Payment flows matter when it comes to payroll tax

4 minute read

Three contractors working at the practices in the high-profile Thomas and Naaz case did not attract tax. Here’s why.

The names Thomas and Naaz might be associated with the phrase “big fat payroll tax bill” in most doctor’s minds right now, but three contractors at one of their practices did escape the scrutiny of Revenue NSW.  

The tribunal case, which clarified that contractors may be considered practice employees for the purposes of payroll tax, made headlines again last week when the NSW Court of Appeal threw out an application to appeal the original decision, which had already lost a tribunal appeal.   

The territories and all eastern states and South Australia have harmonised payroll tax laws, meaning the decision applies in every jurisdiction except Western Australia.  

Exact values differ state-to-state, but payroll tax generally represents about 5% of business turnover.  

So far though, Queensland is the only state to offer any concessions for doctors, having committed to amnesty until mid-2025 for practices that register with the Queensland Revenue Office.  

Guidelines and an expression of interest form for the Queensland tax amnesty period are now up and running, and don’t close until September.  

In a payroll tax webinar on Monday night, RACGP vice president Dr Bruce Willett urged GPs to think carefully, pointing out that applying for amnesty implies there is a liability to begin with.  

“I would urge people … to use that time to consult their legal and accounting experts before they even put in those expressions of interest because it’s clearly a double-edged sword in terms of applying for those amnesties,” he said. 

Dr Willett also said there were a “whole lot of supposedly very simple solutions” being proposed, and that he felt it was unlikely that the solution to payroll tax would be simple.  

The presentation, which was general information only and not intended to be taken as financial or legal advice, was hosted by chartered accountancy firm William Buck and medical defence organisation Avant Mutual.  

Avant Law senior associate Ben Ryan focused on the issue of payment flows, one of the key areas of the decision to dismiss the Thomas and Naaz application.  

In that case, the practice was the entity receiving the patient’s payment for services, and the doctors would then be paid their 70% share of that billing by the practice.  

Three practitioners – who were not GPs – did it the opposite way, receiving direct payment from the patient and remitting 30% back to the practice. They were never included in the tax audit. 

“Those three doctors had the same terms as all of the other doctors in the practice,” he said. 

“The revenue office didn’t even look at them in the first instance, and now you have the Court of Appeal saying very clearly in black and white [at paragraph 67] that those three doctors weren’t included in the calculation of assessable wages and weren’t considered to be subject to the deeming provisions … that’s about as clear as you can possibly get from a court.” 

“As there’s no payment being made by the practice to the doctor,” Mr Ryan said, “there can be no wages paid and there can be no [application] of the payroll tax legislation with the purpose of calculating payroll tax.” 

Still, as Dr Willett cautioned, the fix may not be quite that quick.  

“You still will need to have properly documented service agreements in place to protect yourself from other arrangements with the doctors and to evidence what you’re putting into place,” William Buck director of business advisory Paul Copeland said.  

“The cash flow solution on its own – without other documentation, correct accounting and so on – is not going to be your magic bullet.” 

Multi-merchant payment services do exist on the market, but Surgical Partners CEO Marcus Wilson, who also spoke at the Monday night webinar, said they were far from perfect.  

“There’ll be under[payments] and over[payments], but it’s good that there’s at least a starting point available in the market with some of these payment solutions,” he said.  

“I just want to flag also that under this model, service fee calculation is absolutely automatable and there are services in the market which will automatically apply your contractual service fees.”  

Setting up all the different doctors’ separate accounts, he added, is a painful process.  

Refunds, WorkCover payments and deposits or prepayments are also difficult to integrate into a multi-merchant payment system.  

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