… then the ATO’s position on practice contracts should.
The Australian Tax Office could make general practice’s payroll tax problem look like a cinch, with signs that the national revenue collection agency could turn its sights on businesses that treat contractors as employees.
Those medical practices could end up on the hook not only for backdated payroll tax (5% of GP wages) but also backdated superannuation (11% of GP wages) as well as pay as you go tax withholding and holiday and sick leave.
This latest twist in the payroll tax saga kicked off with the ATO’s release of a new piece of guidance, Practical Compliance Guideline (PCG) 2023/2, clarifying how it will judge whether certain workers are employees or contractors.
The guideline is consistent with findings from payroll tax cases like Thomas and Naaz in as much as an employee or contractor relationship would be judged by the totality of circumstances, rather than what was written in the contract.
The RACGP and AMA have been vocal about the fact that a backdated payroll tax bill alone could sink a clinic.
It doesn’t seem likely, then, that many practices would survive an order to pay out super, let alone meet the other obligations that come with being considered an employer by the tax man.
“[When dealing with the ATO,] the amounts are much bigger,” DPM tax consultant Vladimir Khokhlov told The Medical Republic.
“With superannuation, if it wasn’t paid to an employee … the [practice owners] under certain circumstances may be personally liable, which is significantly high risk.
“It’s pretty serious.”
There have been no reports yet of individual medical centres being ATO-audited.
Normally, according to the ATO guidelines, the agency tends to select businesses for audit based on “particular risk factors” or if a worker comes forward with an unpaid superannuation query.
Mr Khokhlov said the ATO would likely collect information from a range of sources and that “there is a lot of data matching going on”, particularly around WorkCover.
“If an employee is reporting their wages through, say, WorkCover and there’s a mismatch of data – because contractors should be included in WorkCover in some circumstances – I would expect that the ATO may also follow that up,” he said.
At this stage, Mr Khokhlov said he was not aware of state revenue offices sharing data with the ATO.
“But I think a lot of governments are increasingly connecting the data sources, so there is the possibility,” he said.
“There’s a certain connection, I believe, between WorkCover and state payroll tax.
“I don’t know whether it also directly connects to the ATO but I wouldn’t be surprised – that’s my personal opinion.”
Like payroll tax, the ATO tax issues centre on a business being able to prove that it isn’t an employer.
The fix, therefore, also begins with looking at contracts.
“Probably the main message here is that if there’s a medical practice or specialist practice that has never invested time or money into documenting their relationship with a worker, whether that’s their employees or their doctors, they should certainly be worried,” Mr Khokhlov said.
“They should have that reviewed as soon as possible and tidy up any documents that they may be missing.”