Practice software could ping you for payroll tax

5 minute read

Used the wrong way, some popular products can provide a detailed audit trail of non-compliance on payroll tax.

Last month’s RACGP Practice Owners Conference (PONC) in Adelaide featured a program dominated by talk of payroll tax audits, and how the profession might best address a rapidly widening issue.

On stage key RACGP representatives were still running a line that the government needed to address what they feel is a “reinterpretation” of payroll tax law and subsequent ramping up of audits by the various state revenue offices.

This is despite nearly every state revenue office saying they won’t be backing away from how the law is being applied in their respective states.

“It undermines the government’s Medicare reforms and recent significant investment in general practice care in the budget,” RACGP president Dr Nicole Higgins told the audience.

“The RACGP is continuing to urge state and territory governments to put a stop to it.”

Offstage, among delegates and some exhibitors, there was a lot of talk about a future in which the government doesn’t respond to calls from the AMA and the RACGP to change payroll tax law for GPs.

In this discussion, a new and potentially worrying aspect of the payroll tax problem for practices emerged – that certain popular software products used by many practices could create a detailed and damning audit trail for SROs if a practice was using the software the wrong way.

Such a problem would most likely apply to practices running a “services entity” business model, whereby most of its doctors are being paid as contractors, or “tenants”.

Some software products cited as being able to get practices into trouble if not used correctly include the popular and market leading business intelligence application Cubiko, Medical Directors’ new SMART Medical Director (it’s new but its marketing spiel has a feel of Cubiko lite and it’s free) and KPeyes, a product which has some Cubiko functionality combined with payment type functions not disimilar to those in a payments product Surgical Partners.

KPeyes describes itself as “a comprehensive analytics and automation tool for medical practices. Integrated with your practice’s software, KPeyes streamlines financial operations, automating administrative tasks and providing insights to optimise your practice’s success”.

It was clear from the discussions taking place at PONC that it was not just these products that could be potentially misused by a practice.

According to one source, even the major patient management system platforms could be audited and get a practice into trouble if they were using them in a way that made it look like individual contract doctors were not calling the shots themselves on optimising billing and managing their own patient flow.

Cubiko founder and CEO Chris Smeed acknowledged to TMR that the problem was a factor in the market now.

But he said that for some time now Cubiko has offered a model in which individual contract doctors within a practice could be given sole access to the tool for their own use, with the data not being available to any other doctors or practice managers.

In this way, a practice could not be seen to be controlling or attempting to optimise billings from the middle, which is the main way practices could get themselves into trouble.

“Cubiko is customisable and can be set up so individual doctors can only see their individual reports, data and insights,” Mr Smeed said.

“There are a number of business models across general practice. How Cubiko is used by GPs or the wider care team should be aligned with their own business model and patient care model.”

He added that Cubiko had always recommended that clients obtain expert accounting and legal advice on the business model of their general practice and that the product was deliberately flexible to meet various models of practice management.

“The aim of Cubiko is to assist the whole of general practice in delivering first-class patient care and to remain financially sustainable in a time of great stress – whatever the business model,” he said.

According to long-time medical practice advisory principal and accountant (and an outspoken commentator on payroll tax) David Dahm, the problem for practices could occur if they were running a “services entity” model and at the same time using software like Cubiko, Smart Medical Director and KPeyes to optimise billings and manage various types of patient flow on behalf of all their tenant GPs.

Mr Dahm told TMR that regardless of what contracts or agreements a practice had in place, how they actually ran your practice on a day-to-day basis could create a payroll or income tax problem.

“It is not a good idea to have your practice manager or staff constantly analysing how many care plans a doctor needs to do, and then ensuring they do them to raise their income,” he said.

He said that it was still acceptable to analyse service fees if practice had a service entity (that is, a “tenant doctor” arrangement) but going beyond that and influencing or directing any changes at the tenant doctor level could change the entire nature and extent of the relationship beyond a landlord-tenant or service office arrangement.

Mr Dahm advised practice owners and managers to review the Queensland Revenue Office ruling, in particular its reference to the Commissioner of Taxation v Healius Ltd [2020] FCAFC 173 (9 October 2020 para 123), to provide some legal guidance as to what they may deem as a “medical centre” for payroll tax purposes.

“[It is] important not to set billing targets or an expectation or determine billing methodology,” he said.

“The practitioner should be responsible for marketing and setting prices and not the service entity.”

TMR put questions similar to those posed to Cubiko to Medical Director about its new SMART product but had not received a response at the time of going to press.

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