With increased activity in NSW and Victoria, here are some risks and implications for GPs, and some actions you can take to mitigate them.
Recent court cases in NSW and Victoria have highlighted the importance of understanding and complying with state payroll tax regulations.
The Queensland Revenue Office has published a tax ruling to address this issue, which provides guidance and examples while considering various factors such as patient fee collection, practitioner payments, and the level of control exerted by medical practices.
This article aims to provide an overview of the risks and implications associated with state payroll tax GPs and medical practices and offers potential preventative actions to mitigate risks.
Compliance reviews
While Queensland has provided an amnesty for payments made to GPs until June 30, 2025, there is currently no indication from NSW and VIC regarding similar relief measures.
State revenue authorities have recently shown increased interest in this area. Medical practices and allied health businesses may expect to be contacted and requested to provide information on payments made to their employees and associated businesses, including non-employee doctors and other contractors. The purpose of this activity is to identify potential non-compliance with payroll tax obligations.
Selection criteria for review
Although specific criteria may vary, data matching is commonly used by state revenue authorities to select practices for compliance reviews.
The data is cross-referenced from different sources, such as payroll tax lodgements, Workcover remuneration certification, and third-party information, to identify inconsistencies or discrepancies. Additionally, there may be specific review programs targeting businesses in specific industries with certain turnover thresholds and other distinguishing characteristics.
Information requested during reviews
During a compliance review, the state revenue authority in your state is likely to request specific documents related to payroll, including payroll reports, annual financial statements, and records of payments made to contractors.
Additionally, information about the practice structure, copies of contracts, and agreements with practitioners may be required. If there is a closely associated business, review scope may be expanded, and information may be requested for the related party. Records may be requested for up to five years retrospectively.
Consequences
If, following a review, the relevant state revenue authority determines that payments made to doctors from the clinic are subject to payroll tax, and if these payments, combined with wages and superannuation for employees, exceed the payroll tax threshold for your state, the clinic will be liable for additional payroll tax.
The tax assessment may be retrospective and cover several years, which could be significant.
Depending on the circumstances, revision period, and severity of any non-compliance, penalties and interest charges may also apply.
Main areas of concern for GPs
If you are a practice owner with GPs operating out of your premises, it is crucial to be aware that payments made to the practitioners by the clinic could be considered payments under a “relevant contract”, and therefore subject to payroll tax in your state.
Here are some initial considerations to help you start navigating these concerns:
- How does the practice engage doctors?
- Assess whether the relationship between the clinic and GPs resembles an employer-employee relationship, or simply involves the use of clinic rooms.
- Consider factors such as annual leave approval, adherence to set business hours, and attendance at practice staff meetings.
- Ownership of patient records and other recordkeeping:
- Determine who owns the patient records – the clinic or individual doctors.
- Is the practitioner keeping their own business records or relying entirely on the clinic?
- Banking arrangements and fee collection:
- Evaluate how patient fees are collected and handled. Is the GP collecting fees and paying the clinic a service fee, or is the clinic collecting patient fees and making payments to the doctor?
- Website, marketing materials, and stationery:
- Examine how doctors are presented on the clinic’s website and marketing materials.
- Check whether there is an “Our Doctors” webpage and whether doctors use clinic-branded stationery.
- Review what details are listed on billing documents.
Preventative measures for GPs and practice owners
Given the complexity of payroll tax legislation, it is advisable to take proactive steps to assess whether your practice has any payroll tax non-compliance risks in your state.
Here are some recommended actions to be better prepared:
- Review your business structure and engagement terms with GPs.
- Review all supporting documents, such as contracts and service agreements, ensuring they are based on the most recent legal advice, are properly executed, and accurately reflect the arrangements in place.
- Review banking arrangements to ensure the flow of fees aligns with agreements in place.
- Review your website and other marketing materials to ensure consistency with your business structure and documentation.
- Seek specialist legal advice. If your business is exposed to payroll tax, there may be exemptions available that could reduce or minimise the tax payable.
To avoid unexpected payroll tax liability, GP practices should carefully review their structures, engagement with medical practitioners, and supporting documents. Seeking specialist legal advice and taking proactive measures can help mitigate risks and ensure compliance with state tax regulations.
Vladimir Khokhlov is a tax consultant with DPM, specialising in compliance and taxation issues in private practice.
Disclaimer: The information in this article is general in nature and is not intended to serve as legal or financial advice. It is intended for informational purposes only and it has not taken into account your personal circumstance. DPM Financial Services Group recommends you obtain advice concerning specific matters before making any decisions.
