Qld payroll tax ruling is one big bait and switch

11 minute read

This is a tactic to scare the horses and control the narrative, but practices don’t have to play their game.

When a Queensland AMA press release lobbed into the inbox on Sunday announcing a giant win for general practices and the AMA on payroll tax for doctors in that state you felt immediately that something was wrong.

We wrote about it here, here and here.

The key elements of the release are as follows:

Following AMA Queensland advocacy, the Queensland Revenue Office (QRO) has advised it will limit audits on GPs to the 2021-22 financial year and future years.

“We are beyond delighted that the QRO has listened to our sensible advice. This decision is a sensible first step to resolving this issue,” AMA Queensland President Dr Maria Boulton said.

“It gives GPs greater certainty about their financial futures and gives them time to comply with the new interpretation of tax laws.

But it did just about the opposite of offering certainty to Queensland doctors about their future and payroll tax.

Here is the letter from the QRO to the AMA Queensland, and here is the ruling itself.

The relevant parts of that letter from Queensland’s acting commissioner of State Revenue Amy Rosanowski are:

“…in view of the potential lack of awareness of the relevant contractor provisions amongst general practitioners, consideration has been given to limiting future QRO audit activity to a particular time period … I have decided that audit activity in relation to the application of the contractor provisions as they relate to general practitioners will be limited to the 2021–22 and subsequent financial years …”

In essence the Queensland government is trying to strike a deal with doctors along the lines of “OK, we get that payroll tax audits going back many years will create too much financial hardship and maybe disturb an already falling over GP sector further, so how about we agree to not audit you any more than two years, and you all start paying payroll tax?”

In a recent posting on the Australian GP Alliance facebook page, a senior Queensland AMA GP said that over 80% of GP practices in the state were likely not compliant for payroll tax as the AMA understood things.

Good for Qld government, not so good for GPs

The offer of not auditing before 2021 looks a lot like one largish bait and switch on the part of the QRO.

They are trying to get practices to give up and move en masse with the limited audit offer, when some practices are probably compliant anyway, and many others may just need to remediate messy past structures going forward to fix their issues.

“We won’t make you all go broke if you start paying the rent en masse” isn’t a good offer.

The QRO is feigning making a peace offering but so far it’s all upside for them.

If they didn’t make the 2021 audit offer, with their new ruling deeming most practices will likely need to pay up on payroll tax, they could easily wipe out more than half of their future planned payroll tax income by debilitating many practices with multi-year backwards audits.

So, as nice as the QRO wants to look, it’s a straight up win-win for them offering to not go backwards too far (it’s not a win for the state on other logic, if you read on).

A key commentator on medical payroll tax, Health and Life Advisory principal, David Dahm, tells TMR that the QRO ruling, though not to be ignored by any means, is “just a ruling, which in essence is someone’s interpretation of the law inside the Qld SRO”.

“It’s not law as none of their logic has been tested in the courts,” he says, or even in tribunals, like the precedent-setting Thomas and Naaz case.

“Some of that ruling doesn’t align to the case law or to what the ATO thinks.”

AMA playing into the hands of SROs with different agendas

Dahm notes that by engaging directly with the QRO and attempting to negotiate some sort of exemption, the AMA and to a lesser extent the RACGP have played into the QRO’s hands.

“It sounds like they’ve given the SRO generalised information about structures which won’t apply to all practices.

“[With] the AMA making themselves part of the process by which this ruling came about, many practices are going to think that’s it’s all over.

“It’s not. We know that every practice needs to be assessed on a case by case basis taking into account the ‘entirety’ of their set up.

“What the SRO is trying to do is herd 80% of Queensland’s practices in one go into giving up and paying payroll tax, when very likely many will not need to do this, and in fact doing it could lead them into more of a mess with the ATO.”

If practices do cave in and take the 2021 and prior audit offer of the QRO, the downstream impact of the decision on doctors working for practices might be horrific, and that impact will swing back on practice regardless of their decision to play ball with the QRO.

If a practice caves in and starts paying payroll tax, they effectively admit to the ATO that all their contractors were never contractors and instantly all those GPs will likely have a giant problem with the ATO on their past income tax assessments.

It’s difficult to understand how the QRO didn’t contemplate what might happen to all those GPs who once were supposed to be “contractors” and then are all suddenly “employees” and with that, what that problem might then end up doing to all those Queensland practices.

One explanation is that despite what many of the state governments are starting to say about them taking a leading position on saving general practice in lieu of the federal government treading water (where is the promised Strengthening Medicare Taskforce offer even, which was promised prior to the new year?), each state doesn’t actually care about GPs at all.

They just want the payroll tax money.

Charging payroll tax on GP practices at large is effectively the states saying they want a commission on a large proportion of Medicare transactions.

In other words, it’s a cynical money grab by the states for a bigger slice of Medicare.

Yet they say they genuinely care about the viability of general practice.

