid from money received by the medical centre on behalf of practitioners, whether from patient fees or Medicare payments, even if the practitioner is beneficially entitled to that money (see Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd [2019] VSCA 197 at [67]). When the practitioner’s entitlement is recognised and the money is paid or becomes payable, it constitutes wages for payroll tax purposes.

Conclusion

Some of these contracts, when they are actually read and people don’t just discuss the “vibe” of these contracts, should have been subject to Payroll Tax for decades. So what do we do to stop Payroll Tax being applied?

1. If you like the arrangement so much, then keep it and pay the payroll tax. This way the Medical Centre can keep the almost total control over the GPs as they have at the moment under these contracts.
2. Execute a new contract (extinguishing the current one) where the GP rents a room at the medical centre and pays a fee for the admin support. This contract has a clause that states the Medical Centre has no operational or administrative control over the practitioners. There are no rules about hours, the medical centre having the records, no requirement to promote the interests and welfare of the medical centre,… just rent of a room and a fee for admin support. The Medical centre sends an invoice for these two services to the GP who pays out of their bank account.
3. Try keeping the contract (why) and have all the money go to the GP directly from Medicare and hope the State Commissioners of Taxation let this through… but it is just a hope.