The recent case of Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue was judged on by the NSW Civil and Administrative Tribunal (NCAT) and may have widespread application in respect of payroll tax implications for the medical and allied health industry in Australia.
In the decision, several doctors were engaged by the taxpayer’s medical centres under a written agreement. Relevantly, the written agreement highlighted a flow of funds which involved Medicare benefits being held in a bank account owned and operated by the medical centre, and a subsequent payment from that bank account to the doctor’s, equivalent to 70% of the claims received from Medicare (with the remaining 30% taken to be a service fee retained by the taxpayer within the medical centre).
After considering the factual circumstances, it was decided by the NCAT, with reference to the relevant provisions of the NSW payroll tax legislation, that the agreement between the medical centre operated by the taxpayer and each relevant doctor was a ‘relevant contract’ and the payments received by the doctors were ‘for or in relation to the performance of work’.
As a result of this, the payments to the doctors were deemed to be taxable ‘wages’ under the NSW payroll tax legislation and, therefore, subject to payroll tax. In coming to this decision, the flow of the funds between Medicare, the medical centre and the doctors (as outlined above) was critical. Further, the wording in the written agreement between the medical centre and the doctors (including provisions relating to the general obligations of the doctors, payment and rostering, restraints of trade, etc.) proved to be highly relevant in the NCAT’s decision-making process.
Whilst the case was determined with reference to the payroll tax legislation in NSW, there is potential for the principles and decision from the case to be equally applicable to circumstances in other jurisdictions due to the harmonisation of payroll tax legislation in Australia.
Furthermore, this case is one of a number of recent payroll tax decisions under which contractual and structural arrangements for medical and allied health practices have come under fire, including the Optical Superstore decision that was handed down last year. In the Optical Superstore decision, the Victorian Court of Appeal held that patient fees captured by the Optical Superstore and later paid to optometrists (after a deduction of service or facilities fees) were deemed to be taxable wages in the hands of the optometrists and, therefore, subject to payroll tax.
What should you do?
In light of this NSW decision and the ever-increasing scrutiny of medical practice structures by State and Federal revenue authorities, we recommend that careful consideration be given to the terms of engagement for medical and allied health professionals to ensure they do not trigger (or have not triggered) unintended payroll tax consequences (including for tax years in the past).
Should you require assistance with the drafting of contracts or a review of historic contracts or would like to discuss payroll tax or income tax issues with these structures, please leave an enquiry below and mention this article for an obligation-free appointment.