Obviously the ATO has not sent any letters to the Queensland AMA or GPs saying it is going to limit audits of all the personal income tax statements to 2021 if a practice suddenly gives into the QRO and starts paying payroll tax tomorrow.

If the QRO gets its way it will likely end up exposing every one of the contractors or tenant doctors of a Queensland practice that chooses to pay up to mass action from the ATO against all of these new “employees”.

The ATO is not likely to stop auditing these doctors at only July 2021.

Fallout from contractors being declared employees might be worse than payroll tax

As employees and not contractors running their own businesses, technically, all these doctors will have been making deductions illegally as businesses on their personal returns for up to decades. They’ve also been getting GST credits for a whole lot of stuff in this time remember which would also need to be reconciled.

All of it would need to be reversed somehow.

If it was true that over 80% of practices in Queensland are not set up correctly and would need to convert to paying payroll tax in lieu of restructuring their businesses properly as service entities, then that’s a lot of GPs in the ATO sights.

If the Queensland contagion were to spread to other states, as it feels likely to do if it starts, then that’s a giant chunk of the country’s entire GP network that might be in trouble.

The ATO has no remit to work with any of the state revenue offices and often will work in conflict with their rulings (and vice versa).

And if the ATO did start pulling the plug on all these new “employees” then those “employees” would likely want to go back to their new employer for reparation and legal recourse of some sort.

Although you can engage contractors legally and not pay superannuation and other normal employee entitlements, depending on structures and contracts, some practices may have to turn around and pay their doctors many years of superannuation, leave and long service leave as well.  

If practices thought payroll tax going backwards a few more years than 2021 was going to send them broke, and a limited payroll tax audit is a good offer, they probably need to think again.

Going this way, at speed, looks like a much bigger mess and problem for general practice.

Much, much bigger.

The QRO almost certainly hasn’t talked to the ATO about its decision, but you’d have to think it must have contemplated what could happen.

It makes this last line from Ms Rosanowski look pretty cynical:

“Lastly, I would like to thank you for working with QRO in providing greater certainty to medical practices on this issue and look forward to continuing that approach.”

Certainty for state revenues perhaps, but not for medical practices.

As things stand, Queensland has taken a messy situation and gone nuclear with it.

Repercussions will go well beyond Queensland

An important part of the QRO strategy is its decision to provide what it calls a ruling on payroll tax so practice owners have a much clearer idea of where they stand.

That ruling, again, is here.

It isn’t particularly usual for a state revenue office to provide a ruling like this because such a ruling provides potential hooks in any legal challenges.

As Dahm says, a ruling isn’t law, so what the SRO is saying in its ruling can be challenged in court and changed at some point of time.  

The problem for any GPs reading the ruling, and certainly for any corporate GP, is that it’s a fairly detailed treatise on why most of their practice structures aren’t going to pass an audit in Queensland and it looks like it’s been done in some sort of consultation with the AMA.

The bigger problem for Australia is that it’s also effectively going to end up as some sort of semi formal guideline for other state revenue offices and every GP practice in the country.

The NSW and Victorian offices would surely love that much of the dirty work and risk on scaring GP practices is being taken by Queensland.

These SROs just have to sit back and allow practices in their state to react in a similar way to what the QRO is pressuring practices in that state to do. It’s all new revenue at very little political risk to them.

Queensland’s ruling is almost certainly going to speed things up everywhere in country in that it should and likely will scare any practice left wondering if they should start shoring up their structures, or changing them substantively even, significantly.

Corporates look more black and white under the Queensland ruling

See yesterday’s story where I talk a bit about the case of Healius, now known as ForHealth.

Anyone following payroll tax interpretations of the last couple of years, and anyone reading this QRO ruling, might worry immediately that the QRO is saying that Healius has a construction of business which clearly says their doctors are employees, not tenants or contractors.

In other words, ForHealth needs to start paying payroll tax to the QRO and be prepared to cough up at least the last couple of years until 2021 in payroll tax.

If Queensland is insisting on ForHealth paying payroll tax, what is NSW, Victoria and every other state and territory likely to do?

And what is Queensland likely to do with the other 10 or so similarly structured GP corporates with reasonably similar corporate structure histories?

If they do move on the corporates, what then happens regarding the ATO and all the newly reclassified ex contractors who are now technically employees and therefore have to reconcile their back personal income tax statements for a decade or so?

This is one giant stinking mess.

But it’s not all over by a long shot.

The QRO ruling is not law, and in parts it is not even aligning with other cases of payroll tax precedent, or ATO rulings and federal tax law.

Some practices will be compliant and others may not be but should be able to remediate over time, if they spend a bit of time and money on their legal and accounting advice.

Simply caving into what is in effect a tactic to control the narrative and join a scared herd mentality is not the way most practices should be going.

Owners need to step back if they feel they might be in the firing line, get the right advice, and spend the money to adjust or fix their setups as real service entities, not medical practices.

It’s not the end of the payroll tax fight.

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