Payroll Tax Update To Create Major Pain For QLD Medical Centres

DATE PUBLISHED: January 12, 2023

key takeaways

The Commissioner of State Revenue in Queensland has issued Public Ruling (PTAQ000.6.1) that confirms that medical centres in Queensland are likely to face significant payroll tax challenges.
The Ruling reaffirms the decisions in The Optical Superstore and Thomas and Naaz. It confirms that payroll tax will likely be payable on patient fees, Medicare rebates and other amounts paid by medical centres to contracting health practitioners.
Medical centre businesses should take swift action to review current arrangements and, if necessary, make changes to attempt to limit their payroll tax exposure.

The Commissioner of State Revenue has gifted Queensland medical centres the Christmas present none of them wanted - payroll tax changes.

The publication of Public Ruling PTAQ000.6.1 (Ruling) confirms the Commissioner’s position regarding the application of the relevant contract regime to medical centres. In short, the Ruling affirms that there will be significant payroll tax pain for medical centre business in Queensland.

While the Ruling will bring financial pain for medical centres in Queensland, there is a silver lining. The Ruling is set to take effect from its release on 22 December 2022, and indications are that the Queensland Revenue Office will limit its audit activities to the 2022 financial year and beyond.

Below, we analyse the position following the NCAT decision of Thomas and Naaz and our comments in October 2021, as well as summarise the Commissioner’s Ruling and what it means for medical centres across Queensland.

Why is there a payroll tax problem?

Contrary to popular belief, payroll tax is not strictly imposed on taxable wages that are paid to employees.

Due to deeming provisions that apply to certain contracts (and therefore independent contractors) under Division 1A of the Payroll Tax Act 1971 (Qld) (Act), in certain circumstances, payroll tax may also be imposed on payments to independent contractors who provide services under a contract in relation to the performance of work (defined in the Act as a “relevant contract”).

So, how does this impact medical centres?

Medical centres such as GP, dental, and physiotherapy clinics often rely on independent contractors to provide medical services to their patients. As part of the contracting arrangement, medical centres usually collect patient fees and Medicare rebates on behalf of health practitioners and remit these monies (after the deduction of a service fee) to the health practitioners.

The looming issue in question is:

whether the health practitioners are delivering services to the medical centre under a relevant contract; and
if so, whether the payment of patient fees and Medicare rebates from the medical centre to the health practitioner should therefore be subject to payroll tax.

What is the current lay of the land?

In the past, there have been two key decisions concerning payroll tax for medical centres, being:

1
2019 VCAT decision, The Optical Superstore Pty Ltd & Ors v Commissioner of State Revenue (TOS Decisions); and
2
2021 NCAT decision, Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue (Naaz Decision).

In these decisions, it was found that:

1
the ordinary meaning of “payment” readily embraces a payment of money to a person who is already beneficially entitled to that money. For payroll tax purposes, this definition includes a mere return of patient fees or Medicare rebates from a medical centre to a health practitioner;
2
health practitioners are often found to be providing services to the medical centre in addition to the services they deliver to patients. These services, similar to those of an employee, include:

an obligation for the practitioner to deliver medical services for a minimum number of hours per calendar week;
promoting the interests of the medical centre and abiding by the policies and procedures of the medical centre; and
providing advance notice of any leave or other periods of absence; and
abiding by a post-termination restraint or non-compete obligations;

3
because services are typically being delivered by health practitioners for the benefit of the medical centre, the payments to the health practitioner (of patient fees and Medicare rebates collected by the medical centre) are considered to be made “for or in relation to the performance of work”, and therefore are taxable wages due to there being a relevant contract.

What this means for Queensland medical centres

In both of these decisions, the relevant revenue authorities dealt a blow to the medical centres by issuing assessments for payroll tax which included payments under the service agreements as taxable wages. The revenue authorities also imposed penalty tax at the maximum rate.

While the TOS Decision (a Victorian decision) and the Naaz Decision (a New South Wales decision) are not binding in Queensland, because of the harmonisation of payroll tax legislation in Australia, Queensland medical centres were on high alert that the Queensland Commissioner was likely to adopt a similar view.

Unfortunately, the Commissioner has taken a similar view, triggering a financial landslide with several medical centres in Queensland receiving retrospective payroll tax bills.

payroll tax bills being received retrospectively

What does the Ruling say?

In a nutshell, the Ruling

reaffirms the outcomes of the TOC Decision and Naaz Decision and confirms that the Commissioner will likely take a strict view on the existence of relevant contracts between medical centres and health practitioners.

