Apology to Queensland Revenue on payroll tax

7 minute read

Turns out the QRO wants to do things to the letter of the law with a revised ruling that might form a blueprint for all service entity structures.

Less than a week turns out to be a long time in game of medical payroll tax politics.

Last Thursday The Medical Republic got intel and then a press release from the RACGP indicating unambiguously that the Queensland Revenue Office (QRO) was planning on a ruling that narrowed down compliance in that state to simply getting your payment flows right – in this case, making sure doctors were paid directly by their patients first.

But late yesterday, a revised ruling from the QRO revealed that getting payment flows right was just one part of a highly detailed set of terms and conditions a service entity needed to meet if it wanted to be compliant in that state for not owing payroll tax.

Has that put egg on the faces of the RACGP and the AMA?

Maybe not entirely, as in one interpretation of the ruling (see examples 12 and 13 in the ruling) if you get your payment flows right and the patient pays the doctor directly – not an associated trust account – you might technically be working under a relevant contract that is liable for payroll tax, but have no actual tax to pay “because there is no payment by the deemed employer”.

It’s technical (of course it is).

Notwithstanding, rather than the lobbying win of a simplified solution just for GPs  proclaimed in the press releases, what we actually have is a tightly nailed down and very detailed document of just what the QRO is expecting if it is to allow a service entity running tenant doctors to be exempt from payroll tax.

It’s could easily be viewed as the opposite of a win for members, really.

Now they have nowhere to hide, and have to make a decision to get the advisors in quickly to see if they can fix what isn’t right in their structures according to this ruling, or give up, apply for an amnesty and then face all the issues that a transition path to paying payroll tax might create for a business (in some cases it certainly looks like going this way might create a giant ATO headache for all the tenant doctors working at an entity).

In a manner the QRO seems to have played the college, the AMA and its members. It’s walked everyone into a very tight corner and put some difficult time frames around any possible remediation under the terms of its amnesty.

It’s all fear and confusion, unfortunately.

A lot of that confusion could be put down to how the college has been communicating what all these changes have meant to their members and whether its possible to hold out against the states still in the hope of getting them to drop payroll tax for medical practices altogether.

This QRO ruling really should put a full stop on the idea that the states are ever going to give any leeway on payroll tax to GPs.

Of course, based on the college and AMA press releases, and rushed timing (we had a very quick turnaround to understand what the press releases were saying), TMR’s Saturday op ed was at least half wrong.

It said that the QRO didn’t know the law if it thought that just getting payment flows right should qualify a practice for exemption from payroll tax – that practices needed to fix all the problems if they wanted to be safe here.

Turns out not only does the QRO know the law but it decided to significantly upgrade its initial ruling on the matter to make the law crystal clear to all practices attempting to run service entities in that state.

As everyone should understand by now, a ruling is still not the law, but this ruling mostly follows all the precedent cases.

So, apologies to everyone in the QRO for suggesting literally that they were “making things up as they go”. They never were. Quite the opposite it turns out.

That this revised ruling has significant new detail says quite a bit about how this issue is evolving (you can’t access the original version any more to make that comparison).

There’s a lot of new material.

In terms of black horses and zebras it’s a detailed dummy’s guide to cleaning the artificial white stripes off your black horse.

You’d be a brave business to go a narrow path and trust that just changing payment flows will get you off the hook. Although technically payment flows might mean you don’t have payroll tax liability, leaving the other zebra stripes on the horse means a business will remain exposed to potential tax authority action in all sorts of ways.

According to Health and Life principal David Dahm, the QRO has done its homework in adding the new stuff. He says that apart from one key federal case which outlines the major taxation principles underlying the establishment of services entities – Federal Commissioner of Taxation v Phillips, 1978 – the ruling is capturing all the major precedents, and outlining clearly what does and does not constitute a service entity.

Notably there is detail in there which so far has been ignored by the RACGP and AMA and probably a lot of service entity-based practice businesses. For example, the ruling spends a good amount of time looking at how practices should be holding themselves out to the public in terms of advertising (essentially they shouldn’t, they should be advertising only to tenant doctors who want to locate in their centre), and goes into quite a bit of detail on how service entities should not be influencing billing practices in anyway by, for example, using centralised data management systems to understand how to optimise billings in a systematic way across a centre.

The ruling is likely going to create quite a bit of angst among some of the platform providers to the GP sector. Some may have to reconsider their current business models as a lot are still being used by service entity businesses in a manner that seems to conflict with the QRO ruling.

The ruling says you can’t be seen to be doing things like analysing billing patterns centrally and issuing new ways of working as a result among a tenant group, or for that matter, even booking their patients centrally.

Don’t panic yet, though. It seems likely that services like these might be handled in a detailed services contract with tenant doctors.

But there is some sorting out to do here.

Remember also, that the idea that payment flow adjustment might get you out of jail on payroll tax is only a QRO ruling idea so far. There is nothing to say other states won’t apply all the additional terms and conditions when assessing liability. In fact, in Victoria we see that the SRO has applied other terms in making assessments.

QRO was first to put out a payroll tax ruling and other states soon followed suit, each largely reproducing versions of what the QRO did.

If the pattern follows, it’s likely other states will start adding the same new detail to their rulings as well.

Which will mean that in every state those running services entity structures will have nowhere to hide in the longer term.

They will either have to fix their structures up, or find a way to transition to a payroll tax regime which as stated has its own serious issues in terms of potential ATO outcomes for tenant doctors.

FREE Webinar: A guide to tax (state and federal) for medical service centres and GPs 

Confused at all the back and forth from medical colleges, MDAs and state revenue offices on what does and doesn’t constitute tax compliance for a tenant doctor and a service entity acting as a landlord for tenant doctors? 

This FREE one-hour webinar hosted by The Medical Republic and featuring Health And Life principal David Dahm and Hamilton and Bailey solicitor Lukasz Wyszynski, a specialist in medical practice tax, will take you through all the case law and accounting principles that apply to you, including emerging law around ATO obligations for tenant doctors and the latest detailed ruling on payroll tax from the Queensland Revenue Office. 

Register HERE

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