Payment flows will be the first port of call during an audit but are not the be all and end all.
The New South Wales state revenue office has “no intention” of following Queensland’s lead in adopting a comprehensive public ruling on payroll tax as it applies to medical centres, according to Revenue NSW commissioner Cullen Smythe.
Instead, the state will stick to the more bare-bones ruling it adopted last month, which itself was a carbon copy of a ruling made by Queensland at the end of last year. Last week, Queensland released a new, more detailed ruling that superseded this version, but only within Queensland.
Addressing a webinar facilitated by the RACGP in partnership with accounting firm William Buck on Tuesday night, Mr Smythe warned GPs that the revenue office would also be looking at whether practices are violating anti-avoidance laws.
The upshot of NSW not adopting the new Queensland ruling is that there is far less certainty around what processes and systems will not result in a finding that a medical centre is operating as an employer toward its contractor doctors and therefore owes payroll tax.
The good news is that having a payment flow where money from the patient goes directly to the doctor who then directly pays the practice – while not being a get-out-of-jail-free card – does appear to carry significant weight for Revenue NSW.
“That’s one of the first things that we’ll be looking at and it was one of the things that … the courts have looked at and placed a lot of store on,” Mr Smythe said.
“So the easiest answer … is if we have the funds coming directly to the doctor and the doctor was to pay some money over to the medical centre for hiring out the rooms and for admin support, that’s a good starting point to show that it really is an independent operation.”
But Mr Smythe was clear that this won’t be the only factor that Revenue NSW will consider.
“[Payment flow] by itself will not necessarily be enough, not if the other elements of your arrangement are set up in such a way that you really are operating as or providing services to the medical centre that then provides the services out to individual patients,” he said.
Mr Smythe didn’t speculate any further as to what those other elements might be.
While it is by no means gospel for NSW, attachment 2 of the new Queensland ruling does go into detail on nine factors that the state’s revenue office will consider when judging whether a practice is acting as an employer.
These include whether the practice imposes leave policies, exclusivity clauses and operating protocols like sign-in sign-out procedures on tenant doctors.
The second big takeaway to come out of Monday night’s webinar was on steering clear of tax avoidance laws.
These laws, Mr Smythe said, are designed to capture not only out-and-out criminals, but also businesses going out and changing their affairs in such a way that no tax is payable when otherwise it should have been paid.
Medical centres that change their structure by, say, having payments from patients go directly to the doctor, could find themselves in hot water if the revenue office determines that the “dominant” or sole reason that they have done that is to pay less tax or to avoid tax altogether.
Luckily, there are caveats. The biggest of these is NSW’s year-long pause on auditing medical centres.
The pause, which the state government passed as an amendment to the Revenue, Fines and Other Legislation Amendment Bill 2023, forbids the state revenue office from conducting an audit of a GP or GP practice in relation to compliance with the Payroll Tax Act 2007 for one year.
It also paused tax penalties and interest accrued on outstanding payroll tax debts incurred before and at the commencement of the pause period.
“It’s clear that one of the reasons for the pause … was to make sure that the practice owners and doctors had a chance to go and look at their arrangements and work out whether or not these accurately reflect how the business is meant to be run and, if not, to fix them up,” Mr Smythe said.
Effectively, if it’s a situation where an ordinary person would consider a practitioner to be independent of the practice but the practice’s arrangement has inadvertently strayed into an employment-type arrangement, fixing the payment structures shouldn’t trigger anti-avoidance provisions.
Not every practice will be able to do this.
“If someone is an employee now, and the practice uses the 12 month period to … put some slightly creative artistic structures or arrangements in place so that people are no longer employees, but effectively they’re doing the same thing and are getting the same money,” Mr Smythe said, “that’s the sort of situation where we would look to apply the anti-avoidance provisions.”
The tax commissioner also dismissed rumours that there was a coordinated campaign amongst revenue offices to target general practice with payroll tax audits, urging audiences not to believe “doom merchants” stirring up panic.
Less than half of all audits carried out in NSW over the last three years, he said, had resulted in any payroll tax liability.
“Just keep that in mind, even if you are the subject of an audit at some time in the future,” Mr Smythe said.
Revenue NSW also has an online private ruling portal that businesses can use to engage with the tax office and work out whether they may be non-compliant.
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