The table below illustrates the key findings from the Ruling:

Para.	Description	Implications
14 & 20	“A practitioner engaged by a medical centre to serve patients for or on behalf of the medical centre under a relevant contract supplies services to the medical centre as well as to patients.” “If a contract provides, either expressly or by implication, that a practitioner is engaged to supply work-related services to the medical centre by serving patients for or on behalf of the medical centre, the contract is a relevant contract.”	A big question that came in the wake of the TOS and Naaz Decisions was whether payroll tax would be payable if a health practitioner strictly treats patients of the medical centre, and does nothing further to contribute to the business of the medical centre (e.g. promote the interests of the practice, assist with marketing and precedents etc.). These paragraphs of the Ruling reinforce the Commissioner’s view that: a health practitioner cannot serve the patients alone; and a health practitioner will be deemed to be delivering services to the medical centre as soon as they start treating patients of the medical centre.
47	“It does not matter that payments to the 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…. When the practitioner’s entitlement is recognised and the money is paid or becomes payable, it constitutes wages for payroll tax purposes.”	This echoes the view from the TOS and Naaz Decisions. Despite medical centres simply paying monies that health practitioners are beneficially entitled to, the amounts paid by the medical centre to the health practitioner under the relevant contract are taken to be taxable wages paid for payroll tax purposes.
48	“If a practitioner’s services are provided under a relevant contract between a medical centre and the practitioner’s entity (and the practitioner is taken to be an employee of the medical centre), payments by the medical centre to the practitioner’s entity that are in relation to the performance of work are to be wages.”	This confirms that a payroll tax liability will exist for the medical centre where the heath practitioner is engaged through a related entity, such as a company.
48	“The source of 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 their related entity.”	Some medical centres, in an attempt to sidestep potential payroll tax liabilities, have established separate bank accounts (usually in the name of the health practitioners) to receive patient fees and Medicare rebates, instead of the money being paid into the medical centre's bank account. By doing this, they take the stance that the medical centre itself is not making a “payment" to the health practitioners (but simply remitting monies the health practitioners are already legally entitled to).
54	“A tenancy contract [where a landlord (or sublessor) by lease or licence strictly provide a practitioner with the use of a suite or space] is a not a relevant contract if the practitioner does not supply work-related services to patients for or on behalf of the landlord.”	This paragraph confirms that landlords and sublessors of premises (who do not carry on the business of a medical centre) will not be liable for payroll tax if the arrangement is strictly a tenancy arrangement. In circumstances where a health practitioner operates their own independent medical practice (and is responsible for marketing, patient bookings and billings, and Medicare), no relevant contract will exist with the landlord or sublessor.

In addition to the above, the Commissioner confirms in the Ruling that:

1
the Commissioner will consider implied terms and the “in substance” relationship between the medical centre and health practitioner when determining whether a relevant contract exists (e.g. parties cannot avoid payroll tax by simply referring to the parties as “landlord” and “tenant” in the relevant contract); and
2
each contract must be considered individually on a case-by case basis to determine whether it is a relevant contract.

The Ruling also provides a number of useful examples of where a relevant contract will and will not exist.

Are there any exemptions?

The contractor exemptions in section 13B(2) of the Act may be available to arrangements. The Ruling (at paragraph 28) sets out the three exemptions to the relevant contract regime that the Commissioner believes are more likely to apply.

These are:

1
Perform services to the public - to qualify for this exemption, the health practitioner must provide services of the same kind to other medical centres and hospitals. However, prior to claiming this exemption, the medical centre must apply to the Commissioner for a determination;
2
90 day exemption - to qualify for this exemption, the health practitioner must not perform work under the relevant contract for more than 90 days during a financial year; and
3
Two or more persons exemption - to qualify for this exemption:

the health practitioner must engage at least one other person to assist them with delivering the services under the relevant contract; and
the services delivered by the second person must be work that’s required to be performed under the contract between the medical centre and the health practitioner. For example, a dentist engages a specialist nurse to assist the dentist with carrying out dental procedures at the medical centre.

What should medical centre businesses do?

It has become evident from the recent audit activity in Queensland and the Commissioner’s position (set out in the Ruling) that there is some serious payroll tax pain to come for a lot of medical and healthcare centres.

Given the circumstances, we urge owners of medical centre businesses to take immediate action and:

1
get advice on the contractual documentation and the underlying arrangements that are currently in place with their health practitioners;
2
determine whether any of the relevant contract exemptions set out in the Act may be available to them; and
3
undertake a review of their past arrangements and payments to practitioners to determine whether a payroll tax liability is likely to crystallise (and even possibly consider making a voluntary disclosure to the Queensland Revenue Office). Noting the indication that audit activity will be limited to the period from the 2022 financial year onwards, the 2022 financial year and current financial year are most important.

conclusion

The Commissioner of State Revenue in Queensland has issued a public Ruling that confirms that medical centres in Queensland are likely to face significant payroll tax challenges.

The Ruling reaffirms the decisions in The Optical Superstore and Thomas and Naaz and confirms that payroll tax will likely be payable on patient fees, Medicare rebates and other amounts that are paid by medical centres to contracting health practitioners.

Medical centre businesses should take swift action to review current arrangements and, if necessary, make changes to attempt to limit their payroll tax exposure.

The Ruling takes effect from the date of issue (22 December 2022) and the Queensland Revenue Office will limit audit activity to the 2022 financial year onwards.

GET IN TOUCH WITH US!

McInnes Wilson Lawyer's team of experienced professionals is here to assist medical centres in understanding the implications of the Ruling, as well as assisting with the mitigation of potential risk or pain. Their team of industry experts has a wealth of experience and are committed to providing stress-free, easy-to-follow solutions for tax-related complexities.

If you require further information on any of the above, please fill out the enquiry form below and mention this article for an assistance regarding reviews.

ENQUIRE NOW