The business case for ensuring you are a genuine tenant doctor and not a deemed employee-like contractor.
The tenant doctor business model is a legal and operational structure used in general medical practices across Australia to address payroll tax, compliance, liability risk ATO deemed employee risk, and revenue efficiency.
The approach separates a medical business (a practitioner) from a service entity (an infrastructure provider).
“The absolute worst case that you could be in is to earn all of your income as an employee working for someone else” – Greg Kaplan, chairman of think tank e61 (Wealth tax: Australian Financial Review, 25th July 2025)
The great GP emancipation
A key competitive advantage for recruitment, retention, tax compliance (state and federal), business sustainability and value creation is that you aren’t as a business entity required to require all doctors to bulk bill, set fixed fees, or pay additional payroll tax or superannuation on earnings from privately billed patients.
The tenant doctor model offers flexibility and avoids administratively complex, high-fraud, and tax-risk individual banking arrangements, benefiting doctors, their practices, and patients.
If you want to watch a video and not read on, a webinar on this article can be found at this link: Royal Australian College of General Practice: May 2025 Practice Owners Conference. How to set up a tax-compliant Tenant Doctor Model that is payroll tax and employer superannuation guarantee free and tax tested.
Key concepts
Tenant doctor arrangement: Doctors are independent practitioners who rent rooms or services from a service entity. They run their own businesses, usually with their own ABNs, websites, and advertising, and pay service fees for back-office support, staff, and premises rather than being employees or contractors of the medical centre.
Service entity: Owns the infrastructure (premises, equipment, reception, admin) and provides management support services to practitioners for a transparent, pre-agreed fee.
Quistclose account: A legally compliant Quistclose account can be used to collect doctor billings, ensuring transparency, tax compliant separation of funds, and correct allocation per service agreements.
Governance and documentation: Strict, annually updated service agreements and clear, separate bookkeeping are essential. Legal documents must specify the arrangement, including how funds are handled, banking details, and who receives the banked money.
Central principle: The core reason to establish a service entity is risk separation, so that no doctor is liable for another’s malpractice or debt (e.g. Medicare shared debt). It is not primarily for tax savings. From the outset, if your lawyer and accountant cannot or did not explain this to you when you set up your practice, then you may have a problem, as “intent” of your structure is very important legally.
Critical features and benefits
Compliance: Properly prepared and signed service agreements, transparent bank reconciled to the cent (including surcharges and weird outlying things like Hotdoc repeat script charging) banking, and accurate fee calculations help avoid payroll tax, superannuation obligations, and Fair Work risks.
Auditing and risk: Audit risk is reduced if all evidence (websites, emails, invoices, financials) align with the tenant doctor structure. If the arrangement is not genuine or not supported by correct contracts, authorities may deem doctors as employees, triggering payroll tax and other liabilities, including significant ATO liabilities.
Financial transparency: Service fee calculations and payments must match contractual agreements. Independent, itemised invoices and accurate accounting are key; mismatched financial statements or improper banking arrangements are red flags.
Related
Advertising and operations: Each doctor in a tenant doctor set-up should maintain their own brand presence (website, marketing) to reinforce business separation. The service entity should market as a facility host, not as the provider of patient care. A service entity should certainly not advertise as a “practice” with “our doctors”.
Flexible, fair fees: Service fees may be adjusted based on utilisation, complexity (e.g., higher admin fee for care plans), or efficiency, using modern calculators integrated with the practice’s financial systems.
Common pitfalls
Mislabelling: Describing doctors as “contractors” or “employees,” commingling finances, single-entity branding, or lack of clear, annualised documentation puts the practice at risk.
Improper banking: Simply creating a separate bank account is not sufficient; there must be a legally documented and operationally correct process governing how money flows, who owns the money, and when it is distributed.
Legacy issues: Many practices unintentionally adopted models inspired by large corporates (with actual employees or contractor set-ups), leading to confusion, precedent court cases, and increased scrutiny from tax authorities.
Latest tax and legal developments: Recent court cases and ATO/State Revenue actions have clarified that if a practice appears to be a single business (based on how it banks, advertises, invoices or directs the doctors within their entity in certain ways to operate), payroll tax obligations can apply, even if the contract states otherwise.
Automated data matching, new mandatory accountant reporting, and much larger ATO enforcement budgets have rapidly increased compliance requirements.
Uber case
A recent important judgment on Uber states that the “substance” of business relationships, how things actually operate, is more important than what a contract claims, increasing risk for practices that do not align documentation and real-world operation.
Regardless of your well-written service agreements how you govern and run your practice matters. The devil is in the detail. Many legal contracts can be interpreted as “sham” arrangements. You have to prove your arrangements with third-party evidence, see Uber Payroll Tax Appeal (NSW) decision, 2025. This precedent decision will have a significant impact on both state and federal tax and employment laws.
Third-party evidence (lawyers, accountants and practices must check)
How you register both your practitioners and yourself across publicly verifiable platforms—such as your website, tax filings, PRODA, Healthcare Identifier (Seed Organisation), and AHPRA (e.g. provider annual declaration must state they are in a cost sharing arrangement) can significantly impact your professional standing and compliance obligations.
Getting these registrations right ensures that your credentials and practice details are accurately visible and data matched to the public, government agencies, and other healthcare providers.
For example, using the correct personal and organisational information during PRODA registration is critical for identity verification and system access. Likewise, maintaining up-to-date practitioner records with AHPRA and submitting accurate annual declarations is essential for compliance and transparency. For further information, please refer to the detailed guidance provided in the webinar referenced above.
GP practice accreditation
The Royal Australian College of General Practice is seeking consultation to clarify the role of the service entities (the RACGP has recognised the role of service entities since the 1978 Phillips case Federal Court case decision) that are genuine tenant doctor (service entity) arrangements. Currently this affects Healthcare Identifier and PRODA registration.
Best practice
Review all arrangements: Ensure your business model, contracts, banking, advertising, and communications align with the tenant doctor model.
Get professional help: Have qualified lawyers and accountants (with explicit tenant doctor model experience) review all documents and systems annually.
Educate all parties: Owners, doctors, and staff must understand the structure and be consistent in language and workflow.
Update regularly: Tax rulings and laws are constantly evolving; proactive annual updates help ensure compliance.
Be able to prove it: Maintain audit trails, consistent financials, signed agreements, and properly segregated accounts.
Compliance is affordable: If you do the ROI on all of the above and compare it to the anxiety, financial fallout and other issues created by either an SRO or ATO tax audit, the cost of getting all of the above into shape and becoming sustainably compliant will become obvious. There are obvious initial up-front costs that you might not be happy with, but once you get the basics in shape the ongoing costs will be manageable.
For many of our savvy clients and practitioners, the complete process, including digitally encrypted, legally prepared up-to-date service agreements integrated with Xero, bank-reconciled and tax-compliant invoices, as well as BAS and tax extract summaries, is available for less than $70 per practitioner per month (this estimate is based on a group of 5–10 practitioners).
This represents a significant saving when compared to the potential additional cost of up to $1000 per month per full-time equivalent practitioner for employment-related expenses such as payroll tax, 12% superannuation, Fair Work leave entitlements, and the time-consuming process of completing complex payroll tax forms, particularly if you are bulk billing in an effort to secure discounts, which may ultimately render your entire practice unviable, see Fact Check: Benchmarking the 2025 $8.5 bn Strengthening Medicare (“Financial Suicide”) Package.
Conclusion
The tenant doctor model, if set up and managed correctly, offers strong legal and financial protection for medical practices, minimises payroll tax risk, streamlines finances, and enhances long-term practice value and succession planning.
However, insufficient understanding, poor implementation, or reliance on unqualified templated advice exposes practices to substantial cash flow problems, fraud, error, tax, super, and Fair Work liabilities.
If your lawyers, accountants or advisers don’t fully understand the rules and haven’t been able to explain them clearly to you and what to do next (except wait for another court case), which is why you’re still confused, we can certainly work with your regular accountant and get you over the line.
The rules are clear, but they have been changing in the last five years so you have to keep up. Most of the key principles, notwithstanding, were established as far back as 1978. As a Supreme Court judge once said to a GP: “Ignorance of the law is no excuse”. We are all running out of time and excuses.
David Dahm is a chartered accountant, chartered tax adviser, registered tax agent, and a former AGPAL surveyor with 10 years of service. He is CEO and founder of the national medical and healthcare chartered accounting firm Health and Life.
